Power Purchase Agreement (PPA)
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.
15–25 years; commonly 20 years
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).
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
£0
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.
+£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).
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.
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.
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?
How long are PPA terms?
Why does capital purchase deliver more lifetime saving than PPA?
Can I exit a PPA early?
What happens at end of PPA term?
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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