Q&A · Worth it?
Is commercial solar finance worth it for UK businesses in 2026?
For most profitable UK trading companies, commercial solar finance in 2026 generates 14-22% post-tax IRR over 25 years on capital purchase, with the 50% First Year Allowance materially reducing year-1 effective cost. For other businesses — capital-constrained operators, charities, specific property structures — different finance structures change the answer but rarely make it negative. Here's the honest analysis.
The short answer
Yes for most profitable UK trading companies; conditionally yes for most others; no in specific circumstances. The honest framework:
- Profitable trading company, available capital, 10+ years occupation — capital purchase, 14-22% post-tax IRR. Very strong case.
- Profitable trading company, capital constrained — green loan or finance lease, 10-15% post-tax IRR. Strong case.
- Charity / not-for-profit — PPA or trading-subsidiary capital purchase, 6-10% effective return. Reasonable case but materially weaker than commercial.
- Public sector with PSDS access — bundled grant application, 75-100% covered by grant. Net positive on capital deployed.
- Loss-making business, no FYA value — typically defer until trading position recovers. Solar economics depend on tax allowance capture.
- Short-tenure occupier (under 5 years) — typically not viable for capital structures. PPA may work but contract length mismatches occupation horizon.
When commercial solar isn't worth it
Six situations where we've recommended clients NOT proceed:
- Loss-making with no near-term recovery. FYA value is contingent on having taxable profits to offset. Loss-making businesses without a clear return-to-profit plan don't capture the FYA, and economics are 17-20% worse without it.
- Tenant with sub-5-year remaining lease. Capital structures need 8+ years to break even; PPAs need 20+ years. Short-tenure tenants typically can't make the math work even with green-rent abatement structures.
- Site with very low electricity demand or weekday-only operation. If your demand profile is short hours / weekends-off, self-consumption percentage drops to 50-65%. Marginal kWh value falls toward export tariff (7p) rather than avoided cost (22p), reducing project IRR meaningfully.
- Building with imminent redevelopment plans. Solar deployments need 8-25 year horizons depending on structure. Buildings scheduled for redevelopment within 5 years should defer or do nothing.
- Highly DNO-constrained sites with no economic export option. Where DNO denies export consent and self-consumption is naturally low, project economics become marginal. Battery storage may resolve but adds capex; sometimes the right answer is "this site doesn't fit".
- Listed-building or conservation-area sensitive structures. Where conservation officer engagement makes consent improbable on visible roof slopes, project may be uneconomic on the partial-roof yield available.
Where the headline IRR comes from
Project IRR on commercial solar in 2026 typically lands 14-22% post-tax for profitable trading companies on capital purchase. The components:
- Avoided electricity cost — typically 17-19% of project IRR. The headline driver.
- FYA tax saving year 1 — typically 2-3% of project IRR uplift. Time-limited to 31 March 2026 unless extended.
- Special-rate pool relief — typically 0.5-1% of project IRR uplift over 8-15 years.
- SEG export revenue — typically 0.5-1.5% of project IRR. Material on export-heavy sites.
- Real-terms tariff inflation — typically 1-2% of project IRR if tariffs grow ahead of inflation.
Related questions
What payback period should I expect on commercial solar?
Capital purchase: 3.5-5.5 years simple payback for profitable trading companies, 2.5-4 years post-FYA. Green loan: net cash positive from year 1, full repayment year 7. PPA: day-1 cash positive, no payback in traditional sense (no capex). Asset finance: net cash positive from year 1.
How sensitive are these returns to electricity price assumptions?
Materially. We model 1.5% real annual tariff inflation as base case, with sensitivities at 0% (downside) and 3% (upside). Project IRR shifts ±2-3 percentage points across that range. Wholesale electricity has been broadly flat in real terms since 2024; long-run forwards suggest 0.5-2% real growth is reasonable.
Does commercial solar still work if the FYA expires after 31 March 2026?
Yes — but with reduced returns. Without FYA, capex flows entirely into the special-rate pool at 6% writing-down allowance. Project IRR drops 2-3 percentage points but typically remains 12-17% — still strong for most situations. The FYA is a meaningful boost but not the deciding factor.
Are project economics the same for charities as commercial businesses?
No — substantially worse on a comparable structure because charities can't capture FYA / AIA tax allowances. Charity-sector solar typically delivers 6-10% effective return vs 14-22% for commercial. Trading-subsidiary structures can recover some of the gap. PPA structure works around the constraint but at reduced lifetime value.
How do I get a tailored "is it worth it" assessment?
Send postcode, building type, accounting year-end, half-hourly electricity data (if available), and approximate annual consumption via the contact form. We model the relevant structures and return an indicative IRR comparison within 5 working days. No upfront fee for the initial assessment.
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Want this applied to your specific situation?
We model the relevant finance structures against your project numbers. Five working days from enquiry to indicative comparison across capital purchase, green loan, lease, and PPA.
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