Solar PPA vs Lease: Which Is Better for California Homeowners? (2026)

If you don't want to pay for a solar system outright or get a loan, you have two main options: a power purchase agreement (PPA) or a lease. Both let a third party own and maintain the system while you benefit from lower electricity bills. But they're structured differently, have different costs, and perform differently if you sell your home. This guide explains how each works, compares them directly, and helps you decide which is the better fit for your situation.

How a Solar PPA Works

In a PPA (Power Purchase Agreement), the solar provider owns the system and sells you the electricity it produces. You pay only for the power generated — not for the system itself.

Typical PPA terms: You agree to a 20-25 year contract at a fixed price per kilowatt-hour (kWh), usually 8-15 cents at signing (California average is around 10-12 cents). The rate increases 1-3% annually, typically tied to inflation. You pay based only on what the system produces — if it's cloudy, you produce less and pay less that month.

Example: Your PPA is priced at 12 cents per kWh. Your system produces 800 kWh in a given month. Your bill for solar electricity is $96 (800 × $0.12). If you also consumed 300 kWh from the grid at 40 cents/kWh, your total electricity bill is $216 ($96 solar + $120 grid).

How a Solar Lease Works

In a lease, the solar provider owns the system and you pay a fixed monthly fee to use it, regardless of how much electricity it produces.

Typical lease terms: You agree to a 20-25 year lease with a fixed monthly payment (often $100-$250/month depending on system size), which may escalate 1-3% annually. You pay the same amount whether the system produces a lot or very little that month (though in practice, production is predictable, so providers size the payment to match typical generation).

Example: Your lease payment is $150 per month. Whether the system produces 600 kWh or 900 kWh that month, you pay $150. If you also consumed 300 kWh from the grid at 40 cents, your total bill is $270 ($150 lease + $120 grid).

Which Produces More Savings: PPA or Lease?

Both produce significant savings, but the math depends on your consumption pattern. For a typical household using 700+ kWh per month with predictable production, the difference is small (often 10-15% variation). Here's why:

PPA advantage: You pay only for what's produced. If a cloudy month produces 30% less, your bill is proportionally lower. You share in the upside of high production months.

Lease advantage: Fixed payments are easier to budget and often lower upfront because the provider has certainty of revenue. Some leases also include performance guarantees — if the system underproduces below a minimum, the provider credits you the difference.

In practice, PPAs are now more common in California, especially "prepaid PPAs" where you pay a lump sum upfront in exchange for very low per-kWh rates thereafter. These tend to produce slightly better savings than leases.

Side-by-Side Comparison Table

Home Sale Impact: Critical Difference

The most important consideration for many homeowners is what happens if they sell. Both PPAs and leases are contractual obligations that tie to the property, not the person.

Best case: The buyer assumes the contract (takes over your PPA or lease). This is often seamless and actually helps the buyer because they inherit lower electricity rates. Both PPAs and leases transfer the same way.

If the buyer won't assume it: You can usually pay a buyout fee to terminate the contract early. Typical buyout fees are 50-70% of the remaining net present value of the contract. For example, if you have 15 years left on a $150/month lease, the buyout might be $12,000-$18,000. This is a cost you're responsible for unless you negotiate it into the sale price.

Key point: Most homebuyers today understand that solar with a transferable PPA or lease is actually a selling feature (lower electricity bills), so contracts transfer smoothly in most California sales. However, it is a contingency to negotiate during sale.

Which Is More Common in 2026?

PPAs now dominate the California residential solar market, especially prepaid PPAs. Leases are less common and are mostly offered by established companies. This shift happened because PPAs offer more flexibility (pay per kWh produced) and align better with NEM 3.0, where overproduction is less valuable. If you're shopping, you'll find more PPA options, better pricing on PPAs, and more installer competition on PPA terms.

Which Should You Choose?

Choose a PPA if: You have variable monthly usage (seasonal variation), you prefer to pay only for production, or you want slightly better long-term savings. PPAs are also more readily available today.

Choose a lease if: You strongly prefer fixed monthly payments for budgeting predictability, or the lease provider offers a performance guarantee that appeals to you. Leases can also sometimes offer a lower monthly payment than a PPA's equivalent cost, depending on pricing.

In practice: The difference is small. Get quotes for both (if available) and compare the 25-year net present value. Usually, they're within 5-10% of each other. Choose the one that fits your cash flow and risk tolerance better.

The Bottom Line

PPAs and leases are both solid no-money-down options for California homeowners. PPAs are now more common and typically offer slightly better long-term savings. Leases provide fixed monthly budgeting and are available through established providers. The real difference comes down to preference for variable vs. fixed payments and your situation with home sales (both transfer to buyers easily in most California markets). Get quotes for whichever option your provider offers, compare the per-kWh cost or monthly payment against your current utility rates, and make sure the contract terms (escalator rate, contract length, buyout fees) are clearly explained. The difference between a great PPA and a mediocre one is often bigger than the difference between a great PPA and a great lease, so focus on getting the best terms available to you.