How do third-party-owned rooftop solar projects work?

The residential investment tax credit (ITC) has helped millions of Americans go solar over the years by making installations more affordable. In tax year 2023, more than 1.2 million homeowners claimed the 30% tax credit, but that number will soon fall to zero with the residential ITC ending December 31, 2025.

While the One Big Beautiful Bill Act (HR1) eliminated the 25D direct homeowner solar incentive, it preserved one other roundabout tax credit for the residential solar sector. Third-party-ownership (TPO) companies successfully lobbied Congress to keep the 48E ITC, giving them until at least 2027 to place projects in service and still collect the tax credit.

TPO companies lease solar projects to homeowners for set monthly rates for an extended period, typically 20 to 25 years. The homeowner does not own the system and thus does not collect tax credits directly, but these companies say they pass their tax credit savings down to consumers with competitive rates to offset increasing utility prices.

Loan to lease movement

Loans reigned supreme for residential solar purchases in the early 2020s thanks to low interest rates, but the past few years of sky-high rates coupled with the 48E ITC for third-party-owned projects changed that.

“We’ve seen a major shift over the last three years from loans to leases and PPAs, driven in large part by the fast and steep rise of interest rates. This spike altered the economics for the average homeowner, and contractors followed that trend,” said Dan Lotano, COO and chief strategy officer at financing company GoodLeap.

Solar marketplace EnergySage found in its H1 2025 report that as median loan rates climbed to 7.5% on the platform, 38% of contractors reported decreased loan demand as customers sought alternative financing options like solar leases.

“Even as higher interest rates have made traditional loan financing less attractive, we’re seeing that demand for solar hasn’t gone away, it’s simply shifting,” said Emily Walker, director of insights at EnergySage, in a fall 2025 press release. “We expect attractive new financing models to emerge next year, which will keep residential solar adoption moving forward.”

Companies like GoodLeap hope to step in and offer such options to installers across the United States.

“There’s a big rush and flurry of activity from installers to complete out their pipeline for the 25D ‘going out of business’ sale, if you will. But then we and others expect the vast majority of the installers to switch over to the leasing business going forward,” Lotano said. “That’s going to be your predominant financing mechanism for the next few years.”

Companies typically offer two different financing options in the solar lease business — a traditional lease, with a set monthly payment for the duration of the contract, or a power purchase agreement (PPA), where the homeowner is compensated based on how much power is produced by the array.

TPO financiers say these structures help installers keep their pipelines full as well as offer competitive project pay. Lease options like LightReach’s are integrated directly into the most popular point-of-sale technologies for installers — including Aurora and OpenSolar — making the sales process seamless if a customer opts for a leased system.

How TPO programs work

If solar contractors want to add leased options to their services, they must first sign on with a TPO financing company. TPO firms hold electrical and general contractor licenses but use third-party solar contractors to perform the installations as well as any ongoing O&M.

The installation companies, in turn, are typically responsible for sourcing customers, managing permitting and working with the utility to achieve permission to operate. Once the project is complete, the financier owns the project and handles the O&M and monitoring, typically using the same installer to fix issues as needed.

After contractors go through the financier’s various checks and are underwritten and signed on as certified installers, they have access to the company’s financing tools to price and sell leased solar projects to customers. Firms like Palmetto LightReach have online pricing tools to show installers how much they will make on a given project, considering the potential production value and the monthly rate charged to the customer, including any annual rate increases. Those firms pay the installers directly for each project.

The onboarding process for installers to partner with leasing companies includes some business, sales and administration education too.

“There’s a lot more requirements from our side — because we own the assets — when it comes to: How was it installed? What equipment can you use? How big of a system can you install? There’s just a different layer of quality control that certain installers just are not used to,” said Sean Hayes, SVP and general manager of Palmetto LightReach.

Along with explaining the quality and equipment standards unique to TPO projects, financiers give installers sales talking-points to close deals, including the long-term O&M coverage not typical in loan or cash projects, production guarantees where homeowners get bill credit if the system produces less than 90% of expected energy, as well as extra opportunities like virtual power plant enrollment.

“We understand it’s a different product than what some folks have traditionally sold, so that education is helpful,” Lotano said.

Financing companies have also worked to safe harbor enough materials to minimize inevitable industry supply chain issues and meet future ITC material sourcing rules. Both GoodLeap and LightReach say they have enough safe-harbored product — inverters, batteries and panels — to last until 2030.

“Financiers have taken it upon themselves to secure a lot of this equipment so that it would be in compliance with future changing rules. Some of the installers may not have access to that on their own, because they’re typically not thinking out two, three years in the future, and so we’re also helping the industry to manage through any short-to-medium supply chain issues by also making sure that this equipment is going to be compliant with future tax law,” Lotano said.

TPO installer networks

Both LightReach and GoodLeap expect to increase their statewide installer networks as the residential ITC comes to an end. Right now, LightReach has about 600 certified contractors in 30+ states, while GoodLeap has about 250.

According to the NC Clean Energy Technology Center, at least 29 states plus Washington, D.C., and Puerto Rico currently allow for third-party solar power purchase agreements. Some states, like Colorado, Nevada and Texas, have system size limitations. Others, like Indiana, Minnesota and Washington state, do not allow any entities besides regulated utilities to sell power to consumers. TPO companies are working to change this and have already seen some success.

“With the current tax regime being what it is, it forces the industry to move in that type of direction,” Lotano said. “Whereas some of the states and regulatory bodies were maybe more resistant in the past, you’re seeing brand-new acceptance to those discussions and helping them think about how to move it in that direction.”

Virginia was one state shut out to TPO firms until the state legislature passed a bill in summer 2024 allowing TPO solar projects. Lotano hopes that legislation serves as a model for other states that currently prohibit the practice.

“Virginia is a perfect example of somebody who realized being the data center capital of the world, they needed to get more electrons, and they shouldn’t let some archaic rules stop that,” he said.

Solar leasing concerns

Although third-party-owned systems may lower the bar of entry for solar participation with minimal upfront costs, they’re not flawless. Over the past decade, the industry has seen plenty of TPO companies rise and then fall just as quickly, leaving customers with rooftop systems they don’t technically own and no one to turn to for O&M help when things go wrong. From Sungevity to Sunnova, these specters of TPO companies gone skeletal aren’t easily erased from the industry’s consciousness.

To ensure they’re getting a good deal, consumers should read contracts very carefully before signing up for a solar lease, said Roger Horowitz, VP of Go Solar programs at residential solar nonprofit Solar United Neighbors (SUN). SUN operates a free Solar Help Desk for anyone who wants a second opinion on a TPO contract.

“The main thing that I’m always looking out for with third-party ownership is: Who’s going to be doing the maintenance? What are the terms if the system stops working? Is there a production guarantee to make sure that you’re not paying if the system isn’t working?” Horowitz said.

When it comes to escalation clauses, or annual rate increases, his team advises consumers to ensure the escalation is always below the projected utility rate growth of around 5% a year. That way, they know they’ll continue to save money from the agreement.

“I’ve seen a lot of great terms. I’ve seen a lot of customers who are really, really happy with third-party ownership, whether a lease or PPA. It just brings a new level of complexity that a lot of people are not prepared to dive into,” Horowitz said. “I definitely encourage people to look at it even more carefully than you would do for a sales contract, just because you are locking yourself into a long-term agreement.”