Case Study · Manufacturing

Published 2026-04-01 · By Commercial Solar Finance editorial team

850kWp on a Black Country precision engineer

A profitable family-owned engineering firm wanted solar but didn't want to lock up working capital. We blended a green loan with a capital deposit to deliver capital-purchase tax efficiency without the cash-flow hit.

System

850kWp

Capex

£680k

Year-1 saving

£172k

Payback

3.9 yrs

Situation

A second-generation family-owned precision engineering firm in the Black Country, supplying tier-2 components to UK and European automotive OEMs. Annual turnover £18m, ~120 employees, two production facilities totalling 32,000m² across Wolverhampton and Walsall. Three-shift operation Monday–Saturday with continuous baseload from CNC machining, presses, and HVAC. Annual electricity spend £340k across both sites at average 23p/kWh blended rate.

Constraint

The business was profitable and could in theory have funded the system from cash. But the directors wanted the £700k+ working capital available for a planned plant upgrade in the next 18 months. They were also clear they didn't want to give away control of the asset — PPA structures had been pitched to them and rejected. The brief: capital-purchase economics, but with most of the capital provided by a lender.

Structure

We modelled six finance routes side by side. The winning structure was a 70/30 blend: 70% green loan (£476k) at 6.8% over 10 years from a specialist green-debt provider; 30% capital deposit (£204k) from the company. The green loan was secured on the asset with a debenture and personal guarantees from the directors. The blend let the company retain 100% of the capital allowances (50% First Year Allowance plus AIA on the deposit portion), kept enough capital available for the planned plant upgrade, and produced a year-one cash position that was positive after debt service and tax saving.

Numbers

Year-one debt service (interest + capital)£64,500
Year-one electricity saving (89% self-consumption)£172,000
FYA tax saving (year one)£85,000
AIA tax saving on £204k deposit (year one)£51,000
Net year-one cash position+£243,500
Simple payback3.9 yrs
Post-tax effective payback2.8 yrs
Pre-tax IRR (25 years)17.2%
25-year cumulative free cash flow+£3.4m

Why this was the right structure

  • Capital allowances captured in full. Both the FYA and the AIA flowed to the company because the green loan structure leaves ownership with the borrower from day one.
  • Working capital preserved. The company kept ~£500k of capital available for the planned plant upgrade.
  • Year-one positive cash. The combined effect of electricity saving plus tax saving plus modest debt service produced positive year-one cash flow — no cash hit to the operating business.
  • Independence from lender pressure. The blend gave the company room to refinance or repay early without prepayment penalties.

What we ruled out

Pure capital purchase was attractive on long-term economics but failed the working-capital test.

Operating lease was the second-best on year-one cash but lost the FYA — at 25% corporation tax, that was £170k of tax relief gifted to the lessor.

PPA was specifically rejected by the directors who wanted ownership.

Frequently asked questions

What finance structure was used for the 850kWp Black Country manufacturer solar project?
The project used a blended green loan and capital deposit structure: 70% funded by a 10-year green loan at 6.2%, with the remaining 30% paid as a capital deposit by the manufacturer. Total installed cost was £680,000 (approximately £800/kWp). The deposit plus loan approach maintained the asset on the manufacturer's balance sheet, allowing the full £680,000 to qualify for the 50% First Year Allowance — generating approximately £85,000 in first-year tax relief at 25% corporation tax, effectively reducing the net day-one cost to £595,000 before finance charges.
What were the electricity savings for the 850kWp precision engineering installation?
Year-one electricity savings were £172,000, based on approximately 70% self-consumption of 700,000 kWh/year generation from the 850kWp system. At the manufacturer's contracted electricity rate of approximately £0.29/kWh, self-consumed generation saved £142,000; export revenue via SEG added approximately £30,000. Annual loan repayments of approximately £105,000 leave a net annual cash benefit of £67,000 in year one, rising as the electricity tariff escalates against the fixed loan rate.
What was the payback period on the Black Country manufacturer's own capital?
The manufacturer's own capital contribution was 30% × £680,000 = £204,000 (plus the FYA benefit of £85,000, effectively reducing net cash committed to £119,000 before loan draw). With net annual cash benefit of £67,000/year, the payback on the manufacturer's net equity commitment was approximately 1.8 years — an extremely strong return driven by the combination of high self-consumption, premium electricity tariff, FYA tax shield, and leverage from the green loan at below-hurdle-rate financing cost.
Why did the manufacturer choose a green loan over an operating lease?
The manufacturer's decision was driven by the 50% FYA benefit. As a profitable precision engineering firm with substantial taxable profits, the £85,000 first-year tax saving was directly actionable — reducing the current year's corporation tax bill. Under an operating lease, the lessor claims the FYA, not the manufacturer, and any benefit sharing is indirect (through marginally lower lease rates). The IRR on ownership (capital purchase + green loan) was approximately 3 percentage points higher than the IRR on leasing, making the ownership structure clearly superior given the manufacturer's tax position.

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Every project is different — same six structures, different optimal blend.

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