A solar power purchase agreement (PPA) is a contract where a solar company installs, owns, and maintains the panels on your roof — and you buy the electricity they produce at a set price per kilowatt-hour, usually below what SCE or LADWP charges. You buy the power, not the panels. Nothing down, and the equipment is never your problem.
That one sentence answers most of the confusion around PPAs. The rest of this guide covers the details that actually decide whether a specific PPA is a good deal: the rate, the escalator, what happens at the end, and the red flags that separate a fair contract from a bad one.
You buy the power, not the panels
Under a PPA, a third party — the solar provider or its financing partner — owns the system on your roof. You host it and agree to buy its output for the length of the contract, typically 20 to 25 years. You never own the equipment, which is exactly why there is no upfront cost.
Ownership matters because it sets the incentives. The provider only earns money when your system produces power, so keeping it producing is their job, not yours. If an inverter fails, they lose revenue every day it sits broken — which is why maintenance and repairs are included in nearly every PPA.
How the PPA rate compares to your utility rate
A PPA charges you per kilowatt-hour the system actually generates. Your savings are the gap between that contract rate and what SCE or LADWP would have charged you for the same power. Utility rates in Los Angeles are among the highest in the country and have climbed repeatedly in recent years; your PPA rate is set by contract, so the gap tends to widen over time.
Three numbers tell you whether a PPA quote is worth signing:
- The year-1 rate. It should sit clearly below your current utility rate — not at it, not near it.
- The escalator (covered next), which controls where that rate goes over 25 years.
- A side-by-side against your last 12 months of usage. Any honest provider will walk you through the math on your actual bills, not a generic example home.
Escalators: the number to check hardest
An escalator is the fixed percentage your PPA rate rises each year. Most contracts use something between 0% and 3% annually; some are flat-rate with no escalator at all, and those are worth asking for.
Small percentages compound. As example math: a rate of $0.25 per kilowatt-hour with a 2.9% annual escalator roughly doubles to about $0.50 by year 25. That can still beat the utility — but only if utility rates keep rising faster than your escalator. That is the bet you are making when you sign.
The practical rule: the lower the escalator, the safer the contract. An escalator above about 3% shifts the risk onto you, and a high starting rate combined with a high escalator can erase your savings in the back half of the term.
Maintenance, monitoring, and repairs are included
Because the provider owns the system, the provider maintains it. A standard PPA includes monitoring, repairs, and inverter replacement for the full term at no cost to you. Many also include a production guarantee: if the system generates less than a promised amount in a year, you get compensated for the shortfall.
You still have one job — glance at the monitoring app now and then. Providers watch their fleets, but nobody notices a problem faster than the person whose roof it sits on. If you want to understand what upkeep costs when you do own a system, see our guide to solar panel maintenance costs.
What happens at the end of a PPA
At the end of the term — usually 20 or 25 years — you typically have three options:
- Renew or extend the agreement, often at a lower rate, since the equipment is fully depreciated.
- Buy the system at fair market value, which is modest for 25-year-old equipment.
- Have it removed. Check that the contract makes removal the provider's cost, not yours.
If you sell your home before the term ends, the PPA either transfers to the buyer (who usually passes a simple credit check) or you buy the system out and include it in the sale. Get the transfer terms in writing before you sign — it is a routine process with a good provider and a headache with a bad one.
PPA vs. lease vs. loan
| PPA | Solar lease | Loan / cash | |
|---|---|---|---|
| Who owns the system | The provider | The provider | You |
| What you pay | Per kWh actually produced | Fixed monthly payment | Loan payment or upfront cash |
| Maintenance & repairs | Included | Included | Your responsibility |
| Incentives | Captured by the owner, passed through in the rate | Captured by the owner, passed through in the payment | The homeowner purchase credit (25D) ended Dec 31, 2025 |
| Best fit | No upfront cost, pay only for what's produced | No upfront cost, predictable flat payment | Long-term ownership and maximum lifetime savings |
The PPA-vs-lease difference is subtle: a lease charges the same every month regardless of production, while a PPA only bills for power actually generated. For a deeper look at the ownership question, read our solar lease vs. buy comparison.
Red flags in a bad PPA
Most PPAs are fair contracts. The bad ones share recognizable patterns. Walk away, or at least slow down, if you see:
- An escalator above 3%. The compounding math works against you.
- A year-1 rate at or above your current utility rate. You would be locking in a loss and hoping utility hikes bail you out.
- No production guarantee. Without one, an underperforming system is entirely your loss.
- Vague end-of-term or buyout terms. "We'll figure it out later" is not a contract clause.
- Pressure to sign the same day. A fair deal today is a fair deal next week.
- A provider with no service track record. A PPA is a 25-year relationship. Several large solar companies have gone bankrupt in recent years — here is what happens when a solar company goes out of business, and why the servicer behind your contract matters.
Why PPAs matter more after 2025
The federal residential solar tax credit (25D) ended December 31, 2025. A homeowner who buys a system today can no longer claim a purchase credit. But third-party-owned systems play by commercial rules: the company that owns the system on your roof can still capture incentives — and competitive providers pass that value through as a lower PPA rate.
That is why lease and PPA structures went from "one option among several" to the main way homeowners still benefit from solar incentives. The full picture is in our guide to the solar tax credit in 2026.
Is a PPA the right fit for your home?
Honest answer: not always. If your roof is near the end of its life, if you plan to sell soon and haven't confirmed transfer terms, or if you simply want to own your system, a PPA may not be the move. If you want a painful electric bill replaced with a lower, predictable per-kWh rate and zero upfront cost, it is one of the strongest options left in 2026.
We install owned systems and PPA/lease systems across the San Fernando Valley and Greater LA — see how our solar installation process works, or get a free estimate and we will run the math on your actual bills, both ways, with no pressure either direction.