Six finance structures, side by side.
The same £200,000 250kWp commercial system, modelled six ways. The right structure depends on your tax position, capital constraints, and what matters most to your finance director.
| Structure | Upfront | Year-one cash | 25-year cumulative | IRR | Tax benefit retained | Balance sheet |
|---|---|---|---|---|---|---|
| Capital | £200,000 (250kWp at £800/kWp installed) | £200k outflow + £25k corp tax saved on FYA = £175k net year-one cost | +£1.4m to +£1.8m cumulative free cash flow | Typically 14% to 22% pre-tax IRR depending on self-consumption, electricity rate, and irradiance | Yes | Mixed |
| Green Loan | £0–£20k deposit (some lenders 0%, others 10% deposit) | Year-one debt service ~£24k–£28k on a £200k 10-year loan at 7% | +£900k to +£1.3m cumulative free cash flow | Typically 10% to 17% pre-tax IRR | Yes | On |
| Op Lease | £0 (some leases require 1–3 months' rent in advance) | Year-one rent ~£32k | +£700k to +£1.1m cumulative free cash flow over 25 years | Roughly 7% to 12% pre-tax IRR on the cumulative cash flows | Yes | Off (FRS 102) |
| Fin Lease | £0–£15k (some lessors take 5–10% deposit; others zero) | Year-one rentals ~£28k–£32k | +£900k to +£1.2m cumulative free cash flow. | Typically 10% to 16% pre-tax IRR — close to green loan economics | Yes | On |
| PPA | £0 | Year-one PPA payments ~£24k (240MWh at 10p) | +£600k to +£1.0m cumulative saving over 25 years | Not directly applicable — host puts in zero capital | Yes | Mixed |
| Asset | 5%–10% deposit typical (~£10k–£20k on £200k system) | Year-one HP payments ~£40k (5-year term) | +£900k to +£1.2m cumulative free cash flow. | 11%–17% pre-tax IRR | No | On |
How to read the table
All figures based on a £200,000 turnkey 250kWp commercial system. Year-one cash position assumes ~£42,000 of year-one electricity savings net of all finance costs and tax effects. 25-year cumulative includes electricity savings, finance cost, inverter replacement at year 12, and modest electricity inflation.
Tax benefit retained refers to whether the capital allowances (50% FYA, AIA, ongoing WDAs) flow to the lessee/borrower or to the lessor/lender. Capital purchase, green loans, finance leases, asset finance (HP), and PPAs (where the host is not the owner) follow this rule.
Balance sheet treatment depends on which UK accounting standard applies. FRS 102 (most SMEs) keeps operating leases off balance sheet; IFRS 16 (larger reporters) capitalises all leases over 12 months.
When each structure wins
Capital purchase wins when…
You have the capital, you pay corporation tax, and you'll own the building for 10+ years. Lowest 25-year cost, highest IRR, no counterparty risk.
Green loan wins when…
You want capital purchase economics but need to preserve working capital. You retain all tax benefits; the loan finance cost is the price of leverage.
Operating lease wins when…
You can't use the FYA yourself (loss-making, charity, public-sector wholly grant-funded). The lessor uses it on your behalf and reflects value in lower rent.
Finance lease / asset finance wins when…
Speed of underwriting matters more than the last basis point of rate. Standard SME credit; familiar structure for finance teams already running asset finance.
PPA wins when…
Capex is unavailable, you're tenanting the building, or you simply don't want the asset on your books. Trade-off: 30–50% less lifetime saving than ownership.
PSDS grant wins when…
You're a public-sector body able to bundle solar with heat decarbonisation. 75–100% grant funding makes the residual investment trivial.
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