Solar asset finance vs a PPA

Quick answer: With asset finance you own the solar system, so you keep the capital allowances and the Smart Export Guarantee income, and the cost ends after a 2–7 year term. With a PPA a third party owns the system and keeps the allowances and export income while you buy the power back for 15–25 years. A PPA needs no capital, but for most profitable businesses owning via finance wins over the asset’s life.

A Power Purchase Agreement (PPA) is the simplest pitch in commercial solar: a third party pays for and owns the system on your roof, and you buy the electricity it generates at an agreed rate, usually for 15 to 25 years. No capital, no maintenance worries. Asset finance is different: you fund a system that you own — via hire purchase, an equipment loan, a lease or cash — and repay it over a much shorter term.

The reason the choice matters is that three valuable things follow ownership: the capital allowances, the Smart Export Guarantee income, and the asset itself once it's paid off.

Over 25 years, ownership usually wins

Month to month, a PPA can undercut your grid tariff from day one with no capital at all — which is why it appeals. But stretch the view to the full life of the system and the picture changes. The PPA funder builds in a margin on every kWh for 15–25 years, banks the capital allowances your business could have claimed, and keeps the export income. With asset finance you carry a cost for only the 2–7 year finance term; after that, the system generates electricity for your business effectively for free for another 15–20 years, and you've kept the tax relief and export income throughout.

Commercial PPA solar agreements: what you are signing

Commercial PPA solar agreements are longer and more binding than the zero-capital headline suggests, so be clear what the document commits you to. The term is typically 15 to 25 years, across which you agree to buy the electricity the roof generates at a unit rate set in the contract, almost always with an annual escalator — indexed to inflation or fixed at a set percentage. The starting rate normally sits below your grid tariff; whether it still does in year 18 depends on wholesale power, which nobody can underwrite.

Ownership decides the tax, and it is worth being precise about what is handed over. Solar PV is special-rate expenditure (HMRC CA22335). An owner can put up to £1m of qualifying spend a year through the Annual Investment Allowance at 100%, claim the 50% first-year allowance on special-rate spend above that cap — for companies buying new, unused equipment — and write the balance down at 6% a year thereafter. Solar does not qualify for full expensing; that relief is main-rate plant only, and plenty of finance pages get it wrong. Under a PPA none of that reaches your tax computation, because the funder owns the asset and claims the capital allowances, and the funder also keeps the export income on every unit sent to the grid. Exported units are paid for under an export tariff, and the rate is set by the supplier, not by Ofgem. The spread is wide — one supplier's open Smart Export Guarantee rate was 4.1p/kWh while its commercial tariff was 12p/kWh in September 2026, and that commercial tariff caps below 150 kWp and requires an import contract with the same supplier — so get the rate you will actually be paid in writing before you model it.

The remaining obligations attach to the building, not the kit. You grant the funder access to the roof for the life of the agreement, usually under a lease or licence, and accept conditions covering re-roofing, alterations and insurance. There will be a reinstatement clause covering removal and making good at the end. And if you sell the premises the agreement does not fall away — it either transfers to the buyer, who has to accept it, or you buy it out, so a purchaser's solicitor will price a 20-year roof contract into the deal.

That makes the questions worth settling before signing narrow and answerable: what the escalator is and what it compounds to by the end of the term, what happens if you sell the building, and what the buy-out price looks like at years five, ten and fifteen. Take the escalator as a compounded figure rather than a headline percentage — 3% a year lands roughly 80% above the starting unit rate over a 20-year term (illustrative). And if the appeal is avoiding the capital rather than avoiding ownership, a solar operating lease sits between the two routes: the rentals are deductible, the term is far shorter, and no 25-year power price attaches to your roof.

Comparing the two on cost per kWh

A PPA is quoted in pence per kilowatt-hour and finance is quoted in pounds per month, which is why the two are so rarely compared properly. Convert both to the same unit — cost per kWh over the life of the system — and the comparison becomes arithmetic rather than sales.

The owned side you can work out yourself. Take an illustrative 165 kW rooftop system at £160,000 generating roughly 148,500 kWh a year. Funded over six years on hire purchase at an illustrative 8.5% APR — about £2,820 a month — the finance costs roughly £203,000 in total. Across a 25-year life the system produces in the region of 3.5 million kWh (output declines slightly each year, so use your installer's yield forecast rather than a flat multiple). That puts the financed cost at a little under 6p per kWh before maintenance — and nothing at all after year six, because the asset is yours.

The PPA side is the funder's to quote, and there are only two numbers you need:

• The opening unit rate, in p/kWh, and whether it is billed on generation or on what you actually consume.
• The escalator — the annual increase, either a fixed percentage or linked to an inflation index. Ask for it compounded to the final year, not as a headline. A 3% escalator raises the unit rate about 80% over 20 years; 4% roughly doubles it.

Then compare like with like: the PPA's rate in year one, year ten and year twenty against your own financed cost per kWh and against your projected grid tariff. A PPA that starts below the grid can still end above it. Our solar finance calculator works the owned side; the PPA side needs the funder's figures in writing.

How each deal actually proceeds

The two routes feel different from the first week, and knowing the sequence helps you judge which suits your timetable.

Asset finance runs on your project. You get quotes from installers, we model the routes and place the facility with a funder based on your accounts, and the funder pays on commissioning — so you are never financing an asset that is not yet generating. The paperwork is a finance agreement over the equipment, and it ends when the term ends. Decisions turn on your covenant and the project's numbers, and the asset stays on your balance sheet with the allowances attached.

A PPA runs on the funder's investment case. Expect a longer diligence process: a site and roof survey, structural checks, proof of your electricity consumption (usually half-hourly data), a credit review of your business as the offtaker, and — because the funder is placing equipment on someone else's building for two decades — property work. You will be asked to grant roof rights, and if you lease the building your landlord has to consent. The signing pack is bigger, and it includes property documents as well as a power contract.

The practical consequence: a PPA can take longer to close than a financed purchase, and most of the extra time sits with the property and consent work rather than the energy modelling.

The property and accounting questions a PPA raises

These are the clauses that decide whether a PPA is administratively simple or a twenty-year encumbrance on your building, and none of the pages ranking for this comparison cover them.

• Roof rights. The funder needs a legal right to keep equipment on the roof and to access it. That is usually a lease or licence over the roof space, registered or noted against the property.
• Landlord consent, if you are a tenant. Most commercial leases restrict alterations, so installing third-party generating plant normally needs written consent. Start there, not at the end — it is the single most common reason a commercial PPA stalls.
• Re-roofing and alterations. If the roof needs work during the term, who pays to remove and refit the array? The agreement should say.
• Selling the building. The agreement does not disappear on a sale. Either the buyer takes it on or it is bought out, and a purchaser's solicitor will price a long power contract into the negotiation.
• Insurance and reinstatement. Expect obligations about insuring the building with the array in place, and a clause covering removal and making good at the end.
• Whether the accounts treat it as a lease. This is the one businesses miss. An agreement that gives you the right to control the use of identified equipment can contain a lease for accounting purposes, and under the revised FRS 102 most leases sit on the lessee's balance sheet for accounting periods beginning on or after 1 January 2026. That applies to companies reporting under FRS 102; micro-entities reporting under FRS 105 are unaffected, so their operating leases stay off balance sheet, and an unincorporated business reports under neither. If the appeal of a PPA was keeping it off the balance sheet, ask your accountant to assess the agreement before you rely on that.

With asset finance the equivalent list is much shorter, because you own the equipment on your own building: there is a finance agreement, and the asset and liability appear in your accounts in the ordinary way.

When a PPA is the right call

None of this makes PPAs bad — they're the right answer for some organisations. If your business genuinely can't deploy any capital, can't use the capital allowances (a non-taxpaying body, say), or wants a third party to shoulder all the performance and maintenance risk, a PPA can be the sensible route. The point is to choose with the full comparison in front of you, not just the zero-capital headline.

We model both, in pounds

For every enquiry we build a like-for-like comparison: the PPA over its full term against each asset-finance route, net of the allowances, with payback, total cost and the 25-year position laid out side by side. If a PPA genuinely wins for your situation, we'll tell you. More often, owning the system through finance comes out ahead — and now you'll know by how much.