How HDM Transfers Your Solar or Battery System Back to You After the 6 Year Holding Period
- dylan099
- Jul 31
- 7 min read
If you've financed your solar or battery system through HDM Capital's Prepaid Power Purchase Agreement (PPA) or Energy Storage Services Agreement (ESSA), you've probably heard that after six years, HDM can transfer full ownership of the system to you, at zero additional cost (based on HDM's memorandum of understanding (MOU)). This blog walks through exactly how that works, using the actual terms of the agreements, along with a real-world style example.
The Basic Structure
Under HDM's Prepaid PPA or ESSA, you don't buy the solar panels or battery outright. Instead, you make a one-time upfront payment (the "Prepayment Amount" or "Storage Pre-Payment Amount") that covers the energy or storage services the system will deliver over the time of the contract, not the hardware itself. HDM owns the physical equipment using First Response Solar to install the system and takes care of insuring, monitoring, and maintaining it during the 6 year period. In exchange, you get to use the power or storage capacity you already paid for at a discounted rate.
Because HDM retains ownership during this 6 year period, HDM, not you is able to claim the federal Investment Tax Credit (ITC) on the system, which is part of what allows HDM to offer the upfront discounted pricing it does. With having section 26D removed from the tax code at the end of 2025, homeowners can no longer take any federal tax credit for solaror storage but the tax code still has the 48E tax credit which allows companies like HDM to take the tax credit and pass along a portion of the tax credit as an upfront savings to the homeowner.
The Year-6 Purchase Option (Section 8 of the Contract)
As HDM's Memorandum of Understanding explains: "After six years of production, HDM will transfer ownership of the solar and/or battery system, along with all associated warranties, back to the property owner at no additional cost." This is the full circle of the program, you enjoy discounted power for six years that you paid for upfront, and then you own the system outright, warranties and all after six full years.
Here's the simple version of why it works out so well for homeowners:
HDM calculates the system's Fair Market Value (FMV). This isn't a number that was written into your contract on day one, as the IRS will not allow a predetermined value of a system 6 years in the future. HDM prepares a fresh valuation at the time of transfer, based on the system's age, condition, remaining useful life, local market conditions, and comparable equipment pricing.
HDM calculates your "Remaining Amount." This is the portion of what you already paid upfront that corresponds to energy or storage capacity you haven't used yet. In the solar PPA, it's based on the electricity still owed to you out of your Prepaid Output; in the battery ESSA, it's based on the percentage of the contract term remaining.
HDM applies your Remaining Amount as a credit against the FMV purchase price: Because your system has naturally depreciated over six years of use, what you're still owed typically covers or exceeds what the system itself is worth (FMV).
If your Remaining Amount is greater than or equal to the FMV, your credit fully covers the purchase price so you pay $0, and HDM transfers the system to you free and clear. According to HDM's MOU (memorandum of understanding- See below), it is saying the fair market value of the system after year 6 will be less than or equal to the remaining amount so the ownership and all associated warranties, transfers to you at no additional cost, and HDM's job is done.
In practice, the reason the MOU states the $0 transfer after year six is because solar panels and especially batteries lose measurable value over their first six years. By the time year six arrives, the depreciated FMV of the equipment is almost always lower than the value of the energy services you've already paid for but not yet consumed which is exactly the scenario described in the contracts' own Transfer Notice template (Exhibit A): "The remaining amount due under your Agreement is greater than the fair market value... Therefore, HDMC will be transferring ownership of the system to you. You will not owe HDMC any additional funds, and HDMC will not owe you any funds either." This is the one page document you will sign as the homeowner to transfer the system back to retain full ownership after the 6 year period.
This blog is for general informational purposes only and is based on documents provided to us by HDM Capital, LLC ("HDM"), including its Memorandum of Understanding and PPA/ESSA contracts. We are not a party to your agreement with HDM and make no representations or guarantees regarding transaction terms, costs, or outcomes including the $0 year-six transfer, which is stated directly in and sourced from HDM's own Memorandum of Understanding. This is not tax or legal advice. Please review your signed agreement and HDM's Memorandum of Understanding directly, and consult a qualified professional with any questions.
A Real-Life Example
Let's walk through a simplified, illustrative example (the specific discount percentage below is just for illustration, your actual pricing will be shown on your own contract's cover page):
System cost: $50,000
Homeowner's upfront prepayment: $40,000 (paid in cash or financed through a loan). HDM will pay First Response Solar the $10,000 directly to make up the full $50,000 system cost.
Years 0–6: No additional payments due. HDM owns, insures, monitors, and maintains the system.
By year 6: The homeowner has used solar power / storage services with an estimated value of $15,000 out of the $40,000 prepaid.
Remaining Amount: $40,000 − $15,000 = $25,000 (the value of services still "owed" to the homeowner)
HDM's independent FMV assessment of the system at year 6: let's say $22,000 (reflecting six years of wear, degradation, and depreciation)
Since the Remaining Amount ($25,000) is greater than the FMV ($22,000), the credit gets capped at the FMV, meaning it fully offsets the $22,000 purchase price. The homeowner owes $0, and full ownership (plus all remaining manufacturer and workmanship warranties) transfers to them. HDM's obligations to insure, monitor, and maintain the system also end at that point from here on, it's the homeowner's responsibility.
Why the Six-Year Wait? The IRS Angle
The six-year holding period isn't arbitrary, and it's tied directly to the fact that HDM not the homeowner claims the federal solar Investment Tax Credit (48E) on the system.
A few things worth understanding here:
The ITC has a recapture rule. Under federal tax law, if the owner of a solar system disposes of it (including transferring ownership) within five years of it being placed in service, some or all of the tax credit already claimed can be "recaptured" meaning the IRS can claw it back, on a sliding scale that phases out 20% per year over five years. Waiting until year six gives HDM a buffer past that five-year recapture window before ownership changes hands.
The agreements are structured as service contracts, not sales, for tax purposes. Both contracts explicitly state (citing IRC Section 7701(e)) that the arrangement is meant to be treated as a service contract for the purchase of energy or storage services, not a lease-to-own or installment sale. This distinction matters: if the IRS viewed the arrangement as a disguised sale of the equipment to the homeowner from day one, HDM likely would not be considered the tax owner of the system, and would not be entitled to claim the ITC in the first place.
This is why the purchase price can't be fixed in advance. For the service-contract characterization to hold up, the eventual transfer needs to happen at a genuine, independently determined fair market value at the time of transfer, not a price (or a "sure thing" bargain price) that was baked into the contract when you signed it. A pre-agreed, below-market purchase price set at inception is one of the classic factors the IRS and courts look at when deciding whether something that's labeled a "service contract" or "lease" is actually a financed sale in disguise. That's exactly why your contract requires HDM to prepare a fresh, good-faith FMV appraisal at year six, rather than naming a dollar figure today for what the system will be "worth" in six years.
The $0 result is a consequence of the math, not a promised discount. The reason most homeowners end up paying nothing at year six isn't because the contract promises a zero cost transferred system, it's because the depreciated FMV of six-year-old solar or battery equipment almost always ends up lower than the value of the energy services the homeowner already paid for but hasn't used yet. Those are two independently calculated numbers that happen to net out favorably for the homeowner.
A note on this section: This is a general explanation of the underlying tax concepts and how the contracts are structured, not tax or legal advice. Tax treatment can depend on individual circumstances, and rules can change. If you have questions about how this applies to your specific situation, it's worth speaking with a qualified tax professional.
The Bottom Line
You prepay for years of solar energy or battery storage, not for the hardware itself.
HDM owns and maintains the system for the first six years and claims the associated tax benefits.
At year six, HDM compares what it still "owes" you (unused prepaid value) against the system's real-world depreciated value.
If what you're still owed is worth more than the system itself, ownership transfers to you for $0, no strings attached, with all remaining warranties assigned to you.
The six-year timeline and the requirement to use a fresh, independently determined valuation (rather than a pre-set price) exist specifically to preserve the tax treatment that makes the whole program possible.
Thank you,
Dylan Mathias
Owner, First Response Solar
707.888.1243
License #: 1039876
Comments