Solar PPA vs ownership: the 25-year cost

A solar power purchase agreement (PPA) looks attractive on day one: a third party funds, installs and maintains the array, and you simply buy the electricity it generates, usually at a rate below your grid price. No capital outlay, no asset on the books, no maintenance headache. For a finance director weighing capital priorities, that is a real pull.

But a PPA is a 15-to-25-year commercial relationship, and the figure that matters is not the day-one unit rate — it is the total cost over the life of the system, set against what the same system would cost if you owned it via asset finance. Once you model both routes in pounds across 25 years, the picture usually shifts. This guide walks through where the money actually goes, so the PPA vs buying decision is made on numbers rather than on the appeal of zero capex.

How the two routes differ in one paragraph

Under a PPA, the funder owns the system for the whole term. They keep the capital allowances, they keep the Smart Export Guarantee (SEG) income from any electricity you do not use, and they price the unit rate to recover their capital, their margin and their maintenance cost — typically with an annual escalator. Under ownership via asset finance, you own the system from commissioning (or at the end of the agreement), you claim the allowances, you keep the export income, and once the finance is repaid the electricity is close to free for the remaining life of the panels. The 25-year contest is really about who captures those three things: the allowances, the export income, and the post-payback years.

The funder’s margin is baked into every unit

A PPA provider is a business funding your asset and taking installation, performance and counterparty risk. They are entitled to a return for that, and it is recovered through the unit price you pay for power — plus, in most contracts, an annual escalator of around 2 to 4 per cent. Over 25 years a modest-looking escalator compounds into a materially higher rate in the later years than the one you signed on.

When you own the system instead, the equivalent “rate” is your fixed finance repayment, which ends — often inside seven to ten years — after which your cost of generation collapses to maintenance and the occasional inverter replacement. The PPA, by contrast, keeps charging you a per-unit price for the full term. Modelling both in pounds, side by side, is the only honest comparison; our asset finance vs PPA breakdown and the finance calculator let you do exactly that with your own figures.

The capital allowances stay with whoever owns the asset

This is the part that most zero-capex pitches skate over. Solar PV is special-rate (integral-feature) expenditure. It qualifies for the Annual Investment Allowance (AIA) at 100 per cent on up to £1m of qualifying spend a year, and for the 50 per cent first-year allowance on expenditure above that. Both reliefs are permanent. (Note that solar does not qualify for 100 per cent full expensing — that relief is for main-rate plant only — a point worth correcting if anyone tells you otherwise.)

The catch is that allowances belong to the owner. Under a PPA, the funder owns the asset, so the funder claims the allowances; you get none of that tax relief. Buy the same system through hire purchase, an equipment loan or outright capital purchase and your business owns it, so your business claims the AIA or 50 per cent FYA against its own tax bill. For a profitable company that relief can recover a large slice of the system cost in year one. Our capital allowances guide works through the numbers.

A finance lease sits in between: the lessor usually claims the allowances and passes the benefit back through lower rentals (unless it is a long-funding lease). An operating lease gives the lessee no allowances, though the rentals themselves are deductible. So if capturing the tax relief in your own accounts is the priority, an ownership route is what delivers it.

The export income (SEG) follows ownership too

Most commercial arrays generate more than the site consumes at certain times, and that surplus can be sold back to the grid under the Smart Export Guarantee. SEG income is paid to the system owner. Own the asset and that income is yours; sign a PPA and it goes to the funder along with the allowances. Over 25 years, on a well-sized commercial system, the lost export income is not a rounding error — it is a recurring line the funder keeps year after year.

When a PPA still wins

None of this makes a PPA the wrong answer for everyone. A PPA can be the better route when:

• your business pays little or no corporation tax, so the capital allowances have no value to you anyway;
• capital is genuinely unavailable and no finance line can be arranged;
• you want the funder to carry all performance and maintenance risk and value that certainty above the long-run saving;
• the occupier may change or the lease is short, making a long ownership commitment awkward.

For a non-taxpayer with no capital, a PPA can quietly come out ahead because the allowances and export income you would forfeit had little worth in your hands to begin with. The honest position is that a month-to-month PPA can win on cash flow, while 25-year ownership usually wins on total cost — and the only way to know which applies to you is to model both.

How to make the comparison properly

Do not compare a PPA unit rate against your current grid price and stop there. Compare the full 25-year cost of the PPA — escalating unit rate, for the whole term — against the full cost of ownership net of allowances and export income: the finance repayments, less the tax relief you claim as owner, less the SEG income you keep, plus maintenance, with the post-payback years valued at near-zero generation cost.

A few practical points to factor in. Revised FRS 102 brings most leases on-balance-sheet for lessees for accounting periods beginning on or after 1 January 2026 (short-term and low-value leases are exempt), so the off-balance-sheet appeal of some structures is narrowing — worth checking with your accountant. And VAT on the equipment is reclaimable by a VAT-registered business: with HP or a loan you pay it up front and reclaim it, with a lease it is spread across the rentals.

If you want a structured view of the ownership options before running the comparison, it is worth setting hire purchase, finance lease, operating lease, equipment loans and sale-and-leaseback side by side so you can see which one captures the allowances and export income in your own accounts.

The bottom line

A PPA removes the capital question but hands the funder three things of real value over 25 years: the capital allowances, the export income, and the cheap post-payback years. For a profitable, tax-paying business that can arrange finance, owning the system almost always captures more of the project’s lifetime value than renting the power from it. For a non-taxpayer with no capital, the PPA’s give-aways cost less, and it can be the sensible choice.

The decision should rest on your own modelled figures, not on the headline appeal of zero capex. If you would like us to run both routes in pounds for your specific system and tax position, request a quote and we will set the 25-year comparison out clearly so you can see exactly where the money goes.