Cash vs lease vs PPA after the federal credit ended

For the past two decades the right answer to "how should I pay for solar?" was almost always the same: cash if you have it, then loan, then lease, then PPA. The hierarchy held because cash and loan buyers captured the federal Investment Tax Credit and lease and PPA buyers gave it up to the leasing company. On January 1, 2026, that hierarchy inverted. The federal residential credit (§25D) is gone for owners. The federal commercial credit (§48E) that lease and PPA providers capture is still here through 2027 — and the better installers pass some of it through to the homeowner. The right financing path now depends on bill, state, and ownership philosophy in a way it didn't before. Here's how to think about it.

By The Solar Brief Editorial Team  ·  Reviewed by To be assigned (paid solar advisor)  ·  Updated May 2026

The inversion in one paragraph

The Inflation Reduction Act of 2022 set the residential credit at 30% through 2032 (DSIRE). The One Big Beautiful Bill Act, signed July 4, 2025, accelerated the sunset by approximately seven years and terminated §25D entirely for systems placed in service after December 31, 2025 (IRS OBBBA FAQ). Cash and loan buyers in 2026 receive zero federal credit on the system. The §48E commercial credit that third-party owners (leasing companies, PPA providers) claim remains available, with construction-begin and placed-in-service safe harbors that effectively keep it alive through 2027 (SEIA OBBBA explainer). When a leasing company captures §48E, the better operators pass some of that value through as lower per-kWh rates. The result: for many mid-bill households in 2026, lease and PPA can produce lower lifetime cost than cash — the opposite of what was true in 2024.

After 2027, when §48E also sunsets unless extended, the federal lever closes for everyone. State incentives become the only durable lever, and the hierarchy resets to a state-incentive-only world. So the inversion isn't permanent. It's a roughly 18-month window — and it's the most important financing fact in residential solar today.

The four paths, briefly

Cash purchase

You pay the installer the full system price upfront. You own the equipment outright. There is no monthly payment. In 2026 there is no federal tax credit on the cash purchase — that's the change. State credits and utility rebates still apply where they exist (SuSI in NJ, SMART in MA, the AZ residential credit, SGIP for batteries in CA). Lifetime cost = list price minus state and utility incentives. No financing interest. No leasing-company margin. Best for owner-minded buyers with the cash and a bill above approximately $250 per month, in states with strong incentive stacks.

Solar loan

A third-party lender pays the installer; you make monthly payments to the lender for 10 to 25 years. You own the equipment. Same federal-credit position as cash in 2026 — no §25D credit. Loan adds interest over a longer payback window. Practically equivalent to cash plus a financing carry. Best for buyers who are owner-minded but don't have liquidity, in the same bill-and-state profile that makes cash work.

Lease (third-party owned)

The leasing company (Sunrun, Sunnova, Tesla in some markets) pays for and owns the system on your roof. You pay them a fixed monthly lease payment for typically 20 to 25 years, often with an annual escalator clause of 1.9 to 2.9 percent (SEIA Solar Power Purchase Agreements). The leasing company captures the §48E commercial credit. Through 2027 the better lease providers pass some of that value through as lower per-kWh rates than they could otherwise offer. You don't own the system; you don't get the credit; resale of the home with a leased system on the roof can create transactional friction (typically a 1 to 3 percent home-value drag in published studies). Best for households who want zero upfront cost and are comfortable trading ownership for predictable monthly savings, especially through 2027.

PPA (Power Purchase Agreement)

Same structure as a lease — installer owns the system — except instead of a fixed monthly amount you pay a per-kWh rate for whatever the system produces. PPAs typically include the same 1.9 to 2.9 percent annual escalator. Same §48E capture mechanism, same passthrough opportunity through 2027, same resale considerations. The functional difference from lease is consumption-aligned pricing: if your usage drops, your bill drops. PPAs are most common in California and parts of the Northeast; less common in Texas and the Mountain West.

Worked math: 8 kW system, three states, four paths

Take the same 8 kW panels-only system at a $24,000 list price across three states with very different incentive stacks. Numbers below are illustrative midpoints assembled from EnergySage Solar Marketplace Q1 2026 data and public lease rate cards from major TPO providers. Real quotes vary 25 to 40 percent between installers in the same metro — these are the comparable-baseline numbers, not what you'd actually see on a quote.

Path	California ($0.40/kWh)	Texas ($0.13/kWh)	New Jersey ($0.20/kWh + SuSI)
Cash	$24,000 net (no fed credit). State stack: SGIP if battery; modest. Cash payback ~14 yrs.	$24,000 net. State stack: utility rebates only ($0–2,500). Cash payback ~13–16 yrs.	$24,000 net. State stack: 15-yr SuSI per-kWh (~$2,500–4,000/yr value). Cash payback ~9–11 yrs.
Loan, 6.99% / 15-yr	$0 down. Monthly ~$215. Lifetime cost ~$38,800. Effective payback ~16 yrs.	$0 down. Monthly ~$215. Lifetime cost ~$38,800. Effective payback ~15–18 yrs.	$0 down. Monthly ~$215. Lifetime cost ~$38,800 minus SuSI. Effective payback ~11–13 yrs.
Lease, 25-yr, ~2.9% escalator	$0 down. Effective per-kWh rate ~$0.18–0.22 (well below retail). Effective payback ~7–9 yrs.	$0 down. Effective per-kWh rate ~$0.10–0.13. Effective payback ~10–12 yrs.	$0 down. Effective per-kWh rate ~$0.13–0.16. Less compelling vs cash given SuSI stack.
PPA, ~2.9% escalator	Similar to lease, with consumption-aligned pricing. Same §48E passthrough mechanics.	Available with some installers; usage-aligned pricing helps variable-bill households.	Less common in NJ; cash and SuSI stack remain dominant.

List price $24,000 from EnergySage Q1 2026 Marketplace data for an 8 kW system. Loan terms reflect mid-market 2026 solar lender pricing for a 720+ FICO borrower. Lease and PPA effective rates from public TPO rate cards observed in May 2026; actual offers vary by installer, state, and how aggressively the installer chooses to pass through §48E. Lifetime cost for the loan path includes principal and interest only, not state-incentive offsets, so the comparison shows the financing-carry effect cleanly.

Read across the table and the inversion is visible: in California and Texas the lease column shows materially better effective payback than cash. In New Jersey the SuSI program partially absorbs the lost federal credit and cash still wins. State + bill + finance preference together determine the answer; no single path is best for everyone.

The §48E passthrough — what it is and when installers actually pass it through

The §48E commercial credit equals 30 percent of the system's eligible cost, claimed by the system's owner. When a leasing company owns the system, they're the owner — the credit goes to them, not to the homeowner. There is no rule requiring them to pass any of that value through to the homeowner. Whether they do, and how much, is a competitive decision.

Three patterns we see in the post-OBBBA market:

• Aggressive passthrough. The leasing company prices the lease as if some portion of the §48E credit reduces the homeowner's effective per-kWh rate. Common in competitive metros (Bay Area, Phoenix, Austin) where multiple TPO providers fight for the same households. Effective rates can land 25 to 40 percent below local retail rates.
• Partial passthrough. The leasing company keeps most of the credit value but offers slightly lower rates than they could without it. The homeowner saves something, but the bulk of the §48E value is the leasing company's margin. Common in less-competitive markets and from larger national TPO providers with pricing power.
• No meaningful passthrough. The leasing company prices as if §48E weren't a factor, pocketing the entire credit. The homeowner gets a lease offer that doesn't pencil meaningfully better than cash would have without the federal credit. Common in markets with thin competition or from operators counting on homeowner inertia.

The honest read: get three lease quotes, the same way you'd get three cash quotes. Variance between TPO providers in 2026 is meaningful — the difference between "great deal" and "no real benefit" is not subtle, and only comparison surfaces it. If a single installer is the only TPO provider in your area, ask them directly: "How much of the §48E credit are you passing through to my per-kWh rate, and can you show me the math?" The answer reveals which of the three categories above they're in.

The decision matrix

Bill size, state, and ownership philosophy together produce a clear recommendation in most cases. The matrix below covers the common combinations.

Your situation	Recommendation in 2026	Why
Bill ≥ $250/mo, owner-minded, NJ / MA / strong-stack state	Cash purchase	State stack absorbs much of the federal-credit loss; cash still produces best lifetime ROI; you keep ownership and any home-value upside
Bill ≥ $250/mo, owner-minded, low-incentive state (TX / NV)	Cash if cash-rich; lease worth comparing	Cash payback stretches to 13–16 years post-§25D; lease through 2027 may produce better effective economics
Bill $150–250/mo, owner-flexible, any state	Lease (TPO) through 2027	§48E passthrough makes the math work where cash purchase wouldn't; resale-value penalty exists but is offset by the per-kWh savings
Bill $150–250/mo, owner-only, any state	Wait, or weatherize first	Cash math doesn't pencil at this bill level without the federal credit; if lease isn't an option, the alternative is to lower the bill (insulation, smart thermostat) and reassess
Bill ≥ $300/mo, no liquidity	Solar loan, comparable-quote lease as backup	Loan keeps ownership and any state-credit benefits; lease may still produce comparable economics through 2027 — get both quotes
Variable monthly bill (vacation home, work-from-home, etc.)	PPA over lease	PPA's per-kWh pricing aligns with consumption; you don't pay for production you don't use
Bill under $150/mo	Skip; consider community solar	Math doesn't pencil for ownership or lease at this bill level; community solar (where available) is the closest functional substitute

Lifetime cost vs sticker price — a deliberate restraint

Most installer marketing leans hard on "lifetime savings" — total dollars saved over 25 years. Those numbers always look big and are almost always overstated. Lifetime savings depend on retail electricity rate inflation (typically assumed at 3 to 5 percent annually, often optimistically), system production degradation (about 0.5 percent per year), what the homeowner does with the bill credits, and whether the system reaches its full useful life without major component replacement. Small changes in any of those assumptions move the lifetime number by tens of thousands.

We deliberately don't quote specific lifetime savings figures in our analysis. Too many compounding assumptions stack up over 25 years for the resulting number to be useful in any given homeowner's decision. The number we trust is cash payback period in years — how many years until the system has paid for itself in displaced electricity at today's rates, with no rate-inflation assumption baked in. After that point, all production is upside, but how much upside depends on factors no one can predict 20 years out. If an installer leads their pitch with "$67,000 over 25 years" or similar, ask them to walk through the assumptions. They'll usually concede that the number assumes rate inflation we can't verify.

The 2027 calendar fact for the lease/PPA path

The §48E commercial credit ends December 31, 2027 unless extended. Construction must begin by July 4, 2026 OR the system must be placed in service by December 31, 2027 to qualify (26 U.S.C. §48E as amended; Arnold & Porter analysis). After that window closes, the lease and PPA federal lever disappears too, absent legislative extension. As of May 2026 there is no active extension effort.

For homeowners considering a lease or PPA in 2026, this means three things. First, the §48E-driven lease pricing has roughly an 18-month window to be locked in. Second, expect aggressive marketing from TPO providers in late 2026 and early 2027 — some honest, some pressure-driven, some both. Third, 2028 is on current law a state-incentive-only residential solar market, and the lease-vs-cash hierarchy resets again to whatever state stacks support.

The honest read on timing: don't bank on §48E extension. If a lease or PPA is the right move for your household in 2026, it's the right move now or in the next 18 months — not in 2028.

What we recommend

• Get three quotes from different financing paths. One cash, one loan, one lease. Variance is meaningful.
• Ask explicitly about §48E passthrough on lease quotes. "How much of the federal credit is reflected in my per-kWh rate?" The answer separates honest TPO providers from operators who are pocketing the credit.
• Read the escalator clause. 0 percent escalator (a fixed lease) is meaningfully better than 2.9 percent escalator. Industry standard is 1.9 to 2.9; below 1.5 is rare and worth jumping on if offered.
• Read the buyout clause. What does the lease cost to buy out at year 5, 10, 15? If you sell the home and the buyer doesn't want to assume the lease, this number determines the friction at home sale.
• Consult a tax professional. Federal credit treatment for any solar transaction in 2026 (cash, loan, or lease passthrough) depends on individual tax situation. A 30-minute consult before signing anything is among the highest-value uses of your time.