How to work out your solar cost per kWh

Quick answer: Take everything the route costs you over the period, divide by the kilowatt-hours generated over that same period, and compare. An owned system’s figure is the installed cost plus the total cost of credit over lifetime generation; a PPA’s is its unit rate escalated year by year. Use one yield forecast and one time horizon for both, 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.

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.

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 today’s grid price. 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.

Confusing generation with consumption. Self-consumed units are worth your full import 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.

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.