Solar PPA UK: Get Solar at £0 Upfront
A Power Purchase Agreement lets your business get solar panels installed for free. You buy the electricity at 30-50% below grid prices. No capital outlay, no maintenance, no risk.
Solar PPA: Quick Answer
A solar Power Purchase Agreement (PPA) lets UK businesses get solar panels installed at £0 upfront cost. A third-party investor owns and maintains the system; you buy the electricity at a fixed rate of 8-14p/kWh — typically 30-50% below commercial grid electricity prices of 20-28p/kWh. PPA contracts run 10-25 years with annual rate escalation of 1-2%. Minimum site requirement is 500m² of roof or 30 parking spaces. Unlike CapEx purchase, PPA does not qualify for Enhanced Capital Allowances tax relief since the business does not own the system.
How Does a Solar PPA Work?
A solar PPA is a financing arrangement where an investor pays for your solar installation and you buy the electricity it generates. The investor earns their return from selling you electricity below grid rates over 10-25 years. You get cheaper electricity with zero capital expenditure.
Site Assessment
PPA provider assesses your roof or car park. They evaluate structural suitability, electricity consumption patterns, and grid connection capacity. Minimum: 500m² roof or 30 parking spaces.
System Design & Contract
Provider designs a system sized to match your daytime electricity use (typically 70-80% self-consumption target). You agree a fixed electricity rate (8-14p/kWh) and contract term (10-25 years).
Installation (at Their Cost)
The PPA provider funds and manages the entire installation — panels, inverters, mounting, electrical work, grid connection, and commissioning. Total cost borne by the investor.
You Buy the Electricity
Once operational, you buy electricity from the system at the agreed PPA rate. Any surplus is exported to the grid by the provider. You continue buying shortfall from your existing electricity supplier.
Provider Maintains the System
The PPA provider handles all maintenance, monitoring, insurance, and inverter replacements for the contract duration. Performance guarantees ensure the system generates as promised.
Should You Choose PPA, CapEx, or Lease?
There are three ways to finance commercial solar: Power Purchase Agreement (PPA), outright purchase (CapEx), or equipment lease. Each has different upfront costs, returns, and tax implications. The right choice depends on your capital availability, tax position, and risk appetite.
| Factor | PPA | CapEx (Buy) | Lease / HP |
|---|---|---|---|
| Upfront Cost | £0 | £40,000 - £400,000+ | £0 (monthly payments) |
| Who Owns System | PPA provider | You (from day 1) | Finance company (you at end) |
| Electricity Cost | 8-14p/kWh (fixed) | ~4-5p/kWh (generation cost only) | ~4-5p/kWh + lease payments |
| Lifetime Savings | Moderate (30-50% bill reduction) | Maximum (60-70% bill reduction) | Good (varies by rate) |
| Tax Relief (ECA) | No — provider claims | Yes — 100% first-year relief | Depends on structure |
| Maintenance | Included (provider's cost) | Your responsibility | Usually your responsibility |
| Export Income (SEG) | Goes to provider | You keep it | You keep it |
| Contract Length | 10-25 years | No contract (you own it) | 3-10 years |
| Balance Sheet Impact | Off-balance sheet | Capital expenditure | May appear as liability |
| Best For | Businesses wanting zero risk | Businesses with capital wanting max ROI | Businesses wanting ownership without upfront capital |
Choose PPA When:
- No capital budget for solar
- You want guaranteed savings from day 1
- You don't want maintenance responsibility
- Off-balance sheet treatment matters
Choose CapEx When:
- You have capital and want maximum ROI
- You want 100% ECA tax relief
- You want to keep export income (SEG)
- You want no long-term contract
Choose Lease When:
- You want ownership but spread the cost
- Shorter commitment (3-10 year terms)
- You want export income from day 1
- Monthly payments fit your cash flow
What Are Typical Solar PPA Contract Terms?
Solar PPA contracts in the UK typically run 15-25 years with fixed or inflation-linked electricity rates. Key terms to negotiate include the rate escalation mechanism, buyout options, performance guarantees, and end-of-contract provisions.
Electricity Rate
- Starting rate: 8-14p/kWh (2026 typical)
- Escalation: 1-2% fixed per year, or RPI-linked
- Comparison: Grid rates are 20-28p/kWh commercial
- Negotiate: Cap on annual escalation (max 2-3%)
Contract Duration
- Typical range: 10-25 years
- Most common: 15-20 years
- Longer = lower rate: 25-year PPAs offer lower p/kWh
- Consider: Your property lease term must exceed PPA term
Buyout Options
- Available from: Usually year 5-7 onwards
- Price: Fair market value (declining over time)
- Year 7 buyout: Typically 40-60% of original cost
- Year 15 buyout: Typically 10-25% of original cost
Performance Guarantees
- Generation guarantee: 85-90% of predicted output
- Degradation: Max 0.5-0.7% per year included
- Uptime guarantee: 97-99% availability
- Compensation: If underperformance, rate reduction or credit
Critical: Check Your Property Lease
Your property lease must be longer than the PPA contract. If you lease your building with 12 years remaining, you cannot sign a 20-year PPA. You also need your landlord's consent if you don't own the building outright. Some landlords resist PPAs due to the equipment remaining on the roof if you vacate.
Does Your Site Qualify for a Solar PPA?
PPA providers are selective because they are investing their own capital. A site must be large enough and have sufficient electricity consumption to generate an adequate return for the investor over 15-25 years.
Likely to Qualify
- Roof area: 500m²+ usable space
- Electricity bill: £20,000+/year
- Operating hours: Daytime heavy (warehouses, factories, offices)
- Roof condition: Good structural condition, <10 years old or recently refurbished
- Lease: 15+ years remaining or freehold
- Credit rating: Established business with stable finances
Unlikely to Qualify
- Roof area: Under 300m²
- Electricity bill: Under £10,000/year
- Operating hours: Primarily evenings/nights
- Roof condition: Asbestos, structural concerns, replacement needed
- Lease: Under 10 years remaining
- Business age: Start-up or <3 years trading
Not sure? Use our commercial solar calculator to get an instant estimate of your PPA savings based on your roof size and electricity consumption. The calculator compares PPA vs CapEx returns for your specific site.
What Are the Risks and Downsides of a Solar PPA?
Solar PPAs are low-risk compared to most energy contracts, but they are not without drawbacks. The main risks are long-term commitment, rate escalation over time, and reduced savings compared to outright ownership.
1. Long-Term Commitment
A 20-year PPA is a significant commitment. If you need to vacate the property, the PPA obligation typically transfers to the new tenant or landlord — which can complicate property sales or lease negotiations. Early termination fees apply in most contracts.
2. Rate Escalation Erodes Savings Over Time
A PPA starting at 10p/kWh with 2% annual escalation reaches 14.9p/kWh by year 20. If grid electricity prices fall (unlikely but possible), the PPA could become less competitive in later years. Negotiate a cap on escalation and review the projected rate at year 15 and 20 before signing.
3. Lower Total Savings Than Buying
Over 25 years, buying solar panels outright delivers approximately 50-80% more total savings than a PPA. The PPA provider takes a margin on the electricity — that margin is the cost of zero upfront investment and zero maintenance risk. If your business has the capital, CapEx will always outperform PPA on total returns.
4. No Tax Benefits
Enhanced Capital Allowances (100% first-year tax relief on solar equipment) are claimed by the PPA provider, not you. For a business paying corporation tax, this can be worth 25% of the system cost. A £200,000 system would generate £50,000 in tax relief under CapEx — money left on the table with a PPA.
5. No Export Income
Smart Export Guarantee (SEG) payments for surplus electricity go to the PPA provider, not you. While SEG rates (currently 3-15p/kWh) are modest, they add up over 25 years — particularly for systems that generate more than you consume on weekends and holidays.
Calculate Your PPA Savings
Use our free commercial solar calculator to compare PPA vs CapEx returns for your specific site.
Free Solar Calculator