As residential solar continues to expand across the U.S., homeowners have more financing options than ever before. One of the most common, and sometimes misunderstood, is the Third-Party Ownership (TPO) model. For solar installers, understanding how to clearly explain this financing methods, and its advantages and drawbacks, can make a significant difference in guiding homeowners toward the right solar investment.
What Is a Third-Party Ownership (TPO) Financing Model?
A Third-Party Ownership (TPO) model allows a company, not the homeowner, to own and maintain the solar energy system. In this arrangement, the homeowner agrees to host the system on their property and either lease the equipment or purchase the electricity it generates through a Power Purchase Agreement (PPA) (Solar Energy Industries Association [SEIA], 2024). The TPO provider, such as Sunrun or Sunnova, handles the system’s financing, installation, operation, and maintenance, while the homeowner benefits from reduced electricity costs without the upfront expense of purchasing the system.
What is a Power Purchase Agreement (PPA)?
It’s a financing arrangement where a third-party company installs, owns, and maintains a solar energy system on a homeowner’s property, then sells the electricity it generates to the homeowner at a predetermined rate per kilowatt-hour (kWh). This rate is typically lower than the local utility’s price, allowing the homeowner to save on energy costs without owning the system. The third party retains ownership and claims all tax credits and incentives associated with the installation.
How the TPO Solar Model Works
Under a solar lease, homeowners pay a fixed monthly fee to use the energy generated by the system. With a PPA, they agree to purchase the electricity at a predetermined rate per kilowatt-hour (kWh), often lower than their local utility’s rate. The third-party provider owns the equipment and assumes responsibility for performance and repairs (U.S. Department of Energy [DOE], 2023).
Most contracts last between 20 and 25 years, during which the homeowner enjoys consistent savings and predictable energy costs. However, at the end of the contract term, the homeowner typically has the option to renew the agreement, purchase the system at a residual price, or have it removed.
Benefits and Advantages of the TPO Model
Homeowner Benefits
For homeowners, the most attractive aspect of TPOs is zero or low upfront cost. The model removes financial barriers for households unable to pay cash or qualify for solar loans. Because the provider maintains and monitors the system, there is also minimal responsibility for maintenance or performance issues.
Solar Installer Benefits
For solar installers, partnering with TPO providers can help accelerate adoption among customers with tighter budgets or limited credit access. It also ensures a steady installation pipeline, since TPO companies often handle marketing and customer acquisition.
Drawbacks and Watchouts of TPO Solar Model
Despite their accessibility, TPOs come with long-term limitations.
- Homeowners do not own the system, meaning they forfeit any local or state incentives (DOE, 2023).
- TPO contracts can include annual escalator clauses, typically 1% to 3%, that gradually increase monthly payments, reducing savings over time.
- Homeowners may also face complications if they sell their home, as the new buyer must agree to assume or renegotiate the TPO contract (National Renewable Energy Laboratory [NREL], 2023).
When Should Homeowners Consider the TPO Solar Model?
When Should Homeowners Consider the TPO Solar Model?Installers should help homeowners evaluate the following criteria when considering a TPO:
- They lack sufficient capital or financing to purchase a system.
- They want immediate savings without ownership responsibilities.
- They plan to remain in their home for the majority of the contract term.
- They understand the potential resale or transfer challenges.
If the homeowner desires long-term energy independence, equity in their solar investment, or battery integration for backup power, a direct ownership model, supported by systems like Sol-Ark’s hybrid inverters and battery storage, may offer greater value.
The Third-Party Ownership Model in 2026 & Beyond
When the federal ITC begins to phase out after 2025, TPO models are expected to retain relevance, particularly for middle-income households that cannot finance large upfront investments. However, they will also face stiffer competition from evolving ownership models, including low-interest solar loans and home equity options (SEIA, 2024).
Installers should anticipate a potential resurgence of TPO agreements in markets with high retail electricity prices or low credit accessibility. As the solar market matures, the ability to clearly communicate how TPOs compare to ownership models will help installers build trust, deliver transparent value, and align customers with the best-fit solar strategy for their goals and budget.
References
National Renewable Energy Laboratory. (2023). U.S. solar photovoltaic system cost benchmark: Q1 2023. https://www.nrel.gov
Solar Energy Industries Association. (2024). Solar financing: Third-party ownership overview. https://www.seia.org
U.S. Department of Energy. (2023). Homeowner’s guide to solar financing options. https://www.energy.gov