PPA vs green loan — UK commercial solar 2026
PPA and green loan are the two most common alternatives to capital purchase for UK commercial solar. They differ fundamentally — green loan keeps you as owner with debt to repay, PPA makes the developer the owner with you as electricity offtaker. Both deliver "no upfront cost" but on entirely different economic terms.
Headline answer
Green loan keeps ownership and tax allowance value with you (worth ~£40k lifetime on a £200k system). PPA shifts everything to the developer — including all the lifetime saving (~£400-600k). Green loan wins decisively on lifetime cost; PPA wins on operational simplicity and contract structure flexibility.
Side-by-side
| Criterion | Power Purchase Agreement | Green loan |
|---|---|---|
| Ownership | Developer owns; you offtake electricity | You own outright (lender holds security) |
| Upfront capex | £0 | £0 (financed) |
| Monthly cost (£200k system) | ~£2,375 PPA cost (depends on consumption) | £3,019 fixed loan repayment |
| Term | 20-25 years | 7-10 years (loan paid off) |
| After loan/PPA term | PPA may renew or system reverts to building | You own outright; full electricity savings flow to you |
| FYA capture | Developer captures | You capture (worth ~£25k year 1) |
| 25-year cumulative cash benefit | £450-650k | £999k |
| Operational responsibility | Developer (full) | You (monitoring, O&M, inverter replacement) |
| Best for | Capital-constrained or operationally-simple preference | Profitable trading companies wanting tax capture without capex |
Which one for which situation
Are you a profitable trading company that can use FYA / AIA in the period?
If yes, green loan captures the £25k year-one tax saving (and ~£12-15k of special-rate pool tail). PPA gives that to the developer. Lifetime cost gap widens by £40k+ in favour of green loan.
Can you commit to 7-10 years of property occupation and operational responsibility?
If yes (long-tenure occupier with facilities team), green loan is straightforward. If no (uncertain occupation, no in-house operational capacity), PPA shifts those obligations to the developer at the cost of lifetime saving.
Is your bank covenant or working capital position constrained?
Green loan adds debt to your balance sheet (typically 80-100% LTV, fully amortising over 7-10 years). For tight covenants, this can be problematic. PPA is off-balance-sheet always and avoids new debt — sometimes the only way to deploy solar without breaching covenants.
How much do operational simplicity and predictability matter?
PPA delivers true outsourced operation — no inverter replacement, no monitoring portal management, no O&M coordination. Green loan keeps you operating the asset. For organisations with no internal energy/facilities team, PPA simplicity may be worth the lifetime cost premium.
Power Purchase Agreement vs Green loan FAQs
Why is PPA so much more expensive than green loan over the lifetime?
Are PPA payments tax-deductible like green loan interest?
Can I switch from PPA to green loan / capital purchase later?
What if my electricity demand falls during a PPA term?
How do PPA exit clauses work in green loan refinance?
Related comparisons and finance pages
PPA vs green loan: the core distinction
The single most important difference is who owns the solar array. Under a power purchase agreement, the developer retains ownership and sells you electricity at an agreed price per kWh. Under a green loan, your business borrows money, buys the panels outright, and repays the lender over time. Everything else — tax treatment, balance sheet position, maintenance liability, and long-term economics — flows from that one fact.
Both options deliver solar power with zero or minimal upfront capital, but they suit very different business profiles. Understanding the mechanics of each helps you choose the structure that maximises value for your specific situation.
How a PPA works in practice
A PPA developer funds, installs, owns, and maintains the system on your roof. Your only obligation is to purchase a minimum quantity of electricity — usually 80–100% of generation — at a contract rate typically 10–20% below current grid tariffs. Contracts run 15–25 years, with rates often index-linked to RPI or CPI.
PPA financial profile
No capital expenditure, no debt on balance sheet (IFRS 16 compliant), full O&M responsibility with developer, predictable energy cost with index-linked price escalation.
Who benefits most from a PPA
Businesses with strong credit for developers to offer low rates, large flat roofs or car parks, landlords who cannot commit multi-decade capital, and organisations where off-balance-sheet treatment is a priority.
PPA exit and flexibility
PPAs include change-of-control clauses and assignment provisions — important if you plan to sell the property. Early termination fees are typically substantial in the first 10 years.
How a green loan works in practice
A green loan is a term loan — typically 5–10 years — that your business uses to purchase and own the solar installation outright. Interest rates in 2025 typically range from 5.5–9% APR depending on credit rating, loan size, and lender. Repayments are fixed monthly amounts, and the asset sits on your balance sheet from day one.
Green loan financial profile
Asset ownership from day one, eligible for Annual Investment Allowance (100% first-year tax deduction), loan appears on balance sheet, interest payments are tax-deductible.
Who benefits most from a green loan
Businesses with strong credit profile and stable cash flow, SMEs wanting to maximise tax relief in year one via AIA, owner-occupied properties, and organisations with 3–5 year ROI horizons.
Green loan exit and flexibility
As the asset owner, you can sell the property with panels included adding value, repay the loan early (check redemption fees), or refinance if rates improve. Far more flexibility than a PPA.
Direct financial comparison
| Factor | PPA | Green Loan |
|---|---|---|
| Upfront cost | £0 | £0 (loan funded) |
| Ownership | Developer | Your business |
| Balance sheet | Off-balance-sheet | Asset + liability recorded |
| Tax relief | None (not your asset) | AIA up to £1m (100% year 1) |
| O&M responsibility | Developer | You (or service contract) |
| Typical term | 15–25 years | 5–10 years |
| Energy savings | 10–20% below grid rate | Full generation benefit |
| SEG export tariff | Developer keeps | Your business keeps |
| Credit requirement | Good (developer needs confidence) | Good (lender credit score) |
| Early exit cost | High (10+ yr contracts) | Redemption fee only |
The tax relief difference is significant
One of the most compelling reasons UK businesses choose a green loan over a PPA is the Annual Investment Allowance. Commercial solar qualifies as plant and machinery, meaning your business can deduct 100% of the system cost against taxable profits in year one — potentially saving £19,000–£95,000 in Corporation Tax on a 100–500kWp system.
Under a PPA, the panels are never your asset, so you cannot claim AIA. Your only tax benefit is that electricity costs are a deductible business expense — but you would have that anyway with grid power.
For a 250kWp system costing £250,000, the AIA saving at 25% Corporation Tax rate is £62,500 in year one. That effectively reduces your net loan repayment cost by a substantial margin — often making the green loan the superior long-term choice for profitable businesses.
Cashflow modelling: 10-year comparison
| Year | PPA (energy bill saving) | Green Loan (saving minus repayment) |
|---|---|---|
| Year 1 | £18,000 saved vs grid | £22,000 saved less £28,000 repayment = net -£6,000 (before £62,500 AIA tax saving) |
| Year 2 | £18,540 (RPI uplift) | £22,660 saved less £28,000 repayment = -£5,340 |
| Year 5 | £19,800 | £24,200 less £28,000 = -£3,800 |
| Year 10 | £21,700 | Loan repaid; full £26,600 saving retained |
| Year 15 | £23,900 | Full saving + SEG export income retained |
| Year 20 | £26,300 | Asset fully owned; only O&M costs |
The green loan typically reaches breakeven around year 7–9 after accounting for AIA tax relief. After loan repayment, the economics become highly favourable — you receive full generation savings and SEG export payments with no ongoing finance cost.
When to choose a PPA instead
Despite the better long-term economics of ownership, PPAs make sense in specific circumstances:
Property not owner-occupied
If you lease your premises, a PPA can be structured directly with your landlord, avoiding the complexity of tenant financing.
Cash preservation priority
If preserving cash for core business investment is paramount and you cannot draw on AIA effectively, the PPA zero-debt profile may be valuable.
Very large systems
For 1MW+ rooftop or car park systems, PPAs offer access to utility-scale developers with superior installation quality and long-term O&M expertise.
Off-balance-sheet requirement
Some businesses have debt covenants restricting borrowing. A properly structured PPA keeps solar off the balance sheet, avoiding covenant triggers.
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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