Finance Structure

Commercial Solar PPA (Power Purchase Agreement)

Q: What's a typical UK PPA tariff for commercial solar?

Investor-backed PPA developers (large-cap): 13-17p/kWh on consumed solar. Mid-market specialists: 14-18p/kWh. Major energy company arms: 14-17p/kWh. Sector specialists: 14-19p/kWh. Public-sector frameworks: 12-16p/kWh (where applicable). Compares to typical UK commercial grid rate of 22-25p/kWh — savings of 5-12p/kWh on consumed solar. Tariff structure can be fixed-price, RPI-linked, or market-tracking; each has different lifetime value implications.

Q: How long are PPA terms?

Typically 20-25 years. Investor-backed developers often require 20-25 year terms to recover capital deployed; mid-market specialists sometimes offer 15-20 year terms. Public-sector frameworks vary 20-25 years. Term length reflects developer business model — capital recovery period plus some additional years for return on capital. Shorter terms (10-15 years) typically command higher tariffs because developer recovers capital over fewer years.

Q: Why does capital purchase deliver more lifetime saving than PPA?

PPA developer captures the difference between the avoided grid cost and the PPA tariff — typically 5-12p/kWh for 20-25 years. Plus PPA developer captures the FYA / AIA tax allowances that capital purchase would otherwise deliver to the offtaker. Combined value typically £400-700k more saved over 25 years on a 250 kWp project under capital purchase vs PPA. Worth this for capital-unconstrained profitable companies; not worth it for capital-constrained organisations.

Q: Can I exit a PPA early?

Standard PPA structures include buyout provisions allowing offtaker to purchase the system at depreciated book value or replacement cost (varies by structure) — typically from year 7-10 onwards. Earlier exit usually requires payment of present value of remaining contract value plus break fee. Always negotiate buyout, exit, and counterparty-change clauses carefully at PPA signing.

Q: What happens at end of PPA term?

Three typical structures: (1) system reverts to PPA developer who removes or sells it elsewhere — least common; (2) offtaker purchases at depreciated book value or replacement cost — most common option in modern PPAs; (3) system transfers to offtaker at no cost — rare but increasingly common in new-build PPAs as an end-of-life sweetener. Negotiate end-of-term ownership at PPA signing.

Q: What is a commercial solar PPA?

A commercial solar PPA (Power Purchase Agreement) is a long-term electricity supply contract where a third-party developer installs and owns a solar PV system on your property, and you buy the electricity at a fixed price per kWh — typically 10–30% below your current grid tariff. The developer owns the asset, funds the installation, and takes performance risk. PPAs are most commonly structured for 10, 15, or 20-year terms.

Q: What discount on electricity do I get with a commercial solar PPA?

A typical UK commercial solar PPA in 2026 offers a tariff 10–25% below your current grid import price. On a 30p/kWh grid tariff, a 20% discount means approximately 24p/kWh for solar generation. PPA tariffs are usually CPI-linked or fixed at 2–4% annual escalation.

Q: Is a solar PPA or operating lease better for a commercial property?

A PPA suits businesses with variable electricity demand — you pay per kWh consumed, so savings fall if demand falls. An operating lease has a fixed annual rent regardless of consumption. Both are off-balance-sheet under FRS 102 for SMEs. The right choice depends on your demand profile and covenant flexibility.

Q: Who owns the solar panels under a commercial PPA?

The developer owns the solar panels throughout the PPA term, claims capital allowances, and is responsible for maintenance and insurance. At term end, you typically have an option to purchase at fair market value, extend, or have the panels removed.

Q: What happens to a solar PPA if I sell the building?

On building sale, the PPA is either novated to the buyer (they take over your obligations with developer consent) or terminated (you pay an early termination fee equal to NPV of remaining developer cash flows). Clear assignment provisions should be negotiated before signing, particularly for frequently traded commercial property.

A third party owns and operates the system on your roof; you buy the electricity at a fixed rate. Zero capital, zero responsibility, lower savings ceiling.

Term

15–25 years; commonly 20 years

Cost / rate

PPA tariffs in 2026 typically run 7p–13p per kWh, indexed annually to inflation (RPI or CPI, sometimes capped). Compared with grid electricity at 23p–30p/kWh, the saving is real but the absolute saving per kWh is roughly half what self-funded solar delivers (because the PPA provider keeps the difference as their return on capital).

Worked IRR

Not directly applicable — host puts in zero capital. The IRR is technically infinite. Total saving and net present value of avoided cost are the relevant metrics.

How it works

A Power Purchase Agreement is the classic 'no-capex solar' option. The pitch is compelling: a developer installs solar on your roof at no cost to you, and you buy the electricity at a fixed rate well below grid. You save money from day one with no investment risk. The reality requires more careful inspection. The PPA provider is making an investment with their capital and earns a return on that investment — typically 7%–10% IRR over the 20-year contract. That return comes out of the difference between what your solar generates and what you pay for it. In economic terms, you're paying the provider to take the investment risk and ownership responsibilities off your hands. For a profitable trading business, that's an expensive trade — capital purchase delivers roughly £600k–£900k more lifetime saving on the same physical system than a typical 20-year PPA. For a capex-constrained business, a tenanted property, or a charity that can't use tax allowances, a PPA can be the right structure. The key things to negotiate: the tariff and its escalation mechanism (RPI-capped is preferable to uncapped), exit rights if you sell the business or building, change-of-control provisions, the residual position at year 20, who is responsible for roof access and any incidental damage, and what happens if the system underperforms warranted output. PPA contracts run 50–80 pages — they reward careful legal review.

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

Upfront

£0

Year-one cash position

Year-one PPA payments ~£24k (240MWh at 10p). Avoided grid cost ~£60k (240MWh at 25p). Year-one saving: ~£36k. Net year-one cash position: positive £36k.

25-year cumulative

+£600k to +£1.0m cumulative saving over 25 years (lower than ownership routes because the PPA provider captures the FYA, the capital appreciation, and a margin on the energy).

IRR

Not directly applicable — host puts in zero capital. The IRR is technically infinite. Total saving and net present value of avoided cost are the relevant metrics.

Saves cash from day one with no investment risk. Saves less in absolute terms than ownership over the asset life.

Best fit

● Capex-constrained businesses with strong electricity demand
● Tenanted commercial properties (where landlord and tenant struggle to align on capital)
● Charities, sports clubs, and community organisations
● Companies prioritising operational expense over investment
● Sites where the customer wants no responsibility for the asset

Not suitable for

○ Profitable companies with capital available (capital purchase always wins economically)
○ Sites with very short occupation horizon (<5 years)
○ Buildings where the host doesn't have a 15–25 year operational horizon
○ Customers who want to retain export revenue or future flexibility

Pros

Zero capital outlay
Zero O&M responsibility — provider handles all maintenance, monitoring, insurance, inverter replacement
Predictable tariff for 15–25 years
Hedges against grid electricity inflation
Operating expense only — simple P&L treatment
Provider absorbs all technology risk
Suitable for tenanted property where landlord won't fund capital

Cons

Lifetime saving 30–50% lower than ownership routes
Long-term commitment to one provider — exit costs can be substantial
Host must allow access to the roof for 20+ years — restricts flexibility on the building
PPA tariff escalation can outpace grid prices in some scenarios
Complex contract — careful negotiation on indexation, exit rights, change of control
Provider's covenant matters — what happens if they go bust?
End-of-term residual options are negotiable but rarely favour the host

Developer market map

Five categories of UK PPA developer with typical tariff ranges, contract structures, and best-fit profiles.

UK PPA developer market map →

Mechanics

Ownership model

A third-party developer (the PPA provider) owns, installs, operates, maintains, and insures the solar system on the host's roof. The host signs a long-term contract to purchase the electricity generated by that system at an agreed tariff (the 'PPA price'). The host pays nothing upfront and has no ongoing capital or O&M obligation. At end of term, options vary: hand-back, buy-out at fair value, or extend.

Balance sheet treatment

Under modern accounting standards (FRS 102, IFRS 16), some PPAs are reclassified as embedded leases and capitalised. Many on-site solar PPAs structured as electricity supply contracts remain off-balance-sheet, but this requires careful drafting and accounting review.

Tax treatment

PPA payments are operating expenditure, fully deductible against trading profits in the year incurred. The host does NOT claim FYA, AIA, or capital allowances. The PPA provider, who owns the asset, captures those benefits and prices them into the PPA tariff.

Who offers it

Specialist commercial PPA providers, energy companies, infrastructure investment funds, and independent power producers. PPA quality varies enormously — we screen providers on covenant, track record, contract terms, and tariff structure before recommending.

Other structures

Compare with other finance routes

Capital Purchase

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

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.

Compare with other structures

Direct comparisons

Capital Purchase vs PPA

Own vs offtake — when capital constraint makes PPA the answer.

PPA vs Green Loan

Third-party ownership vs debt-funded ownership economics.

PPA vs Operating Lease

Generation contract vs equipment rental.

Solar Lease vs PPA

Fixed monthly vs pay-per-kWh — covenant and contract considerations.

Frequently asked questions

What's a typical UK PPA tariff for commercial solar?

Investor-backed PPA developers (large-cap): 13-17p/kWh on consumed solar. Mid-market specialists: 14-18p/kWh. Major energy company arms: 14-17p/kWh. Sector specialists: 14-19p/kWh. Public-sector frameworks: 12-16p/kWh (where applicable). Compares to typical UK commercial grid rate of 22-25p/kWh — savings of 5-12p/kWh on consumed solar. Tariff structure can be fixed-price, RPI-linked, or market-tracking; each has different lifetime value implications.

How long are PPA terms?

Typically 20-25 years. Investor-backed developers often require 20-25 year terms to recover capital deployed; mid-market specialists sometimes offer 15-20 year terms. Public-sector frameworks vary 20-25 years. Term length reflects developer business model — capital recovery period plus some additional years for return on capital. Shorter terms (10-15 years) typically command higher tariffs because developer recovers capital over fewer years.

Why does capital purchase deliver more lifetime saving than PPA?

PPA developer captures the difference between the avoided grid cost and the PPA tariff — typically 5-12p/kWh for 20-25 years. Plus PPA developer captures the FYA / AIA tax allowances that capital purchase would otherwise deliver to the offtaker. Combined value typically £400-700k more saved over 25 years on a 250 kWp project under capital purchase vs PPA. Worth this for capital-unconstrained profitable companies; not worth it for capital-constrained organisations.

Can I exit a PPA early?

Standard PPA structures include buyout provisions allowing offtaker to purchase the system at depreciated book value or replacement cost (varies by structure) — typically from year 7-10 onwards. Earlier exit usually requires payment of present value of remaining contract value plus break fee. Always negotiate buyout, exit, and counterparty-change clauses carefully at PPA signing.

What happens at end of PPA term?

Three typical structures: (1) system reverts to PPA developer who removes or sells it elsewhere — least common; (2) offtaker purchases at depreciated book value or replacement cost — most common option in modern PPAs; (3) system transfers to offtaker at no cost — rare but increasingly common in new-build PPAs as an end-of-life sweetener. Negotiate end-of-term ownership at PPA signing.

What is a commercial solar PPA?

A commercial solar PPA (Power Purchase Agreement) is a long-term electricity supply contract where a third-party developer installs and owns a solar PV system on your property, and you agree to buy the electricity it generates at a fixed price per kWh — typically at a 10–30% discount to your current grid tariff. The developer, not you, owns the asset, funds the installation, and takes performance risk. You take no capital risk and receive lower electricity costs from day one. PPAs are most commonly structured for 10, 15, or 20-year terms.

What discount on electricity do I get with a commercial solar PPA?

A typical UK commercial solar PPA in 2026 offers a tariff 10–25% below your current grid import price at contract signing. On a grid tariff of 30p/kWh, a 20% PPA discount means paying approximately 24p/kWh for the solar generation. The PPA tariff is usually index-linked — commonly CPI or a negotiated fixed escalation of 2–4% per year — so the real-terms discount may narrow over time if grid tariffs increase faster. Always model the total cost of the PPA over its full term against a counterfactual of capital purchase, taking into account your current tax position.

Is a solar PPA or operating lease better for a commercial property?

The choice between a solar PPA and an operating lease turns on a few specific factors. Under a PPA, you pay per kWh consumed — so if your electricity consumption falls (e.g. you vacate or reduce operations), your savings fall but your obligation is tied to generation, not consumption. Under an operating lease, you pay a fixed annual rent regardless of how much electricity you use, which creates a fixed liability. A PPA suits businesses with variable demand; an operating lease suits those with stable, predictable consumption. Both keep the asset off-balance-sheet under FRS 102 for SMEs. We model both routes on your actual demand profile.

Who owns the solar panels under a commercial PPA?

Under a commercial solar PPA, the developer (or a special purpose vehicle owned by the developer) owns the solar panels throughout the contract term. The developer is responsible for installation, maintenance, insurance, and performance. Because the developer owns the asset, it — not you — claims any available capital allowances (FYA, AIA). At the end of the PPA term, you typically have an option to purchase the system at fair market value, extend the PPA, or have the panels removed. The end-of-term purchase option and its pricing should be explicitly stated in the contract.

What happens to a solar PPA if I sell the building?

A solar PPA is typically a contract tied to the property, not the tenant or owner. On building sale, the standard approach is either: (a) novation of the PPA to the buyer — the buyer takes over your PPA obligations and benefits, which requires their agreement and the developer's consent; or (b) termination of the PPA, which usually involves paying an early termination fee equal to the NPV of remaining developer cash flows. A well-structured PPA includes clear assignment provisions that facilitate novation on sale without penalising the seller. This is one of the most important clauses to negotiate before signing, particularly for frequently traded commercial property.

UK commercial solar PPA developer market in 2026

The commercial solar PPA market in the UK has consolidated around a set of specialist developers and a small number of larger energy companies offering on-site PPA products. Understanding who the active developers are, their typical project profiles, and how they structure their offers is essential for commercial property owners and businesses considering a no-capex solar route.

The developer comparison below reflects the commercial on-site PPA market — not ground-mounted utility PPAs. Profiles, rates and minimum system sizes are 2026 estimates; always obtain direct proposals before committing.

Developer	Min system size	Typical PPA rate	Contract term	Specialisation
Anesco	100kWp	8p–12p/kWh	15–25 years	Education, public sector, industrial rooftops
RenEnergy	50kWp	8p–12p/kWh	15–20 years	Mid-market commercial; flexible exit clauses
Lightsource bp	250kWp+	7p–10p/kWh	20–25 years	Large industrial; portfolio landlords
NextEnergy Capital	200kWp+	7p–11p/kWh	20 years	Property portfolios; fund-backed installations
Gridserve	100kWp+	8p–13p/kWh	15–20 years	EV-integrated commercial; logistics
Low Carbon	250kWp+	7p–10p/kWh	20–25 years	Large-scale commercial; PSDS bundle capability
Solarplicity / Ionna	50kWp+	9p–13p/kWh	15–20 years	SME commercial; simpler contract structures
Your Energy (E.ON)	100kWp+	8p–12p/kWh	20 years	E.ON supply customers; integrated billing

How commercial solar PPA rates are set in 2026

PPA rates are not market-listed prices — they are negotiated on a project-by-project basis. Understanding the three factors that drive PPA rate offers helps you negotiate more effectively and evaluate competing proposals.

Factor 1: System yield and location

Solar irradiation in the UK ranges from approximately 850 kWh/kWp/year in northern Scotland to 1,150 kWh/kWp/year in the south-west of England. Higher-yield locations allow developers to offer lower per-kWh rates while maintaining their target IRR — expect south-facing UK commercial systems to attract materially better PPA rates than shaded north-facing roofs.

Factor 2: Host credit quality and lease certainty

The developer relies on 20+ years of PPA income. A FTSE-listed company or NHS Trust as the host offers near-zero counterparty risk; a small SME with a 3-year lease introduces significant uncertainty. Better host credit and longer lease term = lower PPA rate offered. Landlord consent complexity also affects what developers will bid.

Factor 3: Export fraction and grid connection

A system sized at 80% self-consumption is more attractive to a developer than one with 50% export (because the developer earns less from exported units, which go to the grid at SEG rates rather than the premium PPA host rate). DNO export limits also reduce project economics — expect a higher PPA rate or a smaller system offer on constrained grid connections.

PPA component	Typical negotiation range	Leverage point
Opening tariff rate	7p–13p/kWh	Competitive tender; multiple developer proposals
Annual escalation	RPI, CPI, RPI-capped at 5%, or fixed %	Negotiate cap; RPI-uncapped can be painful in high-inflation years
Contract term	15–25 years	Shorter terms acceptable at slightly higher rates for risk-averse hosts
Exit provisions	Change of control, sale of building, early termination fee	Negotiate exit rights at year 10 or on building sale; key for property-owning businesses
Residual ownership	Developer or host at end of term	Negotiate transfer to host at year 20–25 for residual value
Performance guarantee	None, 90% P90, or full performance guarantee	Large systems can negotiate developer-backed performance bonds

Commercial solar PPA vs capital purchase: the 25-year economic comparison

The economic trade-off between PPA and capital purchase is predictable and consistent across project sizes. Understanding it helps set the right expectations before choosing a route.

Metric	PPA (20yr, 10p/kWh)	Capital purchase (AIA-funded)	Green loan (5%, 12yr)
Year 1 saving per kWp	£130–£180	£220–£280 (after AIA)	£160–£210
25-year net saving (200kWp)	£180k–£260k	£780k–£950k	£550k–£700k
Upfront capital required	£0	£150k–£200k	£0 (loan-funded)
Balance sheet treatment	Off-balance-sheet (operating)	Capitalised asset	Capitalised asset + loan
AIA / FYA available	No (developer claims)	Yes — full year 1 relief	Yes — borrower claims
Best for	Capex-constrained; tenanted buildings; charities	Profitable trading companies with capital	Profitable companies without available capital

Commercial Solar PPA Rates 2026: What You Actually Pay

The rate in a commercial solar Power Purchase Agreement is the price per kWh you pay the developer for the electricity their system generates on your roof. It is set below your grid import tariff — that discount is the entire saving in a PPA. This section sets out current UK commercial solar PPA rates, how they are structured, and how to compare a PPA rate against buying outright.

Typical commercial solar PPA rates by system size, 2026

System size	Typical PPA rate	Discount to grid	Term	Annual escalator
50–100kWp	14–18p/kWh	10–20%	15–20 yr	RPI or fixed 2–3%
100–250kWp	12–16p/kWh	15–25%	15–25 yr	RPI or fixed 2–3%
250–500kWp	10–14p/kWh	20–30%	20–25 yr	RPI-linked typical
500kWp–1MWp+	8–12p/kWh	25–35%	20–25 yr	RPI-linked typical

Indicative 2026 ranges for rooftop commercial solar PPAs. Actual rates depend on site consumption profile, roof condition, covenant strength of the offtaker, system size and grid import price. Larger systems with high, steady daytime consumption secure the lowest rates.

How commercial solar PPA rates are built up

A PPA rate is engineered backwards from the developer's required return. Four levers set the number you are quoted:

1. Your grid import price

The PPA rate is anchored to your current import tariff. If you pay 30p/kWh, a 20% discount PPA is 24p. Sites on cheap fixed contracts see smaller absolute savings.

2. Self-consumption rate

The proportion of generation you use on site. Higher self-consumption (a steady daytime load) means more of the output is sold to you at the PPA rate, improving developer economics and lowering your rate.

3. Covenant strength

The developer is lending against your creditworthiness over 20+ years. A strong balance sheet or a long lease unexpired secures a keener rate; weaker covenants attract a risk premium.

4. The escalator

PPA rates rise annually — either by RPI or a fixed 2–3%. A lower starting rate with a higher escalator can cost more over 25 years than a higher start with a fixed escalator. Always compare on lifetime cost.

Commercial solar PPA providers in the UK

The UK commercial solar PPA market is served by specialist funds and developers rather than high-street banks. Providers fall into three groups:

Provider type	Examples of who operates here	Best for
Large infrastructure funds	Lightsource bp, Atrato Onsite Energy, NextEnergy, Bluefield	Large rooftops and ground-mount, 500kWp–5MWp, strong covenants
Specialist onsite developers	Custom Solar, Aura Power, Eden Renewables, Kontena, Sunsave Commercial	Mid-size rooftops 100–500kWp, multi-site retail and industrial portfolios
Energy supplier PPA arms	EDF, E.ON, Centrica Business Solutions, SmartestEnergy	Bundled supply-plus-onsite-generation deals, half-hourly metered sites

Provider names are listed to illustrate the market structure; we are independent and do not take developer commissions. Because PPA rates and terms vary widely between providers for the same site, running a competitive process across two or three is the single best way to secure a keen rate. We compare PPA offers against each other and against ownership routes on a like-for-like lifetime-cost basis.

Is a PPA rate actually cheaper than owning?

Over 25 years, ownership (cash, green loan or hire purchase) almost always beats a PPA on total cost, because you keep the capital allowances and pay no developer margin. A PPA wins on simplicity, zero capital, and zero maintenance risk — not on headline cost. Compare the PPA rate against your cost of owning before signing a 25-year contract.

Model PPA 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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