Solar Cost per kWh: How to Work It Out (UK Business, 2026)

Quick answer: Take everything the route costs you over the period, divide by the kilowatt-hours generated over that same period, and compare. On the illustrative 165 kW system worked through below, the system’s own cost comes out at roughly 4 to 5p per kWh if paid for in cash and 5 to 7p if financed over six years at 8.5% APR, depending on where the roof is and how it is pitched, before running costs and tax relief. Use one yield forecast and one time horizon for every route, or the numbers cannot be compared.

Commercial solar gets quoted in three incompatible units. A purchase comes as a capital sum. Finance comes as a monthly payment. A power purchase agreement comes as pence per kilowatt-hour. Almost every bad decision in this market comes from comparing two of those without converting them first, and the conversion is the figure people search for as the solar energy cost per kWh.

The conversion is simple arithmetic, and it is worth doing yourself before anyone presents you with a recommendation.

The method

Cost per kWh = total cost over the period ÷ kWh generated over the period.

Pick the period first, and use the same one everywhere. Twenty-five years is the usual frame for solar because that is the span most performance warranties address, but ten years is often more decision-relevant. Then build each side.

The owned side

1. Installed cost, net of VAT (you recover it) and net of any grant — remembering that a grant also reduces the capital allowances you can claim.
2. Total cost of credit, if you are financing: every repayment added together, minus the amount financed.
3. Running costs over the period: monitoring, insurance, and an allowance for an inverter replacement part-way through.
4. Minus the tax relief you can actually use. For a company at the 25% main rate claiming the Annual Investment Allowance, that is up to a quarter of the qualifying cost in year one.

Divide the result by lifetime generation. Illustratively: a 165 kW system at £160,000 generating around 148,500 kWh a year, financed over six years at an illustrative 8.5% APR (about £2,820 a month), produces roughly 3.5 million kWh across 25 years for a total finance outlay near £203,000 — a little under 6p per kWh before running costs and before the tax relief, which pushes it lower still. And after year six there are no payments at all.

The PPA side

You need exactly two numbers from the funder:

• the opening unit rate in p/kWh, and whether it is billed on what the system generates or on what you actually consume; and
• the escalator — the annual increase, fixed or index-linked.

Then escalate. A 3% escalator raises the rate about 80% over 20 years; 4% roughly doubles it. Apply the escalated rate to the units you expect to take each year, and total it.

A worked example: the same system in four places

Take the 165 kW rooftop system used across this site: £160,000 installed, which is about £970 per kWp. That price is an assumption for illustration, not a market benchmark, so replace it with your quote. Generation depends on where the roof is and how it is pitched, so the table uses the European Commission’s PVGIS yields for a south-facing array with 14% system losses, then applies a 0.5% annual decline over 25 years — the median in Jordan and Kurtz’s analytical review of 1,920 reported degradation rates, which the authors describe as a literature survey rather than a scientific sample. The finance column is hire purchase over six years at 8.5% APR: £2,820 a month, £203,030 in total, of which £43,030 is the cost of credit.

Roof	Year-one yield (kWh per kWp)	25-year generation	Cash (p per kWh)	Hire purchase (p per kWh)	Credit adds
London, 10° (flat roof)	921	3.58 million kWh	4.47	5.67	1.20
Manchester, 10°	807	3.14 million kWh	5.10	6.47	1.37
Glasgow, 10°	772	3.00 million kWh	5.33	6.77	1.43
London, 35° (pitched)	1,019	3.96 million kWh	4.04	5.13	1.09

Each figure is the installed cost (cash) or total repayments (hire purchase) divided by 25-year generation. They exclude running costs, any inverter replacement and tax relief.

Three things stand out:

• Location and pitch move the answer by about a third. The same £160,000 system costs 4.04p per kWh on a pitched London roof and 5.33p on a flat Glasgow one, and nothing about the price or the finance changed. A forecast built for your roof is the single most valuable input.
• Finance adds roughly 1.1 to 1.4p. That is the price of keeping £160,000 of capital in the business and spreading it over six years, and it is the figure to weigh against what that capital would otherwise earn.
• Tax relief takes a visible slice. A company at the 25% main rate claiming the Annual Investment Allowance on the full £160,000 relieves up to £40,000 in year one, which takes the London flat-roof cash figure from 4.47p to about 3.35p per kWh.

How it compares with the electricity you buy

The department’s Quarterly Energy Prices, published on 29 September 2026, put the average non-domestic electricity price including the Climate Change Levy (CCL) at 24.51p per kWh in the second quarter of 2026, up 2.0% on a year earlier, and note that it varies by size band. Set against 4 to 7p, that looks like a rout, but two cautions keep the comparison honest.

It is an average of the whole bill. Part of what you pay falls when you generate your own electricity, and part does not. Since 1 April 2023 the demand-residual element of the transmission charge has been a fixed daily charge per site, set by consumption or capacity band, so cutting your import volume does not reduce it (NESO guidance). The saving that counts is against the per-unit components on your bill: energy, the variable network charges and levies. Ask for the unit-rate breakdown rather than quoting the headline; our guide to average business electricity rates shows which parts of the bill solar reduces and what that does to the payback.

CCL is part of that price, and self-supply sits outside it. The levy is £0.00801 per kWh on electricity from 1 April 2026 (HMRC rates). HMRC’s guidance for the levy, Excise Notice CCL1/3, says an auto-generator or exempt unlicensed supplier does not have to account for CCL on self or direct supplies of renewable-source electricity. Units you generate and use on your own site therefore carry no supplier levy, which is one more reason the avoided cost is not simply the bill’s average.

For scale only: DESNZ’s contractor study of 2023 and 2024 costs (Arup, 14 July 2025) puts the levelised cost of utility-scale solar, meaning farms of 11 to 225 MWp rather than roofs, at £46.5 per MWh in the medium case and £30.3 to £65.2 across the low to high range, in 2023 prices at a 5% hurdle rate. That is 3.0 to 6.5p per kWh. It is a levelised figure, which discounts both costs and generation, so it is not like-for-like with the simple division used here, and a rooftop system has none of the scale economies of a solar farm. Treat it as a sense of the order of magnitude, not a benchmark for a roof.

The four traps

Holding generation flat. Output declines slightly every year. Using year-one generation for 25 years flatters both sides, but it flatters a long PPA more, because the later years carry the highest rates.

Ignoring what you own at the end. Cost per kWh treats the final year like the first. It does not capture the fact that an owned system keeps generating for free after the finance ends, or that it can later be refinanced or sold and leased back to release capital.

Comparing against the wrong grid number. The saving is against your import tariff, which is the thing you are avoiding, and that changes over the period too. Be explicit about the assumption rather than burying it, and use the per-unit components rather than the average.

Confusing generation with consumption. Self-consumed units are worth your full avoided unit price; exported units are worth the export tariff, which is lower. Rates are set by suppliers, not by Ofgem, and the spread is wide: one supplier’s open Smart Export Guarantee rate was 4.1p/kWh in September 2026 against 12p/kWh on its commercial tariff, which caps below 150 kWp. A system on a site that runs at night exports far more than one on a daytime manufacturing site, and that alone can move the economics more than the finance rate does.

Where to run the numbers

The owned side is on our solar finance calculator: put in the cost, term, indicative rate and annual energy value and it returns the monthly repayment, the total cost of credit and the year-one relief. Take the finance total from there and divide by your installer’s lifetime yield figure. If you are choosing between routes, hire purchase is the owned route the table’s finance column models.

For the PPA side, ask for the rate and escalator in writing — they are the only two inputs you need, and a funder who will not put them in writing has told you something useful. Then compare both against your projected import tariff on the same chart. Our asset finance vs PPA page sets out the wider trade-offs, including the tax and the property questions, and solar panel lease vs buy does the same for rental against ownership.

The one-line version

If the cost per kWh of owning is materially below the PPA rate in year one, it will be far below it by year fifteen, because your figure is fixed and theirs escalates. If it is above, the PPA may genuinely be the better deal — and now you will know by how much, in a unit that means something.