Commercial solar PPA: pros and cons

A commercial solar Power Purchase Agreement (PPA) lets a third party install and own a solar system on your roof or land, and you buy the electricity it generates at an agreed unit price. It is one of the genuine ways to get solar on a commercial building with no upfront cost. It is also the route that gives away the most value over the life of the system. This guide sets out the honest case for and against a PPA, and where it genuinely is the right answer.

How a commercial solar PPA works

Under a PPA, a funder pays for the panels, inverters and installation. They retain ownership of the equipment for the contract term, typically 15 to 25 years. You sign up to buy the power the system produces at a fixed or index-linked rate per kWh, usually below your grid import price. You take no equipment on your balance sheet and you carry no maintenance obligation. At the end of the term you usually have the option to buy the system, extend, or have it removed.

That is the headline appeal: solar with no capital outlay and no operational responsibility. For a business that cannot or will not deploy capital, that is a real benefit. The question is what you give up in exchange.

The pros of a solar PPA

Zero capital expenditure. You preserve your cash and your existing borrowing facilities for the core business. Nothing is drawn down, nothing is secured against your other assets.

No maintenance or performance risk. The funder owns the system, so they carry the cost of inverter replacements, monitoring and repairs. If the system underperforms, that is largely their problem because you only pay for power actually delivered.

Predictable unit price. A PPA rate is typically lower than your current grid import cost and is contractually fixed or capped, which gives some insulation against energy price volatility for the contract term.

Off your balance sheet for now — but check the date. Historically a well-structured PPA service contract sat outside lease accounting. Be aware that the revised FRS 102 brings most leases on-balance-sheet for accounting periods beginning on or after 1 January 2026 (short-term and low-value exemptions aside), and a PPA with embedded-lease characteristics may be caught. Your accountant should test the specific contract.

The cons of a solar PPA

This is where finance directors need to look closely, because the costs are mostly the value you forgo rather than money you hand over.

You do not own the asset. For the full term, the system belongs to the funder, not you. You have a long-term cost obligation rather than an appreciating piece of plant on your balance sheet.

You lose the capital allowances. Solar PV is special-rate (integral-feature) expenditure. When a business owns the system — through cash purchase, a hire purchase agreement or an equipment loan — it claims the allowances itself: the Annual Investment Allowance at 100% on up to £1m a year, and the 50% first-year allowance on spend above that. Both are permanent. Under a PPA the funder claims those allowances, not you. For a profitable, tax-paying business that relief is worth a substantial slice of the system cost, and a PPA simply transfers it to someone else. Our capital allowances guide works the numbers.

You lose the export income. The owner of the system also keeps the Smart Export Guarantee (SEG) payments for surplus electricity sent to the grid. Under a PPA that revenue belongs to the funder. Own the system and the SEG income is yours.

The funder’s margin is baked into the unit rate. A PPA has to pay back the funder’s capital, allowances notwithstanding, plus their target return, across every kWh you buy. Over 20 years that margin can add up to more than the system would have cost to own outright. Modelling it in pounds usually flatters ownership — our asset finance vs PPA comparison sets the two side by side over the full term.

Long contracts with rate escalators. Many PPAs index the unit price to inflation, so the “below grid” rate today may converge with grid prices later. Early exit and buy-out terms can be onerous, so the clauses matter as much as the headline rate.

PPA versus owning through asset finance

The simplest way to frame it: a PPA removes capex but also removes the asset, the tax relief and the export income. Owning through asset finance keeps all three with your business while still spreading the cost.

With hire purchase or an equipment loan you own the system from the outset and claim the allowances. With a finance lease the lessor usually claims the allowances and passes the benefit through lower rentals; with an operating lease there are no allowances for you but the rentals are deductible. A PPA sits at the far end of that spectrum — lowest commitment, lowest retained value. You can see all the ownership structures on our verticals overview, and a quick numbers check is available on the finance calculator.

On VAT: a VAT-registered business reclaims the VAT on equipment it buys, paying it up front under HP or a loan, or spreading it across rentals under a lease. A PPA charges VAT on the power you buy, much like any other energy supply.

When a PPA is genuinely the right call

A PPA is not a bad product — it is the wrong product for most profitable, tax-paying businesses, and the right one for a specific group:

• Non-taxpayers — charities, some public bodies and loss-making entities that cannot use the capital allowances anyway lose far less by handing them to a funder.
• Businesses with no appetite or ability to deploy capital, where preserving every pound of facility headroom outweighs long-term value.
• Short-tenure occupiers who will not be in the building long enough to recover an owned system, though even then a short-term arrangement needs careful exit terms.

For almost everyone else — a profitable trading company, an owner-managed business, a farm with a steady daytime load — owning the system through finance keeps the allowances, the export income and the asset on your side of the table.

If you are weighing a PPA offer against owning the system, get both modelled in pounds over the full term before you sign. We are an independent asset finance brokerage, not an installer, so we have no system to sell you — only the right structure to fund it. Request a quote and we will run the comparison and arrange finance that keeps the value with your business.