Is This Your Problem?
Solar leases and power purchase agreements keep the tax credits with the third-party owner and often contain 1% to 3% annual escalators that erode savings.
Get Matched With a Local ProA lease and a power purchase agreement are both third-party ownership products, and the one structural fact that decides whether they are good value is who owns the equipment. The owner is the party that claims the tax credits and depreciates the asset. The homeowner gets a lower or zero upfront cost, a monthly figure attached to that array, and an annual escalator that raises the payment on a schedule that has nothing to do with the utility's own rates. That escalator commonly runs from 1% to 3% a year.
How Third-Party Ownership Works
In a lease you rent the equipment. In a power purchase agreement you buy the electricity it produces, usually at a rate per kilowatt-hour that starts below the utility's and escalates. In both cases the third party owns the system on your roof, claims the tax credits that attach to ownership, and holds the depreciation. The homeowner's benefit is real and should not be dismissed: no capital outlay, no maintenance responsibility on paper, and a bill that can drop in the first year. The homeowner's cost is structural. No credits, no equity, and no ownership of an asset that will still be producing in year 25.
The escalator is the pricing engine of these products. A lease or power purchase agreement that starts below the utility rate and climbs a fixed percentage every year can look cheaper than the utility in year one and more expensive than the utility by the middle of the term, because the escalation is contractual while the utility comparison is an estimate. This site's own financing model shows the shape plainly: utility rates assumed to rise at about 3.5% a year against a lease escalator of 2.5%. With escalation outrunning nothing, the lease line drifts up slowly, while the cash buyer's cumulative return over 25 years reaches about $25,800 and the loan buyer's about $19,050. The lease holder keeps the bill relief and never touches the credit.
There is a second group of costs that is easy to miss on the day of the sale and expensive at resale. A third-party agreement recorded against a property can complicate a sale, because the buyer has to agree to assume the lease or the power purchase agreement, and some buyers will not. Liens and financing agreements that made homes difficult to sell have been the subject of federal enforcement in this industry. A homeowner planning to move within ten years should treat transferability as one of the terms that decides the deal, not as an administrative detail to sort out at closing.
| Annual escalator | Payment in year 10 | Payment in year 25 | Total paid over 25 years |
|---|---|---|---|
| 1% (low end of the source range) | $109 | $127 | $33,892 |
| 2% | $120 | $161 | $38,436 |
| 2.5% (the escalator in this site's own financing model) | $125 | $181 | $40,989 |
| 3% (high end of the source range) | $130 | $203 | $43,751 |
Basis: a $100 starting monthly payment escalating once a year, summed across 300 monthly payments. The source range for annual escalators in residential leases and power purchase agreements is 1% to 3%. Multiply the row by your own starting payment: a $180 monthly payment with a 3% escalator is over $360 a month in year 25, and about $78,700 in total payments.
What You Forfeit, and What It Is Worth
Incentives in residential solar attach to ownership. The federal credit is claimed on a tax return by whoever owns the system, and a third-party owner is not passing that credit to you in the form of a cheque; it is the reason their pricing works at all. Arizona's credit for residential solar devices works on the same principle: 25% of the cost of the device, capped at $1,000 for the residence, claimed against state income tax by the owner of that device, with unused amounts carried forward up to five consecutive years. On a lease or a power purchase agreement the homeowner is not the owner, and that credit is not the homeowner's to claim.
Ownership also carries the residual value. A purchased array is part of the property, adds to what a buyer is acquiring, and keeps producing for its full service life. Nothing about a lease or a power purchase agreement holds residual value for the homeowner, because the equipment was never theirs. Over a 25-year window the difference between $25,800 of cumulative return on a cash purchase and a lease that "stays near break-even" is not a pricing detail; it is the entire proposition.
This does not make the products wrong for every household. A household that cannot use a tax credit at all, or that cannot put capital into a roof it may leave in a few years, can still be better off with reduced bills than with no system. The defect is not the structure. The defect is a sale that presents a third-party product as though it were the same purchase the neighbour made, at the same value, with the same incentives.
| Structure | Owns the array | Claims the tax credits | Arizona solar credit | What you hold at the end |
|---|---|---|---|---|
| Cash purchase | You | You | Yours to claim, 25% of device cost capped at $1,000 per residence | The asset, the production and the property value |
| Solar loan | You | You | Yours to claim on the same basis | The asset, net of the interest you paid |
| Lease | The third party | The third party | Not the homeowner's to claim | Nothing. Payments end and the equipment is removed or bought out |
| Power purchase agreement | The third party | The third party | Not the homeowner's to claim | Nothing. You bought kilowatt-hours, not hardware |
Read the third column before the monthly payment. It is the column that determines what the 25-year return looks like, and it is the column a sales presentation is least likely to put in a table.
The Contract Terms That Decide the Deal
Lease and power purchase agreements live or die on eight lines of fine print. Ask for all eight in the document you sign, not in the presentation you receive. If any of them is answered verbally, treat it as absent, because the document is what a successor company will enforce if the original owner sells the portfolio, and third-party portfolios are routinely sold.
- The escalator: the annual percentage, written on the payment schedule page, plus the year-by-year payment amounts.
- The term and the total of payments: how many years, and the sum of every payment you will make.
- The buyout: a formula or a dollar table by year. A buyout described only as fair market value is not a number you can plan around.
- The production guarantee: a guaranteed annual kilowatt-hour figure, and what credit you receive if the system produces less than that.
- Transfer on sale: whether a buyer must assume the agreement, and what the homeowner owes if no buyer will.
- Any lien, UCC filing or fixture filing recorded against the property, and what is required to release it.
- End-of-term removal and roof restoration: who pays, and by when.
- Insurance and damage: who insures the equipment, and who repairs roof damage from the array.
| Term | What to find in writing | Red flag |
|---|---|---|
| Escalator | The annual percentage on the payment schedule, with amounts by year | "Annual increases may apply" with no percentage and no schedule |
| Term and total | Years and the sum of all payments over the term | A 25-year term on an 8 kW array with no total disclosed |
| Buyout | A dollar table by year, or a stated formula | A buyout quoted by voice, or defined only as fair market value |
| Production guarantee | Guaranteed annual kWh, plus the credit when production falls short | No production number at all, or a guarantee measured on a system you cannot audit |
| Transfer on sale | What a buyer must qualify for, and the homeowner's liability if none does | "The buyer just takes it over" with nothing in writing |
| Lien or fixture filing | Whether one is recorded, and the release conditions | Discovered at closing |
| End of term | Who removes the equipment and who makes the roof good | Silence on removal and roof restoration |
| Insurance | The party insuring the equipment and handling roof repairs | "Your homeowners policy covers it", stated without checking |
The Questions to Ask Before You Sign a Lease or PPA
These are the questions that turn a smooth presentation into an auditable offer. Each one has a document behind it, and a company that sells these products honestly will produce all of them without complaint.
- Who is the legal owner of the equipment, and what is that entity's name?
- Which tax credits does the owner claim, and is any of that benefit passed to me in writing?
- What is the escalator, as a percentage, and what is my payment in year 1, year 10 and year 25?
- What is the total of all payments over the full term?
- What is the buyout price in each year, in dollars?
- What happens if the system produces less than the estimate? Show me the production guarantee.
- What happens if I sell the house in year 5?
- Is a lien or fixture filing recorded on my property, and who removes it and when?
Then run the alternative. Ask the same company to price the same array as a purchase, with the credits claimed by you, so you can see both structures against one set of numbers rather than against two sales presentations. This site publishes the comparison in full, including the 25-year curves for cash, loan, lease and power purchase agreement on one fixed 8 kW baseline. Run your own bill through it before you decide, because the answer changes with your tax position and your timeline, and it should be your answer rather than the salesperson's.
How Much Does Each Structure Cost in Flagstaff?
On the model this site uses, an 8 kW system is priced at $20,480 gross, or $2.56 per watt, with five itemised buckets. Buy it outright and the modelled cumulative return over 25 years is about $25,800, with break-even in year 7. Finance it and the figure is about $19,050 after interest. Lease it or buy the output through a power purchase agreement and the modelled result stays near break-even, because the credits and the equity are on the other side of the contract. Those three numbers, on one array, are the financial content of the ownership question.
Our matching service will get you quotes for both structures from pre-vetted Flagstaff installers, each verified for Arizona licensing, insurance and customer references, at no cost and with no obligation. Ask everyone the same eight questions in Table 3 and compare the answers, not the presentations. Call (928) 698-6192 or use the form on this page.
Services That Fix This
Residential Solar Installation
Ownership quotes with the credits claimed by you.
Solar Battery Storage
Storage you own outright, priced separately.
Off-Grid Solar Systems
Independent systems with no third-party agreement.