Which Option Makes the Most Financial Sense?
If you’ve been researching solar in 2026, you’ve probably noticed something. Almost every proposal you’re receiving looks different from what it would have just a year ago. Some companies are recommending leases, while others are discussing PPAs. Some are introducing prepaid lease programs you’ve never heard of before, and fewer companies are recommending a traditional cash purchase. So, what changed?
The biggest change occurred at the beginning of 2026, when homeowners could no longer directly claim the residential federal tax credit on their personal tax returns, as they had in previous years. That completely changed how solar systems are financed. Instead of homeowners claiming the incentive themselves, third-party ownership programs, often referred to as TPO programs, have become the primary way to capture those tax benefits. As a result, leasing has become the most common way homeowners are going solar in 2026. But not all lease programs are the same.
In this guide, we’ll explain the three most common ways homeowners are purchasing solar today, how each option works, and why one option has quickly become the preferred choice for many California homeowners.
Why Financing Changed in 2026
Before 2026, many homeowners purchased their solar systems outright because they could claim the federal tax credit on their personal taxes. That incentive significantly reduced the effective cost of the system.
Today, the process looks different. The remaining tax incentives are primarily accessed through third-party ownership structures that allow a tax equity partner to monetize the available incentives. Rather than the homeowner claiming the tax benefit directly, the tax equity partner receives the incentive and shares a significant portion of that value with the homeowner through the structure of the program. That change completely reshaped the solar industry. Instead of traditional purchases dominating the market, leasing and prepaid ownership programs have become much more common.
Option 1: Traditional Solar Lease or Power Purchase Agreement
The first option is the traditional lease or Power Purchase Agreement, commonly referred to as a PPA. This is the model many homeowners are already familiar with. With this option, you do not own the solar system. Instead, the solar company owns the equipment, installs it on your home, and you agree to purchase the electricity it produces. Rather than paying the utility company for your electricity, you’re purchasing electricity from the solar provider. For example, if you’re currently paying PG&E approximately $0.40 per kilowatt hour, a lease or PPA may offer electricity at approximately $0.22 per kilowatt hour. Because you’re buying electricity at a lower price, your monthly energy costs decrease. The solar company continues owning the equipment while maintaining eligibility for the available tax incentives.
How PPA Payments Work
Most PPAs offer a fixed starting rate that increases each year, often by around 3 percent. Your monthly cost typically begins below your utility bill but rises over time per the agreement. For some homeowners, this approach still generates considerable savings compared to utility rates.
Advantages of a Traditional Lease
There are several situations where a traditional lease works well.
Some advantages include:
- Little or no upfront investment
- Immediate monthly savings
- Maintenance is typically handled by the provider
- The agreement often does not affect traditional debt-to-income calculations the same way a loan does
For homeowners who prioritize lower upfront costs and simple monthly savings, this can be an attractive option.
Potential Drawbacks of Choosing PPA Financing
Each financing choice has tradeoffs. The main issue is ownership. Because the solar company owns the system, the homeowner generally does not build equity. The system may not increase property value like an owned one. Some leases allow buyout options, usually later, but these may not offer the best value. Many leases simply run for their full term.
Option 2: The Prepaid Lease
The financing option that has gained the most popularity in 2026 is the prepaid lease. Although it is technically still considered a third-party ownership program, it operates very differently from a traditional lease. This structure was designed to provide homeowners with a much faster path toward ownership while still allowing a tax equity partner to utilize the available tax incentives. For many homeowners, it combines many of the advantages of both ownership and leasing.
How a Prepaid Lease Works
Under a prepaid lease, a tax equity partner works alongside the homeowner. The homeowner enters into a long-term Energy Service Agreement to purchase the electricity the system will produce. The agreement can typically be paid in one of two ways: cash or financing. The tax equity partner receives the available tax incentives associated with the project. In return, the homeowner receives an installation credit or project discount that is often similar in value to the available incentive. In many cases, that benefit is approximately 30 percent of the project value. Instead of losing access to the available tax incentive, the homeowner receives much of that value through the structure of the program itself.
The Six-Year Ownership Opportunity
One of the biggest advantages of a prepaid lease is the opportunity for ownership. Around year six, homeowners generally have the option to purchase the solar system at fair market value. This is where the prepaid structure becomes unique. By year six, there are still approximately 14 years of prepaid electricity remaining under the agreement. That remaining prepaid electricity can often be applied toward the purchase of the solar system.
Because of this, the amount required to purchase the system is frequently much lower than homeowners expect. Rather than waiting decades to own the equipment, homeowners can often transition into ownership after only six years. For many families, this creates the best balance between maximizing incentives and achieving long-term ownership.
Why Prepaid Leases Have Become So Popular
The prepaid lease has quickly become one of the fastest-growing financing options because it addresses many of the concerns homeowners have with traditional leases.
It provides:
- Lower overall project costs
- Access to available tax incentive value
- A path toward ownership
- Flexible cash or financing options
- Lower long-term cost per kilowatt hour
For homeowners planning to stay in their home long term, these benefits can be substantial.
Option 3: Traditional Purchase
The third option is the traditional purchase. This can be done either by paying cash or financing the entire project through a conventional solar loan. With this approach, the homeowner owns the equipment from day one. Historically, this was one of the most popular ways to purchase solar. However, the financing landscape changed significantly in 2026.
Because homeowners no longer directly claim the residential tax incentive on their personal tax returns, the financial advantage of a traditional purchase is no longer as strong as it once was. While ownership from day one still appeals to many homeowners, it does not provide access to the same tax equity structure available through today’s third-party ownership programs. As a result, many homeowners find that traditional purchases produce a longer return on investment than prepaid ownership structures.
Which Homeowners Still Choose Traditional Purchases?
Traditional purchases still make sense in certain situations, when homeowners are completing their own installation projects, have unique financing preferences, and are completing projects that fall outside standard financing structures. While these situations certainly exist, they represent a much smaller portion of today’s residential solar market.
Which Financing Option Is Right for You?
Every homeowner’s financial situation is different. Some homeowners prioritize ownership. Others prioritize monthly cash flow. Others are focused on qualifying for financing or minimizing the impact on future borrowing. That is why every financing option should be evaluated based on your individual goals.
Questions worth asking include:
- How long do you plan to stay in the home?
- Are you paying cash or financing?
- Do you eventually want to own the system?
- Are monthly savings your highest priority?
- Do you expect to refinance or purchase another property soon?
Answering these questions helps determine which financing structure is the best fit.
How We Help Homeowners Compare Options
At Supreme Solar and Electric, we don’t believe there is a one-size-fits-all financing solution. Instead, we walk homeowners through every available option and explain how each one works.
We review options that fit each individual project, which may include:
- Traditional lease or PPA
- Prepaid lease
- Traditional financing
- Cash purchase
Then we’ll show you the projected savings, ownership timeline, monthly payment, and long-term financial outcome for each option. Our goal is to help you understand exactly how each structure works so you can make an informed decision based on your own priorities.
Financing Solar: The Biggest Change in 2026
The biggest change to residential solar in 2026 wasn’t new technology. It was how homeowners finance their systems. With residential tax incentives now primarily accessed through third-party ownership structures, leasing has become the dominant financing model throughout California.
However, not all lease programs are created equal. Traditional PPAs continue to provide immediate monthly savings with little upfront cost, while prepaid lease programs have emerged as an innovative way to combine the financial advantages of tax equity with a significantly faster path toward ownership. Traditional purchases are still available, but for many homeowners, they no longer provide the same overall financial value they once did. The best financing option depends on your goals, your budget, and how long you plan to stay in your home. By understanding how each option works, you can choose the structure that provides the greatest long-term value for your specific situation.
If you’re considering solar in 2026 and aren’t sure which financing option is right for you, the team at Supreme Solar and Electric can walk you through each program, compare the numbers side by side, and help you determine which solution best fits your home and your financial goals.