The financing landscape in residential solar has largely become defined by third-party ownership (TPO) as that market segment’s federal investment tax credit (25D) expired at the end of 2025. Leased residential solar projects can still qualify for the commercial investment tax credit (48E), but array ownership is declining from it.
“In the better part of the last decade, that was a more popular way to go solar compared to buying outright,” said Ben Delman, editorial director for Solar United Neighbors, a PV consumer advocate. “I think as more financing options came along and the price of solar came down, you started to see more people that look for different purchasing options.”
According to the “2026 Aurora Solar Snapshot,” nearly two-thirds of surveyed solar sales companies expect most of their projects to be TPO in 2026. Additionally, 55% of installers reported that TPO has become their most-used project financing scenario.
Prepaid leases have risen to prominence as a way for homeowners to buy a solar project after a short-term in their leasing arrangement. These lease-to-own scenarios bridge the gap between TPO and outright project ownership, while still seeing savings from that once-missing 30% tax credit.
Third-party to private ownership
TPO is a project arrangement where homeowners rent the equipment or lease their roofs for solar arrays. TPO providers will own the project and maintain them over an agreed period. Leases and power purchase agreements are the most common TPO arrangements. At the end of that term there is a chance to buy the array, but most lease agreements are 25-year terms.
A family stands in front of their solar project built from a bulk purchase program from Solar United Neighbors. Credit: Solar United Neighbors
“With traditional PPAs and leases, you really don’t need to have a lot of up-front money to get into solar,” said Jess Lyons, staff product manager at Aurora Solar, a design and financing platform. “Then you have a consistent monthly payment. Whereas with prepaid leases and PPAs, a lot of the times folks either have that money up front or they’re able to secure it through a loan.”
During the term of a prepaid lease the TPO company would offer the same services as a regular lease without a monthly payment, and the customer has the option to buy out the project after just five or six years. After that, the homeowner is responsible for array upkeep.
“You don’t have to be an expert on the thing on your roof right away,” Lyons said. “You have five to six years to figure it out.”
To finance a prepaid loan, customers must arrange a loan separate from the TPO company, unless they can afford to pay for the prepaid lease outright.
Early days for prepaid leases
Since prepaid leases are an emerging TPO model, some of their finer details are still being determined. They’re available in select states, and they’re still entering new markets. Participate Energy, a solar leasing company, is currently offering prepaid leases in just Arizona, California, Colorado, Hawaii, Idaho, New Jersey, New York, Texas and Utah.
Solar United Neighbors published a consumers’ guide to TPO solar in April, which includes a section on prepaid leases. One disclaimer the group includes is about production guarantees. These are written into contracts for solar leases and require the TPO company to compensate a lessee if the system underperforms. By paying for the lease up front, the guide claims that customers can have less financial leverage over the TPO company if an array underperforms.
“Make sure that you’re reading through your contracts so that you understand what your options would be,” Delman said. “Make sure you understand what responsibilities you do have and make sure you’re aware of any escalators that might be in your contract. What you’re paying in month one may be different than what you’re paying in month 36 or 48.”
Prepaid leases’ nascence also raises questions about how they work with real estate transfers.
“The one thing is they’re really new. I haven’t seen a lot of examples of someone getting a prepaid lease or PPA project on their roof and then selling their home,” Lyons said. “In a standard PPA or lease structure, when you go to put your house on the market, you have a lease transfer process. What does that look like when you’re selling your home one or two years before buyout? I don’t know. It’s very different than 15 years before your buyout terms.”
The residential and commercial markets are approaching a July 4 deadline this year to safe harbor solar projects for the 48E tax credit. Then that credit expires entirely at the end of 2027. Market trends are signaling that TPO will gain more traction while this federal solar subsidy still exists.
The chance of buying a solar project as a residential customer decreased when 25D expired. Prepaid leases are relatively new to the market, so the next few years will determine their viability in increasing solar homeownership.
“But there’s a lot to be discovered as to what that looks like in six years. Which, to be fair, is also true of PPAs and leases, because we’re maybe not even 10 years into that 25-year journey,” Lyons said.
