Solar lease vs. PPA vs. loan vs. cash: what each one really costs in 2026

Solar lease vs. PPA vs. loan vs. cash: the sunlight is the same in all four. What changes is who owns the pipe and who pays for the water. In 2026, that choice matters more than it used to, because the federal credit now flows to companies that own systems, not to homeowners who buy them.

The short answer: compare every offer by its net present value over the full term, using the same production estimate and the same utility rates. In our Kentucky example below, a lease with no escalator comes closest to break-even. Cash and loans at $3.00 per watt lose money against a 5% alternative, and an escalating lease turns negative in its later years. The structure divides a margin. It can’t create one.

As of November 1, 2026: tax rules, tariff figures and Kentucky law cited here are current as of this date. Federal guidance and utility rates change; check the sources below before you sign anything.

The four structures at a glance

	Cash	Loan	Lease	PPA
Who owns the system	You	You (lender may hold a lien or security interest)	Leasing company	Provider
What you pay	Full price up front	Monthly loan payment	Fixed monthly payment, often with an escalator	A price per kWh produced, often with an escalator
Who may claim a federal credit in 2026	No one (homeowner credit ended)	No one (homeowner credit ended)	The leasing company, under Section 48E	The provider, under Section 48E
Who maintains it	You	You	Usually the leasing company	Usually the provider
At home sale	Conveys with the house	Pay off or transfer the loan	Buyer assumes, or you buy out or prepay	Buyer assumes, or buyout
Kentucky availability	Yes	Yes	The common third-party structure here	Legal status unclear for homes; confirm

Who claims the federal credit in 2026

Homeowners who buy: nothing. The residential clean energy credit, Section 25D, ended for expenditures made after December 31, 2025. The IRS treats the expenditure as made when the installation is completed, so a 2025 payment doesn’t rescue a 2026 install.

Companies that own the system: possibly. Section 48E, the clean electricity investment credit, still exists for business owners, and leasing companies are business owners. Under the 2025 budget law, the credit ends for solar facilities placed in service after December 31, 2027. Facilities whose construction began by July 4, 2026 are exempt from that cutoff. What counts as beginning construction is set by Treasury guidance that was tightened in August 2025 and has since been litigated, so the provider’s tax counsel, not a sales sheet, should answer that question.

Three details to know:

• Leased-property rule. Section 48E(i) denies the credit when a business leases certain residential property to a third party. As enacted, it refers to solar water heating and small wind property. Leased solar electric panels and batteries aren’t named. Some practitioners have flagged the provision’s drafting, and a technical correction could change it, so a provider’s tax counsel should confirm the current reading.
• Foreign-entity rules. Facilities that begin construction after December 31, 2025 can’t include “material assistance from a prohibited foreign entity” above set thresholds. That’s the provider’s compliance problem, but it can affect equipment choices and pricing.
• The clock. A lease you sign this winter likely depends on the company placing the system in service by the end of 2027. Ask what happens to your price or your contract if installation slips.

The practical question: the credit sits in the leasing company’s pocket. How much of it shows up in your payment? You can’t see that directly. You can only compare the lease against what the same system would cost you in cash.

The Kentucky questions to ask first

Kentucky’s net metering statute, KRS 278.465, defines an eligible customer-generator as a customer who owns and operates the generating facility on the customer’s premises. A lease separates ownership from use. Before you sign, ask the provider in writing how the arrangement qualifies for your utility’s net metering rider, and have your attorney review that answer. If the system can’t be net metered, the savings in its proposal don’t exist.

Power purchase agreements raise a second question. Kentucky’s definition of a “utility” in KRS 278.010 includes anyone who operates facilities to generate electricity “to or for the public, for compensation.” That’s one reason the legal status of residential PPAs in Kentucky is unclear, and why leases are the more common third-party structure here. If you’re offered a PPA, confirm with your attorney that it’s permitted before you compare its price.

Escalators: the small number that doubles

Many leases and PPAs raise the payment every year. A 2.9% escalator sounds modest. Over 25 years it multiplies the payment by 1.986, so a $70 monthly payment in year one becomes about $139 in year 25.

Meanwhile, look at what your solar earns. The self-consumed part of your savings rises with utility rates. The exported part earns the NMS-2 credit, which at KU is 7.534¢ per kWh and didn’t rise in the 2026 rate case. When the payment escalates faster than the savings, the lease that saved you $5 a month in year one costs you money in year 15.

Loans and dealer fees

The Consumer Financial Protection Bureau’s 2024 review of solar financing found that hidden “dealer fees” typically run 10% to 30% of the cash price and can exceed 50%. The fee is added to the loan principal, which is how a lender can advertise a low rate.

Here’s what that does. Take a $24,000 system financed as a $30,000 loan at 3.99% for 25 years: the payment is $158.19 a month. Measured against the $24,000 you’d have paid in cash, that’s an effective rate of about 6.24%. A straightforward 6% loan on the real price would be cheaper.

The CFPB also flagged loans that re-amortize at month 19 unless you prepay about 30% of the principal, a figure sized to the old tax credit. In our example, a $30,000 loan priced as if you’d prepay 30% starts at $110.73 a month. Skip the prepayment and the payment jumps to about $162.99, a 47% increase. With the homeowner credit gone, a loan built around that prepayment in 2026 deserves a hard question.

A worked example: one Lexington home, five ways to pay

Illustrative assumptions, carried over from our post on Kentucky solar after the 30% credit: an 8 kW system on a KU home, producing 10,000 kWh in year one and declining 0.5% a year. Forty percent is used at home at KU’s 11.396¢ energy charge, rising 2.5% a year. Sixty percent is exported at the flat 7.534¢ credit. Cash price is $24,000 ($3.00 per watt). Future dollars are discounted at 5%. The lease and PPA prices are our illustrations, not market quotes.

How you pay	Terms	Total paid over 25 years	Bill value over 25 years	Net present value at 5%	Year-1 net	Year-25 net
Cash	$24,000 up front	$24,000	$25,226	−$10,099	+$908	+$1,132
Loan with dealer fee	$30,000 at 3.99%, 25 years	$47,456	$25,226	−$12,853	−$990	−$766
Credit union loan	$24,000 at 8.49%, 15 years	$42,515	$25,226	−$15,519	−$1,926	+$1,132
Lease, 2.9% escalator	$70 a month, rising to $139	$30,227	$25,226	−$1,961	+$68	−$536
Lease, no escalator	$80 a month	$24,000	$25,226	+$371	−$52	+$172
PPA, if permitted	8.5¢ per kWh, 2.9% escalator	$28,607	$25,226	−$1,302	+$58	−$365

What this shows:

• No structure produces meaningful savings at this price and these rates. The lease rows look better than cash mainly because the leasing company claims the credit and you don’t tie up $24,000. They also carry contract risk for 25 years.
• The escalator decides the lease. The same lease at a flat $80 beats the escalating $70 lease over the full term, even though it costs more in year one.
• The lease rows assume the system qualifies for net metering. If it doesn’t, they’re wrong.

You can rerun this with your own numbers in our ownership comparison tool. Our Lexington lease vs. cash scenario walks through a full case.

Why net present value beats payback

Simple payback asks when cumulative savings equal what you paid. It ignores what the money could have earned elsewhere and everything after the payback year. In the cash row above, payback is about 24 years and the 25-year nominal total is slightly positive. At a 5% discount rate, though, the same cash flows are worth $10,099 less than they cost. Payback says “barely works.” Net present value says “costs you money compared with a 5% alternative.” Choose the discount rate before you look at the answer.

When you sell the house

• Owned outright: the system conveys with the home. Kentucky law lets the installation transfer to a new owner at the same premises once the utility is notified and verifies it meets safety standards.
• Loan: expect to pay it off at closing if it’s secured against the home or the equipment.
• Lease or PPA: the buyer usually must assume the contract and may have to pass a credit check. Otherwise you buy out or prepay at contract prices. Leasing companies often record a fixture filing in the county records to give notice that they own the equipment. Title companies and lenders will see it. Ask your attorney how it’s handled at closing.

The Federal Trade Commission’s solar guidance makes the same point: find out before you sign whether the contract can transfer, what notice is required, and what the buyer must qualify for.

What we’d do

• Get a cash price for every offer, in writing, even if you plan to finance.
• Put every option on the same production estimate and the same rate assumptions, with the export credit held flat.
• Compare by net present value at a discount rate you choose in advance, and look at year 25, not just year one.
• For a lease, ask for the escalator, the buyout schedule, the transfer terms and the provider’s written answer on net metering eligibility.
• For a loan, compare the loan amount with the cash price. Any gap is a fee.
• Check each proposal against our red-flag list before you sign.

If you’d like a second set of eyes, our Proposal Second Opinion puts every structure you’ve been offered into one comparable table. We take no commissions from installers, lenders or leasing companies.

This is general information, not tax advice, legal advice or investment advice. Confirm tax questions with a tax professional and contract questions with an attorney.