Finance Structure

Capital Purchase

Pay cash, own the asset, claim the full tax relief — the simplest structure and almost always the most economic over 25 years.

Term

Indefinite — system life of 25–30 years

Cost / rate

100% upfront capital, no financing cost. Total cost of ownership lowest of any structure.

Worked IRR

Typically 14% to 22% pre-tax IRR depending on self-consumption, electricity rate, and irradiance.

How it works

Capital purchase is the simplest commercial solar finance structure: you pay for the system in full, you own it, you depreciate it, you claim the capital allowances, and you keep every kWh of electricity it generates. The case for capital purchase rests on three numbers — the avoided electricity cost (which falls straight to the bottom line at zero marginal cost from year two onward), the corporation tax relief on the capital cost, and the residual asset value at year 25. For a profitable trading company paying corporation tax at the main rate, the 50% First Year Allowance turns a £200,000 system into a net £175,000 outlay in year one. Add the AIA where headroom remains, and the effective cost falls further. Over 25 years, no other finance structure beats capital purchase on total cost — every £1 of finance cost added to the project is £1 less of return. The reason businesses sometimes choose another structure isn't economic, it's about constraints: capex limits, balance sheet preferences, or tax position. Where capital is available and the business is profitable, capital purchase is the default.

Worked example: 250kWp on a £200,000 commercial system

Upfront

£200,000 (250kWp at £800/kWp installed)

Year-one cash position

£200k outflow + £25k corp tax saved on FYA = £175k net year-one cost. Plus ~£42k year-one electricity saving (250kWp generating ~245MWh × ~17p/kWh blended). Net year-one cash position: -£133k.

25-year cumulative

+£1.4m to +£1.8m cumulative free cash flow (electricity savings net of inverter replacement at year 12, O&M, and modest electricity inflation).

IRR

Typically 14% to 22% pre-tax IRR depending on self-consumption, electricity rate, and irradiance.

Strongest economics. Payback typically 3.5–5 years simple, sub-3 years post-FYA for profitable companies.

Best fit

  • ● Profitable corporation-tax-paying companies with available cash
  • ● Long-tenanted commercial property owners
  • ● Public-sector bodies with capital budget
  • ● Family-owned businesses prioritising lifetime cost over balance sheet

Not suitable for

  • ○ Companies with binding capex constraints
  • ○ Loss-making businesses (FYA has no immediate value if no profits to offset)
  • ○ Tenanted commercial property without lease-length certainty

Pros

  • Lowest total cost of ownership over 25 years
  • Full FYA + AIA benefits go to the buyer
  • Asset on balance sheet supports future borrowing capacity
  • Complete control of system, monitoring, and any future expansion
  • All export revenue and SEG income retained
  • No counterparty risk — no third-party in the structure

Cons

  • Requires £150k–£500k+ capital outlay for typical commercial systems
  • Capital tied up in solar rather than core business
  • Buyer carries inverter replacement and O&M responsibility (£80–£120 per kWp around year 12)
  • Tax relief value depends on having profits to offset

Mechanics

Ownership model

Buyer takes legal title to the system on commissioning. The asset sits on balance sheet and depreciates over its useful life (typically 25–30 years for accounting purposes).

Balance sheet treatment

Asset added to fixed assets at cost. Depreciation charged annually through P&L. The system is a tangible asset that can support secured borrowing if needed later.

Tax treatment

Eligible for 50% First Year Allowance on the qualifying capital cost (extended to 31 March 2026), with the remaining 50% added to the special-rate capital allowance pool at 6% writing-down allowances. Annual Investment Allowance (AIA) may also be available at 100% in year one for the first £1m of qualifying spend if not yet claimed against other expenditure. Operating costs deductible in the year incurred.

Who offers it

Direct from installer. We assemble the case and source competitive turnkey pricing.

Other structures

Compare with other finance routes

Green Loans

Borrow against the project, retain ownership, smooth the cash impact — green loans typically charge 6–9% APR for solar specifically.

Operating Lease

The leasing company owns the system; you pay a fixed annual rent. Off-balance-sheet, fully expensable, but you don't get the FYA.

Finance Lease

Functionally similar to a loan — you pay over time, the asset hits your balance sheet, and you keep the tax benefits, but with leasing-company structure.
Compare with other structures

Direct comparisons

Capital Purchase vs PPA

Owning vs offtake — when each wins on lifetime cost and balance sheet.

Green Loan vs Capital Purchase

Cash buy vs borrow-to-own — debt cost vs preserved working capital.

Capital Purchase vs Finance Lease

Direct ownership vs leasing-company structure with same tax treatment.

Frequently asked questions

Why is capital purchase typically the strongest commercial solar finance route?
Three reasons: (1) lowest lifetime cost — no debt service or lease premium reducing electricity savings; (2) strongest tax allowance capture — full FYA + AIA + special-rate pool; (3) full ownership of system, generation revenue, and any future expansion options. For profitable trading companies with available capital, capital purchase typically delivers 16-22% post-tax IRR over 25 years.
How much capital do I need for commercial solar capital purchase?
Typical UK commercial solar capital purchase ranges: SME 30-80 kWp = £28-92k; mid-tier 100-300 kWp = £80-285k; logistics warehouse 300-800 kWp = £225-720k; large industrial 1 MWp+ = £700k-£1.7m. Tax allowances reduce the effective capital outlay by 17-25% over the project life through FYA + special-rate pool relief.
When does capital purchase NOT make sense?
Three scenarios: (1) capital constraint genuinely binds — covenants, working capital, or strategic capex priorities preclude solar capex; (2) loss-making business position — FYA / AIA value reduced or carried-forward only; (3) very short remaining occupation tenure (< 5 years) — payback window doesn't fit. In each case, alternative structures (green loan, lease, PPA) may serve better.
Can capital purchase combine with green loan financing?
Yes — blended structures are common. Cash component captures FYA on the cash-funded portion; green loan refinances the residual. Allows preservation of working capital while still capturing maximum tax allowances. Some businesses split 60/40 cash/green loan to balance covenant impact and tax allowance capture.
Do tax allowances apply to capital purchase if I lose money this year?
FYA can be claimed but value reduced. The 50% FYA creates a tax deduction; if the business has insufficient profits to fully utilise the deduction, it carries forward to future years. Useful but reduced cash benefit. AIA works similarly. Loss-making businesses sometimes find PPA or other no-capex routes more attractive than capital purchase + carry-forward FYA.

Model Capital alongside the alternatives

We build a side-by-side after-tax comparison across all six structures using your actual numbers — not lender brochure assumptions.

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