Key Takeaways:
Prepaid solar leases and prepaid solar PPAs represent a compelling option for homeowners looking to invest in solar energy without the burden of ongoing monthly payments. With a history rooted in the solar industry and evolving to meet current market demands, these systems can offer significant savings and potential ownership benefits. However, there are some red flags to watch out for, so homeowners should carefully evaluate their options, focusing on transparency and value to ensure they make the most informed decision.
Prepaid third-party owned (TPO) solar systems, meaning prepaid solar leases and prepaid solar PPAs, have emerged as an attractive option for homeowners looking to invest in renewable energy. We recently sat down with Chris Markowski, Solar Insure Account Executive, to get insight from the field and clarify what prepaid leases/PPAs are, how they work, their historical context, and if they might be the right choice for you.
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What is Prepaid TPO?
Prepaid TPO is a solar financing product in which homeowners pay a lump sum upfront for the installation and maintenance of a solar system. Unlike traditional leases or power purchase agreements (PPAs) that require monthly payments, prepaid TPO allows homeowners to prepay for their solar energy system, often leading to lower overall costs.
With the end of the federal solar tax credit on December 31st, 2025, homeowners purchasing solar with cash or financing are no longer eligible to claim the 30% tax credit. The solar tax credit for businesses, however, is still available until December 31, 2027. Prepaid solar leases and PPAs are designed to allow homeowners to benefit from part of the tax credit when they decide to make the switch to solar.
The History of Prepaid TPO
Although prepaid TPO systems are gaining popularity now, they have been around for well over a decade. Historically, big players in the solar industry, such as Sunrun and SunPower, offered these options alongside their other lease options. Prepaid options weren’t always a favorite among homeowners, especially those who wanted a simple monthly payment lower than their current electric bill.
However, due to policy changes affecting the investment tax credit, these prepaid options are becoming increasingly relevant. Chris points out in the interview above that many homeowners who previously would have purchased systems outright are now looking to prepaid TPOs as a viable alternative, especially as they seek to maximize their savings.
How Prepaid TPO Works
In a prepaid TPO agreement, the solar company retains ownership of the system while the homeowner benefits from the energy produced. The solar company often takes advantage of tax credits and passes the savings on to the homeowner, effectively lowering the initial investment.
Much like traditional leases that incorporate the tax credit value into the monthly payment, prepaid solar leases can incorporate it into the total purchase price. For example, if the system costs $30,000, the company receives a tax credit of $9,000. The company could discount part of all of that credit into the system price the homeowner pays upfront.
This arrangement allows homeowners to enjoy energy savings and tax credit benefits while also having the option to transition into ownership of the system after a certain period, typically between five to ten years.
How Prepaid Solar Leases Are Changing
In the past, many prepaid solar lease and prepaid solar PPA options functioned like traditional leases. The installer or financier would own the equipment for a 20 to 25-year term, provide maintenance during that time, and some would even provide production guarantees.
However, some newer versions of prepaid solar leases are opting for shorter term lengths and a push for customer ownership. Some of the newer prepaid solar leases rising in popularity have term lengths of 5 to 10 years, at the end of which the homeowner can buy out the system to have ownership transferred to them.
So why the shorter term length? It all has to do with tax credits. The installer or financier can claim the business tax credit and a depreciation tax credit over a 5-year term. By the end of that term, rather than carry service liability, the company can transfer ownership to the homeowner. This makes it vitally important that this type of lease is backed up with strong warranty protections.
What to Consider Before Choosing a Prepaid Solar Lease
If you are considering a prepaid TPO system, it is crucial to understand your obligations as well as the provider’s responsibilities. From our conversation with Chris, he advises homeowners to ensure clarity in contracts regarding installation, maintenance, and warranties. Transparency in pricing is also essential to avoid inflated costs that could diminish the value of this financing method. As homeowners navigate the solar market, they should prioritize options that offer the best overall value.
Homeowners looking to go solar should always seek multiple quotes to determine what the best option is for them. While an option to take advantage of tax credits sounds beneficial, in some cases, homeowners can benefit more from simply purchasing the system outright via cash or financing. It’s important to note that if your state offers additional solar incentives, the installing company that originally owns your equipment also gets to take advantage of those.
Take Illinois, for example: Illinois has a strong Solar Renewable Energy Credit (SREC) incentive that pays direct cash to homeowners who install solar, along with other utility incentives depending on the equipment installed. Even without a federal solar tax credit, a homeowner in Illinois could potentially get a lot of credit from the state if they own their system.
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