Comparison · Capital purchase vs PPA

Capital purchase vs PPA — UK commercial solar 2026

Capital purchase and PPA are the two ends of the commercial solar finance spectrum: own the asset outright versus rent the electricity. The lifetime cost difference is large — typically £400-700k more saved over 25 years on a 250 kWp system through capital purchase versus PPA. The decision is rarely about lifetime cost; it's about whether capex and operational ownership fit your business model.

Headline answer

Capital purchase wins decisively on lifetime cost (£400-700k more saved over 25 years on a 250 kWp project). PPA wins on capex (zero) and operational simplicity (developer manages everything). Choose capital purchase where capital is available and tax allowances can be used; PPA where capital is constrained or you prefer outsourcing.

Side-by-side

Criterion	Capital purchase	Power Purchase Agreement (PPA)
Upfront capex	£200k for 250 kWp system	£0
Year-one cash position (after FYA)	-£135k (capex less FYA tax saving less Y1 generation)	+£12-18k (PPA discount on consumed solar)
25-year cumulative cash benefit	£1.0-1.2m (profitable trading company)	£450-650k (PPA developer captures the difference)
Tax allowance capture	50% FYA + special-rate pool, worth ~£40k lifetime	Developer captures; priced into PPA tariff
Operational responsibility	Owner — site monitoring, O&M, inverter replacement at year 12	Developer — fully outsourced
Contract length	No contractual lock-in	20-25 year PPA term
Property tenure required	10+ years preferred (system stays on roof)	20+ years preferred (PPA term)
Tariff visibility	Avoided cost on grid tariff (~22p/kWh, escalates with grid)	Fixed PPA tariff (~16p/kWh) with RPI or fixed escalator
Best for	Profitable companies with available capital + 10yr+ tenure	Capital-constrained operators or covenant-restricted property owners

Which one for which situation

Are you a profitable trading company with available capital and 10+ years of expected occupation?
If yes, capital purchase delivers £400-700k more lifetime saving on a 250 kWp project. The decision is straightforward — capital purchase wins.
Is capital genuinely unavailable (covenant-blocked, working capital constrained, or strategic preference)?
If yes, PPA delivers a project that wouldn't otherwise happen. Lifetime cost is higher but the alternative is "no project" — and reduced grid spending is reduced grid spending. PPA is the right answer.
Do you have 20+ years of tenure or property control?
PPAs need 20-25 year offtaker certainty. If you're unsure of long-term occupation, PPA structure becomes risky — you may be obliged to continue purchasing electricity at the PPA tariff after you've moved out, or face break fees. Where tenure is unclear, capital purchase or a shorter-term green loan are safer.
Does ESG positioning matter materially to your customers / investors?
Both deliver on-site renewable provenance, but capital purchase delivers the strongest customer-facing position because you own and operate the generation directly. For data centres, food producers, and other supply-chain-sensitive businesses, this can be material.

Capital purchase vs Power Purchase Agreement (PPA) FAQs

Why is the lifetime saving on capital purchase so much higher than PPA?

PPA developers capture the difference as their return on capital. They fund the £200k installation expecting to recover their capital plus a 12-15% return over the 20-25 year contract. That return comes from the spread between grid electricity cost (~22p) and the PPA tariff (~16p) — about 6p/kWh. Over 25 years × ~150 MWh/year × 6p/kWh = £225k of margin to the developer that you would otherwise capture as your saving.

Is PPA worth it for businesses without capital constraints?

Generally no, on lifetime cost grounds. Most profitable trading companies that could afford capital purchase will outperform PPA economics by £400-700k on a 250 kWp project over 25 years. PPA exists primarily for capital-constrained or covenant-restricted scenarios. The "free solar" framing in marketing is accurate but obscures the economic structure.

Can I exit a PPA early?

Most PPAs include buyout provisions, typically from year 7 or year 10 onward, at depreciated book value or replacement cost. Early exit often means paying out the developer's remaining return — meaningful but not punitive on later-term exits. Pre-year-7 exits usually require negotiating a full payout and sometimes aren't economically attractive vs continuing the PPA.

Do PPAs make sense for charities and not-for-profits?

Often yes, because charities can't capture FYA / AIA tax allowances (no taxable profit to offset). Without tax allowance capture, the lifetime cost gap between capital and PPA narrows substantially — the charity loses £25-40k of FYA value either way. PPA structure also bypasses charity capex constraints. We frequently recommend PPA structures for charity solar where the tax position doesn't support direct ownership.

How does the property landlord-tenant split interact with this comparison?

For tenant-occupier capital purchase: requires landlord consent and lease length to support 10+ year payback. For tenant-occupier PPA: even longer lease horizon needed (20-25 years), often impractical. For landlord capital purchase or PPA: standard structuring. The split adds a layer but doesn't change the underlying capital-vs-PPA economics.

Capital purchase (full page)

The default for profitable trading companies. Strongest lifetime economics.

Power Purchase Agreement (full page)

Zero-capex, developer-funded structure. Mechanics, contract terms, market map.

Capex vs PPA decision framework

Five variables that decide which structure fits your situation.

The ownership choice: everything vs nothing upfront

Capital purchase and power purchase agreements sit at opposite ends of the commercial solar funding spectrum. Capital purchase maximises long-term return and total ownership value. A PPA minimises upfront commitment and ongoing complexity. Both are legitimate, widely used structures — the right choice depends entirely on your business capital availability, risk tolerance, and strategic priorities.

This comparison is particularly important for UK businesses evaluating solar because both structures are actively marketed, and the financial difference over 20 years is substantial.

Capital purchase: full economics, full responsibility

When you buy a solar installation outright, you own every kilowatt-hour it generates. You claim AIA tax relief (potentially saving £50,000–£250,000 in year one depending on system size), you receive all SEG export payments, and after 6–8 years of payback, you generate free electricity for the remaining 17–20 years of system life.

Capital purchase financial model

For a 500kWp system at £450,000: AIA saving = £112,500 (25% CT rate). Effective net cost = £337,500. Annual saving = £126,000 (electricity + SEG). Payback = ~2.7 years net of tax. 20-year total benefit = £2.5m+.

Capital purchase responsibilities

O&M costs (inverter replacements, monitoring, cleaning) typically £3,000–£8,000/year for 500kWp. Insurance. Panel degradation (~0.4%/year). These are manageable costs against the savings generated.

PPA: zero capital, zero complexity

A PPA developer funds, installs, owns, and operates the system on your roof or land. You simply purchase electricity at an agreed price — typically 10–20% below grid tariff — for 15–25 years. No capital allocation, no O&M liability, no asset management.

PPA financial model

For a 500kWp system generating 490,000 kWh/year: PPA rate £0.09/kWh vs grid £0.28/kWh = saving of £0.19/kWh = £93,100/year. 20-year saving (with RPI on grid rate) = approximately £2.1m before PPA costs.

PPA developer keeps

SEG export income (potentially £8,000–£15,000/year for a 500kWp system), AIA tax relief on the asset, and all upside from rising electricity prices above the contractual index-link rate.

20-year financial comparison

Financial metric	Capital Purchase (500kWp)	PPA (500kWp)
Upfront cost	£450,000 (£337,500 net of AIA)	£0
AIA tax saving	£112,500	£0 (not your asset)
Annual energy saving (yr 1)	£136,000 (electricity + SEG)	£93,100 (PPA discount only)
Annual energy saving (yr 20)	~£195,000 (with energy inflation)	~£128,000 (PPA rate indexed lower)
O&M cost (annual average)	£5,000	£0 (developer pays)
Net 20-year benefit	~£2.7m	~£1.9m
Breakeven vs PPA	Year 6–7	N/A (no investment)
Asset value at year 20	System still generating, roof value enhanced	No residual — developer owns

Over 20 years, capital purchase typically generates £700,000–£1m more value than a PPA on a 500kWp system. The caveat is that this requires the initial capital deployment — a significant decision for most businesses.

When PPA is the right choice

No available capital

If £450,000 simply cannot be allocated from reserves and your business cannot service additional debt, a PPA is the only route to solar. £93,000/year in savings is far better than no solar at all.

Loss-making or low-profit businesses

AIA requires taxable profits to offset. Charities, CICs, businesses in loss-making phases, and NHS trusts cannot use AIA. For these, the PPA off-balance-sheet simplicity may be the only workable structure.

Leased premises

If you do not own your building, a PPA structured between your landlord and the developer (or through a licence agreement) may be feasible where a capital purchase is not.

Off-balance-sheet requirement

Financial institutions, housing associations, and businesses with specific covenant constraints may require off-balance-sheet solar. A properly structured PPA achieves this; a capital purchase does not.

When capital purchase is clearly superior

Available capital or credit access

If you can fund via reserves, green loan, or asset finance, the 20-year economics strongly favour ownership. Use a broker to find competitive green loan rates if cash is the barrier.

Owner-occupied property

If you own your premises and plan to remain there, capital purchase maximises both energy savings and property value — solar-equipped commercial buildings command 5–10% premiums in some sectors.

Profitable businesses seeking tax efficiency

AIA is one of the most valuable tax reliefs available to UK businesses. A 500kWp system effectively generates a £112,500 Corporation Tax saving — money you would otherwise send to HMRC.

Need this comparison run on your specific numbers?

We model both structures side-by-side using your postcode, half-hourly demand profile, accounting position, and balance sheet preferences. Five working days from enquiry to indicative comparison.

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