Understanding Third-Party Ownership (TPO) with Tax Equity and Prepaid PPAs: The Path to Solar Ownership In Just 6 Years in El Dorado County

Homeowners across Placerville, Shingle Springs, Cameron Park, Diamond Springs, El Dorado Hills, and Folsom are increasingly exploring residential solar options that reduce rising utility costs while still taking advantage of available incentives in El Dorado County and the greater Sacramento region. One option gaining momentum in California is a prepaid Power Purchase Agreement (PPA) using tax equity financing, often structured with a clear and predictable path to ownership after about six years.

At Diamond Solar Solutions, we believe education is just as important as installation. Below is a clear, homeowner-friendly breakdown of how prepaid PPAs work, how tax equity plays a role, what escalators really mean, and why this model is becoming increasingly popular throughout El Dorado County and nearby communities. Let’s break it down.

Understanding Third-Party Ownership (TPO) Solar in El Dorado County

Third-Party Ownership (TPO) has long been a common way for homeowners to go solar without purchasing a system outright. In a traditional solar lease or PPA, a third-party company owns the solar panels, claims available tax incentives, and the homeowner pays for the electricity the system produces.

While traditional PPAs often last 20–25 years and never transfer ownership, newer prepaid PPA structures offer a hybrid approach—combining the financial benefits of third-party ownership with the long-term advantages of owning your solar system.

What Is a Prepaid PPA with Tax Equity?

A prepaid PPA allows homeowners in areas like Placerville, El Dorado Hills, Folsom, Cameron Park, Shingle Springs, and Diamond Springs to make a single upfront payment (often financed via a loan or HELOC) for most of their system’s expected energy production over its lifetime. This upfront cost is typically significantly discounted because the third-party owner uses tax equity financing to capture federal incentives.

Here’s how tax equity works in simple terms:

• Large financial institutions or corporations with significant tax liability invest in solar projects 

• These investors monetize the federal Investment Tax Credit (ITC) and accelerated depreciation

• The value of those incentives is passed on to the homeowner as a lower effective system cost

Key twist in many modern prepaid PPAs: The contract includes a provision for free or nominal-cost ownership transfer to the homeowner after 6 years.

But I heard the Federal Tax Credit (ITC) went away December 31, 2025?

That is correct. As of December 31, 2025, the residential solar and battery federal tax credit has gone away. However, the federal tax credit does remain in place for commercial solar installations including leases and PPAs under Section 48E of the Internal Revenue Code. The commercial solar tax credit will be in place at least until December 31, 2027, if not longer.

So, even though residential tax credits are changing, commercial solar incentives under Section 48E still apply to leased and PPA-based systems, which is why this model remains viable.

Why Ownership Transfers After About 6 Years

The six-year timeline is not arbitrary—it aligns with IRS regulations. Commercial solar tax credits include a five-year recapture period, meaning ownership cannot change too early without risking claw-back of incentives. By structuring ownership transfer at year six, reputable providers ensure compliance while giving homeowners confidence and clarity.

After this period:

• The tax equity investor has received the majority of the benefits 

• The third-party owner has little reason to retain the system 

• Ownership can transfer smoothly—often at no cost

This structure is commonly referred to as a partnership flip, and it has been used successfully in commercial solar for years.

How a Prepaid PPA Works in Practice

For homeowners in Placerville, Shingle Springs, and Diamond Springs, the process typically looks like this:

Installation: A solar company (e.g., Diamond Solar Solutions partnering with tax equity financiers) installs your solar system with no large out-of-pocket expense beyond the prepaid amount.

Prepayment: You pay an upfront amount that reflects the system cost minus the value of tax incentives captured through tax equity.

Years 1–6: The provider owns the system, monitors performance, covers maintenance, and guarantees production.

Year 6 Ownership Transfer: Ownership automatically transfers to you, often for $0 or a nominal amount.

Long-Term Savings: You enjoy decades of clean energy with no solar payment and full control of your system.

Understanding Solar Escalators (and Why They Matter)

An escalator is a pricing provision commonly found in traditional solar PPAs and leases. It increases the price you pay for solar electricity each year—typically by 2% to 3% annually—to account for inflation and projected operating costs.

While an escalator may appear minimal at the beginning of a contract, over a 20–25 year term it can significantly increase the total cost of solar energy. In some cases, homeowners may find that their solar rate eventually approaches or exceeds their local utility rate.

One key advantage of many prepaid PPA structures is that they often eliminate escalators altogether. Because most of the energy cost is paid upfront, homeowners benefit from predictable, stable pricing and long-term protection against utility rate increases—an important consideration for residents in higher-cost utility areas such as El Dorado Hills and Folsom.

For homeowners throughout Placerville, Cameron Park, Shingle Springs, and Diamond Springs, avoiding escalators can provide added confidence and clarity when planning long-term energy savings.

Key Benefits for El Dorado County Homeowners

Prepaid PPAs are especially attractive in communities where utility rates continue to rise and homeowners plan to stay long term.

Major advantages include:

• Immediate savings through tax-equity discounts.  Effectively get the ITC benefit passed to you as a discount on day 1, even if you lack tax liability.

• No monthly solar payment. If paying cash, your only electricity cost is from the grid (great in high-rate states like California). 

• Maintenance included during early years. The provider handles everything for at least the first 6 years, if not longer (10+ years is common).

• Faster path to ownership than traditional PPAs. Unlike traditional 20-25 year PPAs/leases, you own the system sooner, boosting home value

Considerations to Keep in Mind

While prepaid PPAs are a strong fit for many homeowners, they are not one-size-fits-all.

• Upfront Cost: If paying cash, requires a lump sum (though lower than a true cash purchase), or finance the system with no up front costs.

• If You Sell Early: Transferring the agreement can complicate home sales before year 6.

• Post-Transfer Responsibilities: After year 6, you're on the hook for maintenance, insurance, and any repairs, however most installers offer a 10+ year warranty.

• Not for Everyone: Best if you plan to stay 6+ years and want eventual ownership without managing tax credits.

Regarding IRS compliance, these structures must be properly designed to align with federal tax regulations. When implemented by experienced and reputable providers, ownership transfer provisions are structured to comply with IRS guidelines and are not expected to create tax credit recapture concerns.

Is This the Future of Residential Solar?

With changes to residential solar federal tax credits, evolving incentives, and rising electricity costs throughout Placerville, Cameron Park, and surrounding areas, prepaid PPAs with tax equity are quickly becoming one of the most strategic solar ownership pathways available. They offer a hybrid: TPO convenience early, ownership rewards later. Forward thinking solar companies are leading this shift, making solar more accessible and valuable for homeowners.

If you’re exploring solar options in Placerville, Shingle Springs, Cameron Park, Diamond Springs, El Dorado Hills, Folsom, or anywhere in El Dorado County, Diamond Solar Solutions can help you compare prepaid PPAs, cash purchases, loans, and traditional leases—so you can choose the solution that best fits your goals.

Going solar this way could mean decades of clean, low-cost energy—and full ownership sooner than ever. Ready to take the next step toward energy independence? Contact Diamond Solar Solutions today for a personalized solar consultation.

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