What is a solar PPA and how does it work?

A solar Power Purchase Agreement (PPA) is one of the most common ways UK businesses are offered “free” rooftop solar. It sounds straightforward: a third party pays for and installs the system on your roof, and you buy the electricity it generates at an agreed rate. No capital outlay, no maintenance worry. For a finance director weighing how to fund a commercial installation, though, the detail behind that headline matters a great deal, because a PPA quietly hands several valuable things to someone else.

This guide explains what a solar PPA is, how the mechanics work over the life of the contract, and how it compares with owning the same system through asset finance. We arrange finance rather than sell PPAs, so we will be candid about where each route genuinely makes sense.

What a solar PPA actually is

A solar power purchase agreement is a long-term contract, typically 15 to 25 years, between your business (the offtaker) and a funder or developer (the PPA provider). The provider owns the solar system on your roof. You agree to buy the power it produces at a set price per kilowatt-hour, usually indexed to inflation, for the duration of the agreement.

In practice the arrangement works like this:

• The provider funds, designs, installs and insures the system at no upfront cost to you.
• You sign up to a unit rate, often pitched a little below your current grid import price.
• The provider invoices you monthly for the solar electricity you consume.
• The provider keeps responsibility for maintenance, monitoring and repairs for the term.
• At the end of the term you may be offered the system for a nominal sum, a fresh contract, or removal.

The appeal is obvious. You get on-site generation and a lower unit rate without spending capital or taking the system onto your balance sheet during the contract. That is genuinely useful for organisations with no capital budget, or for non-taxpayers such as charities and some public bodies that cannot use the tax reliefs an owner would claim.

Who owns the system, and why it matters

This is the point most PPA marketing skips over. Under a PPA the provider owns the asset throughout. That ownership carries three benefits, and all of them sit with the funder rather than with you.

First, the capital allowances. Solar PV is special-rate (integral-feature) expenditure for tax purposes. Whoever owns it can claim the Annual Investment Allowance at 100% on up to £1m of qualifying spend in a year, and the 50% first-year allowance on expenditure above that. Both reliefs are permanent. Under a PPA, the provider owns the kit, so the provider claims those allowances, not you.

Second, the Smart Export Guarantee. SEG pays the system owner for surplus electricity exported to the grid. On a PPA, the funder is the owner, so the funder keeps the export income.

Third, the asset itself. For 15 to 25 years you are buying power from equipment bolted to your own roof, but you do not own it and you cannot refinance it or release capital from it.

If your business is profitable and pays corporation tax, those allowances and the export income are real money. Handing them to a funder is the hidden cost of the “no capital outlay” pitch. We set the comparison out in full on our asset finance vs PPA page.

How a PPA compares with owning via finance

The honest framing is not “PPA bad, ownership good”. It is a question of who keeps the upside. If you own the system, you keep the savings, the allowances and the export income, and you carry the maintenance and performance risk. If you sign a PPA, you offload the risk and the upfront cost, but you also give away the allowances, the SEG income and ultimately the asset.

Asset finance lets you own the system without the capital outlay that makes ownership feel out of reach. The main routes are:

Hire purchase and equipment loans

With hire purchase or an equipment loan, the business owns the system from day one. You claim the full capital allowances, you keep the SEG income, and you spread the cost across fixed monthly payments. VAT-registered businesses reclaim the VAT, and on HP or a loan that VAT is paid up front and recovered on the next return. For most profitable trading companies, this is the route that keeps the most value in the business.

Capital purchase

Paying cash, or buying the system outright, gives the lowest lifetime cost and full ownership. You claim 100% of the qualifying spend against profits via the AIA in year one (up to the £1m cap), then 50% first-year on any balance above it. The trade-off is the capital tied up, which is exactly what finance is designed to free.

Leasing

A solar lease sits between the two. With a finance lease the lessor usually claims the capital allowances and passes the benefit through in lower rentals (unless it is a long-funding lease, where the lessee claims). With an operating lease the lessee claims no allowances but the rentals are fully deductible as a business expense. VAT on a lease is spread across the rentals rather than paid up front. One change worth flagging: revised FRS 102 brings most leases on-balance-sheet for lessees for accounting periods beginning on or after 1 January 2026, with short-term and low-value leases exempt, so the historic off-balance-sheet appeal of operating leases is narrowing.

When a PPA is still the right call

A PPA earns its place in specific situations. If your organisation pays no corporation tax, the capital allowances are worth nothing to you, so giving them to a funder costs you little. Charities, some public-sector bodies and loss-making businesses fall into this group. A PPA can also suit organisations that genuinely cannot raise or allocate any capital and want a fully maintained, hands-off system with no performance risk.

For everyone else, the maths usually favours owning. The funder’s margin, the lost allowances and the forgone export income compound over a 15 to 25 year term, and you end the contract with nothing on your own roof. If you want to see the numbers for your project, our finance calculator lets you model repayments against the expected bill saving, and the capital allowances page shows the tax relief an owner keeps.

How to decide

Start by asking three questions. Does your business pay corporation tax it could offset with the allowances? Could you fund the system through HP, a loan or a lease without straining cash flow? And do you want to keep the asset and the export income, or genuinely prefer to offload all of it? If you pay tax, can structure affordable finance, and want the upside, ownership through asset finance almost always comes out ahead. If you pay no tax, have no capital, and value zero risk above all, a PPA can be the cleaner answer.

The right structure depends on your accounts, your tax position and the project size, and it is worth modelling properly rather than taking the first “free solar” proposal that lands on your desk. If you would like an honest comparison of a PPA against owning the same system through finance, request a quote and we will run the figures for your business with no obligation.