Financial Structures

How the Method of Payment Shapes Long-Term Solar Economics

Solar Ownership Vs. Lease: What’s the Difference?

Most solar sales conversations focus on the monthly payment. The more important question is what you own at the end of it.

A residential solar system is simultaneously a home improvement and a utility substitute. It changes how a household acquires electricity, replacing a variable, open-ended utility cost with a defined payment structure for some portion of that consumption. The financial structure you choose determines who owns the equipment, who captures the tax benefits, how savings accumulate over time, and what the system is worth when you sell your home.

Equipment quality matters. System design matters considerably more. But in many cases, the financial structure has the single greatest influence on the long-term economic outcome of a solar installation.

Two Paths to the Same Roof

Maryland homeowners access residential solar through one of two broad models.

The first is ownership. The homeowner purchases the system outright with cash, or finances it through a solar loan. The system becomes part of the property. Tax incentives flow directly to the homeowner. Once the loan is paid off, the system continues producing electricity with no corresponding payment. The value of that production accumulates entirely to the household.

The second is third-party ownership, commonly structured as a lease or a power purchase agreement (PPA). A financing company owns the equipment and installs it on the homeowner’s roof. The homeowner pays either a fixed monthly lease payment or a per-kilowatt-hour rate for the electricity produced. There is no large upfront capital requirement, and maintenance responsibilities typically remain with the system owner. The financing company captures the available federal tax incentives.

Both models are presented with the same basic pitch: your solar payment will be lower than your current utility bill. That comparison is useful as a starting point. It is not sufficient as a basis for a 20 to 25 year financial decision.

What Both Structures Are Actually Solving

Regardless of how a system is financed, the underlying goal is the same: reduce long-term exposure to utility rate increases by securing a portion of electricity costs under a defined structure rather than leaving the full bill subject to whatever the utility charges next year.

Maryland’s rate environment makes that goal increasingly concrete. Average residential rates across the state’s major utilities have roughly doubled since 2021, driven by PJM capacity auction outcomes, infrastructure investment recovery, and demand growth that is not resolving quickly. Both ownership and TPO provide a measure of insulation against that trajectory. The difference between them is not whether they solve the problem. It is how value is distributed while they do.

Should I Own My Solar Panels?

For homeowners with a long planning horizon, ownership produces the greatest lifetime financial return in most Maryland installations. The reasons are structural, not situational.

Pre 2026 – Tax incentives used to be the most immediate differentiator. The federal Investment Tax Credit used to allow homeowners who purchase a solar system to claim 30% of the installed cost as a direct credit against federal income tax liability. On a $30,000 system, that was $9,000 returned directly to the homeowner. Under a TPO structure, that credit still flows to the financing company, not to the household hosting the system. However, the Big Beautiful Bill removed this tax incentive for homeowners to claim directly – bringing about a need for more creative financing structures.

SREC income follows the same logic. Maryland’s Solar Renewable Energy Certificate market compensates system owners for the clean electricity their systems produce. Under an ownership structure, that compensation belongs to the homeowner. Under most TPO agreements, it belongs to the third-party owner. The SREC market has delivered meaningful additional income to Maryland system owners, and Maryland’s Brighter Tomorrow enhancement multiplies that value for systems installed within the current eligibility window.

The loan payoff horizon is the third structural advantage. A solar loan has a defined end date, typically 10 to 25 years depending on the product. Once the loan is satisfied, the system continues producing electricity for the remaining years of its useful life with no corresponding payment. A lease or PPA, by contrast, carries a payment obligation for the full contract term, commonly 20 to 25 years, with escalator clauses that increase payments annually in many agreements.

Finally, owned systems contribute directly to property value. Studies of Maryland and regional housing markets consistently show that owned solar installations increase resale value in proportion to their remaining production value. Leased systems introduce a contract transfer requirement at sale that some buyers find complicating, and that can affect both transaction timelines and negotiated price.

Is a PPA or Lease worth it?

Third-party ownership is not the inferior structure for every homeowner. For specific situations, it is the more practical path.

The federal residential solar tax credit under Section 25D expired at the end of 2025 for new installations. For homeowners who cannot utilize a tax credit (due to insufficient federal tax liability, alternative minimum tax exposure, or other factors), the primary financial advantage of ownership is reduced. TPO providers can still access commercial investment tax credits, and the savings structure of a well-negotiated lease or PPA can still provide meaningful bill reduction without the tax credit question.

TPO also removes maintenance and performance risk from the homeowner. If the system underperforms relative to a guaranteed production level, the third-party owner bears the financial consequence. For homeowners who prefer not to own and manage a long-term energy asset, that risk transfer has genuine value.

The simplicity argument is real, though it should be evaluated carefully. A lease or PPA with an annual escalator that increases payments 2 to 3 percent per year may look straightforward in year one and less so in year 15. Reading the escalator clause in any TPO agreement is not optional.

The Comparison That Actually Matters

The most important financial comparison in residential solar is not ownership versus TPO. It is either structure versus continued full exposure to utility rate increases.

Maryland’s current rate environment provides a concrete baseline for that comparison. BGE customers paying 23 to 26 cents per kilowatt-hour, Pepco customers paying similar rates, and Delmarva customers on the Eastern Shore paying roughly 22 cents per kilowatt-hour are all working from a starting point that makes the economics of both ownership and TPO more favorable than they were when rates were 12 cents.

The structure you choose determines how the value of that rate arbitrage is distributed over time. Ownership concentrates it with the homeowner. TPO shares it with a financing company in exchange for simplicity and reduced upfront commitment. Both are preferable to no solar on a viable roof at current Maryland utility rates.

The sections that follow cover each structure in detail: how ownership financing works, how PPA and lease agreements are constructed, how hybrid models operate, and how to evaluate which structure fits a specific household’s financial situation and planning horizon.

The New Landscape: What the Policy Shift Created

The July passage of the One Big Beautiful Bill made a critical distinction imperative: the residential ITC under Section 25D was terminated at the end of 2025, while the business ITC under Section 48E remains available through 2027. The effect is that systems owned by businesses are eligible for a 30% tax benefit that systems owned by homeowners are not.

That asymmetry created an immediate market response. In 2026, Third-Party Owned solar products are the only way for homeowners to access a federal tax credit. TPO providers own the equipment, qualify for the 48E commercial credit, and pass some portion of that value through to homeowners in the form of lower rates or reduced upfront costs.

The solar financing market moved quickly to fill the gap with a product that did not meaningfully exist before 2025: the prepaid PPA.

Hybrid Financing: The Prepaid PPA

The prepaid PPA is the financing industry’s response to the post-25D landscape, and it is worth understanding clearly because it is now one of the most actively marketed structures in the Maryland residential market.

Here is how it works. A third-party financing company technically owns the solar system installed on the homeowner’s roof. Because it owns the system, it qualifies for the 48E commercial tax credit. Rather than spreading that credit value across monthly lease payments over 20 to 25 years, the company applies it as a discount on a single upfront payment. The homeowner prepays approximately 70% of system value upfront, or finances the balance through a loan. The third party claims the 48E federal solar tax credit. The system operates as a lease or PPA for six years, with the third-party owner responsible for monitoring and maintenance. After the six-year tax credit recapture period, the homeowner can choose to take ownership of the system.

The practical effect: the homeowner pays roughly 70 cents on the dollar for a system, finances it through a conventional bank loan if needed, and after six years receives full ownership with no additional payment. During those six years, the financing company handles maintenance and performance monitoring. After about six years, ownership transfers to the homeowner for “FMV” (which is usually zero dollars,) providing free solar energy for the remaining 15 to 20-plus years of the system’s life.

For Maryland homeowners, the prepaid PPA preserves several of the ownership advantages that direct purchase provides. SREC income accrues to the system owner, and ownership transfers to the homeowner after year six. The Brighter Tomorrow SREC multiplier, where eligible, applies during the system’s production life. Net metering credits flow to the homeowner from day one.

The Honest Comparison in 2026

Direct ownership, TPO, and the hybrid prepaid PPA each have a rational place in the current Maryland market depending on the homeowner’s tax situation, capital availability, and planning horizon.

Direct ownership through a loan produces strong long-term return for homeowners who capture SREC income and intend to remain in the property long enough for the payback period to play out. The 3 to 5 year payback extension from losing the 25D credit is real but does not fundamentally change the conclusion for a homeowner with a 20 to 25 year horizon.

The prepaid PPA is the most financially competitive structure for homeowners who want near-ownership economics with access to federal incentive value they can no longer claim directly. The discount on system cost (typically 20 to 30%) partially substitutes for the lost 25D credit, and the six-year path to ownership preserves the long-term accumulation of SREC income and net metering value.

Traditional long-term leases and PPAs with monthly payments and annual escalators are the structure most favorable to the financing company and least favorable to the homeowner over a 20 to 25 year horizon. They provide immediate bill reduction with minimal upfront commitment, but the compounding cost of escalator clauses and the permanent loss of SREC income and ownership equity make them the weakest long-term financial choice among the three.

The sections that follow cover each structure in detail. The goal is to provide the information needed to evaluate which structure fits a specific household’s financial situation, planning horizon, and ownership priorities.