A solar lease and a PPA both put panels on your roof that a company owns. The difference is what you pay for. With a lease, you pay a set monthly amount for the system. With a PPA (power purchase agreement), you pay for the electricity the panels make, at a price per kWh. Either one can come with an escalator that raises your price every year.
Here's how each one works, how the escalator shows up in each, and how to decide between them. If you're new to escalators, start with how a solar escalator works.
How a solar lease works
You pay the company a fixed monthly payment to use the panels, usually for 20 to 25 years. The payment is the same in July as it is in January, no matter how much power the panels make that month.
That makes budgeting easy. The catch is that if the panels underperform, you still pay the same amount, so it's worth checking whether the lease comes with a production guarantee.
How a PPA works
With a PPA, you only pay for the power the system actually produces. If the panels make 900 kWh in a sunny month, you pay for 900 kWh. In a cloudy December, you pay for less.
Some PPAs are "levelized," meaning the company averages a year of payments into 12 equal bills. That smooths out the seasons, but it doesn't change the yearly increase.
How the escalator works in each
The escalator does the same job in both. It just raises a different number:
- Lease: a $150 monthly payment at 2.9% becomes about $194 in year 10 and about $298 in year 25.
- PPA: a price of 20 cents per kWh at 2.9% becomes about 26 cents in year 10 and about 40 cents in year 25.
Either way, the increase compounds, so it grows faster in the later years. Wondering why the price climbs at all on panels that are already up there? Here's why some solar leases have escalators in the first place.
Lease vs. PPA side by side
| Solar lease | PPA | |
|---|---|---|
| What you pay for | Use of the system | The power it produces |
| Monthly payment | Same every month | Changes with the seasons, unless levelized |
| What the escalator raises | The monthly payment | The price per kWh |
| If panels underperform | You still pay the same, unless there's a production guarantee | You pay less, because you buy less power |
| Best for | People who want a predictable bill | People who only want to pay for what they get |
Does my solar payment go up every year?
If your lease or PPA has an escalator, yes. The increase usually kicks in on a set date each year, often the anniversary of when the system started running. Your contract will say exactly when. If you own your system with cash or a loan, there's no escalator.
Which one is better?
Neither is better across the board. A lease wins on predictability. A PPA wins if you'd rather not pay for power you don't get. In both cases, the escalator and the starting price matter more than the label on the contract. Before you choose, figure out whether a solar payment increase is a good deal at all for how long you'll stay.
See what your escalator really costs
Plug in your starting payment and escalator and see what you'll pay every year of your contract.
Run my numbersFAQs About Solar Leases and PPAs
Is a PPA cheaper than a solar lease?
Not automatically. It depends on the starting price, the escalator and how much power the system actually makes. Compare what you'd pay in total over the years you plan to stay.
Can I buy the system later?
Many leases and PPAs include buyout options at set points in the contract. The price and timing are spelled out in the contract, so look for a buyout schedule before you sign.
What happens when the contract ends?
Most contracts give you a few choices at the end, usually renewing, buying the system or having it removed. Check which ones your contract offers and what each one costs.
Who takes care of repairs?
With a lease or PPA, the company that owns the system usually handles monitoring and repairs. Confirm it in your contract, along with who pays if the panels have to come off for roof work.
About Mark Featherstone
Mark has been in solar for over 12 years, working at some of the biggest solar companies in the country, before co-founding Your World Solutions. His goal is simple: help homeowners get into solar deals that actually work for them, and make sure they understand every part of it before they sign.
This article is for general informational purposes only and isn't financial, legal or tax advice. Numbers and examples are estimates for illustration. Actual payments, savings, utility rates and contract terms vary and aren't guaranteed, and rates and program rules can change over time. Review your own contract and talk with a qualified professional before making a decision.