Solar Financing Options in Pennsylvania: Loans, Leases, and PPAs

Pennsylvania property owners pursuing solar installations face a structured set of financing pathways, each with distinct ownership rights, cost profiles, and eligibility requirements for state and federal incentive programs. This page covers the three primary financing structures — loans, leases, and power purchase agreements (PPAs) — as they apply to residential and commercial installations in Pennsylvania. Understanding how each mechanism interacts with the Pennsylvania Alternative Energy Portfolio Standard and federal tax credit eligibility is essential before signing any financing contract.

Definition and scope

Solar financing refers to the contractual and financial instruments that allow property owners to install photovoltaic or solar thermal systems without paying the full installed cost upfront. In Pennsylvania, the three dominant structures are:

• Solar loans — the borrower owns the system outright, typically financing through a home equity loan, personal loan, or a dedicated solar lending product.
• Solar leases — a third-party company owns and maintains the system; the property owner pays a fixed monthly fee for use of the equipment.
• Power purchase agreements (PPAs) — a third-party company owns the system; the property owner purchases the electricity generated at a pre-negotiated per-kilowatt-hour rate rather than paying for the hardware.

These structures differ fundamentally in ownership, and that distinction determines eligibility for the federal Investment Tax Credit (ITC), which the Internal Revenue Service administers under 26 U.S.C. § 48 (commercial) and § 25D (residential). Under § 25D, only the system owner can claim the credit — so lease and PPA customers cannot directly apply the ITC to their tax liability (IRS Publication 946 and IRC § 25D).

Scope and coverage limitations: This page addresses financing structures available to Pennsylvania-based residential and commercial property owners under Pennsylvania contract law and applicable federal tax provisions. It does not address financing available exclusively in other states, nor does it cover grant programs administered at the municipal level, utility-specific on-bill financing pilots (which vary by service territory — see Pennsylvania electric utility territories and solar), or federal programs administered through USDA for agricultural properties (see agricultural solar in Pennsylvania). Community solar subscribers face a separate payment structure covered at community solar programs in Pennsylvania.

How it works

Solar Loans

A solar loan functions similarly to a home improvement loan. The property owner borrows a principal sum, purchases the system, and repays principal plus interest over a term typically ranging from 5 to 25 years. Because the owner holds title to the equipment, the full 30% federal ITC (applicable through 2032 under the Inflation Reduction Act, Pub. L. 117-169) can offset their tax liability. Pennsylvania Solar Renewable Energy Certificates (SRECs) also accrue to the system owner, enabling participation in the Pennsylvania SREC market.

Secured solar loans — typically structured as home equity lines of credit — may offer lower interest rates than unsecured personal loans, but they place a lien on the property. Pennsylvania homeowners should confirm with their title insurer how a lien affects mortgage refinancing.

Solar Leases

Under a lease agreement, a solar company installs and owns the system, and the property owner pays a flat monthly fee, often with an annual escalator of 1–3%. Lease terms typically run 20–25 years. Because the third-party company owns the equipment, it claims the ITC. Lease customers receive no SREC revenue but avoid maintenance responsibility, which the system owner contractually retains.

Power Purchase Agreements (PPAs)

A PPA differs from a lease in that billing is usage-based rather than flat-rate. The property owner pays for each kilowatt-hour the system produces at a rate negotiated at contract signing. As with leases, the developer retains ownership, claims available tax incentives, and is responsible for system performance. The per-kWh rate in a PPA is typically set below the retail utility rate at contract inception, but the rate may escalate annually.

The Pennsylvania Public Utility Commission (PUC) has regulatory authority over the utilities that supply backup and net-metering credits to solar-powered properties. The PUC does not directly regulate solar financing contracts, which fall under the Pennsylvania Office of Attorney General's consumer protection jurisdiction when deceptive practices are alleged (Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq.).

Common scenarios

1. Homeowner with sufficient federal tax liability — A loan-financed system allows the owner to apply the 30% ITC directly, recover SREC revenue, and build equity. For a system costing $20,000, the ITC offsets $6,000 in federal taxes owed (IRS Form 5695).
2. Homeowner with minimal tax liability — A lease or PPA avoids upfront cost and tax credit complexity; the property owner benefits from a lower electricity rate without needing to monetize the ITC personally.
3. Commercial property owner — Eligible for the commercial ITC under IRC § 48 and for accelerated depreciation under the Modified Accelerated Cost Recovery System (MACRS), making loan or direct ownership the more tax-efficient path. Commercial solar systems in Pennsylvania covers these structures in greater detail.
4. Low-to-moderate income household — Certain nonprofit and utility programs offer subsidized loan products. The Pennsylvania Housing Finance Agency (PHFA) has historically administered energy loan programs for qualifying homeowners; current program availability should be verified directly with PHFA at phfa.org. See also solar for low-income households in Pennsylvania.

Decision boundaries

The choice between financing types depends on four primary variables:

Property transfer risk is a critical decision boundary for leases and PPAs. Both instruments typically require either assignment of the contract to a buyer or early buyout at sale. Pennsylvania real estate disclosures require sellers to disclose encumbrances, and a 20-year PPA on title can complicate mortgage underwriting for prospective buyers.

Net metering interaction also differs by ownership. Only the account holder at the utility receives net metering credits; for leased systems, contract terms should specify how net metering credits are credited back to the property owner. Pennsylvania's net metering framework is administered by the PUC — detailed mechanics are covered at net metering in Pennsylvania.

Before selecting a financing path, a full understanding of the installed system's design is necessary. The conceptual overview of how Pennsylvania solar energy systems work provides the technical foundation, and the regulatory context for Pennsylvania solar energy systems outlines the permitting and utility interconnection requirements that apply regardless of financing structure. The Pennsylvania Solar Authority home page links to the full resource library covering incentives, installer selection, and system sizing.

Financing structure also interacts with roof condition and system placement. A property that requires roof replacement before installation changes the loan calculus significantly — see roof assessment for solar in Pennsylvania for pre-financing evaluation criteria.

References

• IRS Residential Clean Energy Credit (IRC § 25D)
• IRS Form 5695 — Residential Energy Credits
• Internal Revenue Code § 48 — Energy Credit (Commercial ITC)
• Inflation Reduction Act of 2022, Pub. L. 117-169 — U.S. Congress
• Pennsylvania Public Utility Commission
• Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1
• Pennsylvania Housing Finance Agency (PHFA)
• U.S. Department of Energy — Solar Financing Overview