Solar funding, allowances and grants
The tax reliefs, export income and grant routes that improve the economics of commercial solar — and how each one stacks with asset finance. Updated for 2026.
Funding commercial solar isn't only about borrowing. The bigger levers for most businesses are the tax allowances and the export income — and the crucial point is that both belong to the system's owner. Fund the system through asset finance and you keep them; sign a PPA and the funder keeps them instead.
The headline relief is the Annual Investment Allowance: 100% of qualifying spend deducted from taxable profit in year one, on up to £1m a year. Solar PV qualifies. Above the £1m cap, the 50% first-year allowance applies (solar is special-rate, so it does not get 100% full expensing — a common and costly misunderstanding we explain in the capital allowances guide). On top of the tax relief, the Smart Export Guarantee pays the owner for exported electricity, and the Growth Guarantee Scheme helps lenders fund SME projects that might otherwise stall.
Grants and these reliefs can usually be combined — a regional decarbonisation grant funding part of a project, with asset finance covering the balance and the AIA reducing the net cost. One watch-point: if a system was grant-funded, check the grant's clawback terms before any later refinance or sale-and-leaseback. Here are the routes that apply.
Funding routes for this sector
Annual Investment Allowance (AIA) — 100%
All UK businesses paying income or corporation tax. Solar PV qualifies as special-rate plant and machinery; AIA gives 100% relief on up to £1m of qualifying capex per year.
- Value
- Up to 25% of the system cost back as tax relief for a company paying the 25% main rate, in year one.
The £1m AIA limit is permanent. Available on owned systems — hire purchase, equipment loan or cash purchase — not on PPAs, where the funder claims it.
50% First-Year Allowance (special rate)
Companies (corporation-tax payers) investing in special-rate plant and machinery, which includes solar PV, above their AIA.
- Value
- 50% of the qualifying cost deducted in year one, with 6% writing-down allowances on the balance thereafter.
Made permanent when the 1 April 2026 sunset was removed by the Autumn Finance Bill 2023. Note: solar does NOT qualify for 100% full expensing — that is main-rate only.
Smart Export Guarantee (SEG)
MCS-certified PV installs up to 5 MW exporting to the grid.
- Value
- Roughly 4–16p/kWh on standard tariffs in 2026, with bundled and time-of-use deals higher.
Crucially, SEG income belongs to the system OWNER. Under asset finance that is your business; under a PPA it is the funder. This export income is part of the case for owning.
British Business Bank — Growth Guarantee Scheme
UK SMEs with a viable proposal; the government guarantees 70% of the facility, helping lenders say yes to renewable capital projects.
- Value
- £25,000–£2m per business.
Successor to the Recovery Loan Scheme. Useful where a primary bank is reluctant on an unsecured solar loan.
Combined-authority & regional decarbonisation grants
Varies by region — GMCA, WMCA, WYCA, LCRCA and others periodically run SME decarbonisation grant rounds.
- Value
- Typically £5,000–£50,000 per business, often blended with finance for the balance.
Grants can usually be combined with asset finance to fund the non-grant portion. Watch grant clawback terms before any later refinance or sale-and-leaseback.