How does commercial solar finance work? — UK 2026
Commercial solar finance is the set of mechanisms a UK business uses to fund a solar PV installation that won't be paid for entirely upfront from cash. There are seven principal structures. Each works differently on three dimensions: who pays the capex, who owns the asset, and who captures the tax allowances. This guide walks through each in plain English.
The three core questions every finance structure answers
Every commercial solar finance structure resolves three questions:
Who pays the upfront capital expenditure?
Either you (capital purchase, AIA-eligible operations) or a third party (green loan lender, asset finance lessor, PPA developer). The third-party route avoids capex outflow but adds finance cost over time.
Who owns the asset?
Either you (capital, green loan, asset finance, finance lease) or a third party (operating lease, PPA). Ownership matters for balance sheet treatment, end-of-term position, and operational responsibility.
Who captures the tax allowances?
Either you (where you have legal title at first use — capital, green loan, finance lease, hire purchase) or the lessor / developer (operating lease, PPA). Tax allowances are worth typically 17-20% of capex on profitable trading companies — substantial.
The seven structures, explained
Pay cash, own outright
You pay the full installation cost upfront. You own the system. You capture the FYA (50%) and special-rate pool tax allowances. Lowest lifetime cost but requires capital. Capital purchase →
Borrow to own
A green-debt lender funds the installation as a loan. You own the system, capture the tax allowances, and repay over 7-10 years. Interest is tax-deductible. ~£40k extra cost over 7 years vs capital purchase. Green loans →
Lease with ownership pass-through
A leasing company owns the system but transfers tax ownership and capital allowances to you. You pay monthly rent for 7-10 years. You capture FYA. Functionally similar to a green loan with leasing-company structure. Finance lease →
Off-balance-sheet rent
A leasing company owns the system. You pay monthly rent for 5-8 years. The lessor captures the tax allowances. Off-balance-sheet under FRS 102 small-entity reporting. Operating lease →
Pay per kWh consumed
A PPA developer installs and owns the system on your roof. You pay per kWh consumed at a discounted rate (typically 14-17p vs 22p grid). Zero capex, lowest year-1 effort, lowest lifetime saving. 20-25 year contracts. PPA →
Spread the cost over the asset
A specialist asset finance lender funds the installation; you make monthly payments over 3-7 years. Title transfers progressively. You capture FYA. Faster credit decisions than green loans. Asset finance →
Add storage to the project
Battery storage adds £400-550 per kWh capacity to the project capex. Funded the same way as the solar — capital, green loan, or asset finance. Specific scenarios where battery delivers material project value. Battery storage →
A worked numerical example
For a 250 kWp commercial solar system at £200,000 turnkey on a profitable UK trading company:
| Structure | Year-1 cash | Monthly | 25-yr cumulative |
|---|---|---|---|
| Capital purchase | -£135k | £0 | £1.05m |
| Green loan (7yr at 7%) | £30k | £3,019 | £999k |
| Finance lease (8yr at 7.5%) | £33k | £2,777 | £986k |
| Operating lease (8yr at ~8%) | £8k | £2,940 | £1.02m |
| PPA (20-yr at 16p/kWh) | £15k | £2,375 (PPA cost) | £548k |
Capital purchase has the most negative year-1 position (capex outflow exceeds savings + tax) but the highest 25-year benefit. PPA has the most positive year-1 (no capex) but lowest lifetime benefit. The right structure depends on your specific tax position, capital availability, and contractual horizon.
Run your own numbers
Open the interactive calculator →
Related questions
How long does it take to arrange commercial solar finance?
Can I combine multiple structures on the same project?
What's the typical credit threshold for green loan or asset finance?
Are commercial solar finance products FCA-regulated?
How does the 50% First Year Allowance interact with these structures?
Continue reading
All seven finance structures
Detailed pages for capital, green loan, finance lease, operating lease, PPA, asset finance, battery storage.
Interactive calculator
Run all five main structures against your project numbers. State-preserving share URLs.
Finance structure comparison
Six-structure comparison table with worked numbers.
The complete commercial solar finance decision framework
Commercial solar finance encompasses everything from straightforward cash purchases to complex project finance structures for multi-megawatt installations. Understanding how each product works — and which suits your business — is the foundation of getting good value from a solar investment.
At its simplest, commercial solar finance separates into two categories: ownership structures (where your business owns the panels) and third-party structures (where a developer or financier owns them). Everything else — interest rates, tax treatment, balance sheet impact — flows from this ownership distinction.
Ownership structures: the financially superior route
Green loan (unsecured term loan)
A green loan is an unsecured business loan specifically for environmental improvements. You borrow 80–100% of the system cost, repay over 5–10 years from energy savings, and own the asset from day one. AIA applies in year one. Rates: 5.5–9% APR. No deposit required.
Asset finance / hire purchase
A hire purchase agreement uses the solar installation as security. You pay a deposit (10–20%), make fixed monthly payments, and take legal ownership on final payment. Lower interest rate (4.5–7% APR) than green loans. AIA applies.
Capital purchase (cash)
Buy the system outright from cash reserves. No interest cost. Maximum AIA benefit. Highest long-term ROI but requires upfront capital. Suitable for businesses with available cash or strong balance sheets.
Finance lease
A lease structure where you use the panels but a finance company owns them. On-balance-sheet under IFRS 16. No AIA. Monthly rentals are tax-deductible as business expenses. Interest component is deductible. Limited flexibility.
Third-party structures: no capital, no ownership
Power Purchase Agreement (PPA)
A developer installs, owns, and maintains the system on your roof. You buy electricity at 10–20% below grid tariff per kWh. Contract terms of 15–25 years. Off-balance-sheet. No AIA. No SEG income. Best for leasehold sites, loss-making businesses, or where capital cannot be deployed.
Operating lease
You pay a fixed monthly rental for the right to use the solar installation. Developer owns and typically maintains the system. On-balance-sheet under IFRS 16. No AIA. Fixed payments make budgeting simple but savings are typically lower than PPA or ownership routes.
Step-by-step: applying for commercial solar finance
| Step | Action | Typical timeline |
|---|---|---|
| 1. System design | Obtain quotes from 3+ MCS-certified installers. Agree system specification (panel type, inverter, mounting) and generation projections. | 2–4 weeks |
| 2. Finance type selection | Choose funding structure based on ownership preference, balance sheet position, and tax position. Use a specialist solar finance broker if comparing multiple options. | 1–2 weeks |
| 3. Application preparation | For loans/HP: 3 years accounts, VAT registration, bank statements, director ID. For PPA: site energy consumption data, roof survey, credit check. | 1–2 weeks |
| 4. Lender/developer assessment | Lender or PPA developer reviews application, values asset (for HP), models generation, and issues indicative terms. | 2–4 weeks |
| 5. Legal documentation | Loan agreement, HP agreement, or PPA contract (40–80 pages). Budget for legal review — 2–4 weeks for complex structures. | 2–4 weeks |
| 6. Installation | Installer deploys system. Typically 2–5 days for 50–100kWp; 5–15 days for 200–500kWp. | 1–3 weeks |
| 7. Commissioning and handover | MCS certificate issued. G98/G99 commissioning completed. Finance drawdown triggered. Monitoring system activated. | 1 week |
| Total typical timeline | Straightforward green loan or HP: 8–12 weeks. PPA: 12–20 weeks. Large project finance: 6–12 months. |
Key financial metrics to evaluate any solar finance proposal
Net Present Value (NPV)
Discounts all future energy savings to today values, minus net cost. A positive NPV at your cost of capital means the project creates value. For commercial solar, NPV is typically strongly positive (£50,000–£500,000+ on 100–500kWp systems).
Internal Rate of Return (IRR)
The discount rate at which NPV = 0. For cash purchase, commercial solar typically achieves 20–35% IRR over 25 years. For financed purchases, 12–22%. Compare to your cost of capital or alternative investment returns.
Simple payback period
Total net cost divided by annual saving. Cash purchase: 4–8 years. Financed: 2–5 years (positive cash flow from early on). PPA: not applicable (no investment). After payback, all savings are profit.
Levelised Cost of Energy (LCOE)
Total lifetime system cost divided by total lifetime generation. Commercial solar LCOE is typically £0.03–0.06/kWh — dramatically below grid tariffs (£0.25–0.30/kWh). This metric demonstrates the long-term value of any solar investment.
Common mistakes to avoid in commercial solar finance
Choosing PPA when ownership is viable
PPAs are widely marketed but typically deliver 40–60% less financial value than ownership over 20 years. Only use a PPA when ownership is genuinely not possible.
Not claiming AIA in year one
Annual Investment Allowance must be claimed in the tax year the asset is purchased. Missing the election can defer the deduction by a year — a significant cash flow loss on large systems.
Ignoring SEG income in projections
Smart Export Guarantee income is often excluded from installer quotes. For a 200kWp system exporting 30,000 kWh/year at £0.03/kWh, that is £900/year excluded from your ROI calculation — small but cumulative.
Not comparing multiple finance quotes
Interest rates on green loans and HP facilities vary by 2–4% APR between lenders. On a £200,000 facility over 7 years, a 2% rate difference = £14,000 in total interest. Always get 3 quotes.
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