Funding Solar With a PPA UK 2026: Zero-Capex, Explained

Quick answer

Funding solar with a Power Purchase Agreement (PPA) lets a UK business install commercial solar at zero capital cost and pay only for the electricity it generates — typically a fixed 8p-14p per kWh, versus 22p-30p from the grid. A third-party funder installs, owns, insures and maintains the system for 15-25 years; you simply buy the cheaper power. A business using 200,000 kWh a year of PPA solar at 11p instead of 27p grid power saves around £32,000 a year with no investment. The trade-off: you forgo the 100% Annual Investment Allowance and the long-term free power that buying outright delivers. Below we explain exactly how a solar PPA works, who owns what, who maintains it, and how it compares head-to-head with CapEx and lease funding using a worked example.

What is a solar PPA and how does it work?

A Power Purchase Agreement is a long-term contract between your business and a solar funder (sometimes called an asset owner or investor). The mechanics are straightforward:

1. The funder pays for everything — survey, design, panels, inverters, mounting, DNO connection and commissioning. Your capital outlay is £0.

2. The system is installed on your roof or land and generates electricity.

3. You buy the power it produces at a pre-agreed unit rate, fixed for the life of the contract (usually with a small annual escalator linked to RPI or CPI).

4. The funder owns, insures and maintains the asset for the full term — typically 15 to 25 years.

5. At the end of the term you either buy the system for a nominal residual value, extend the agreement, or have it removed.

The headline benefit is that you only pay for the electricity you actually consume, at a rate well below grid price. You are not buying equipment; you are buying cheaper energy. Because the funder's return depends on the system generating, they are commercially incentivised to keep it performing at its best — which is why maintenance, monitoring and repairs all sit with them, not you.

PPAs originated in the large-scale commercial and utility market but are now common for UK businesses with 100kWp+ of available roof or land. They suit organisations that want the bill savings and carbon credentials of solar without committing capital — schools, NHS trusts, manufacturers, logistics operators and property owners with high daytime consumption. Our commercial solar panel installers UK team structures PPA, lease and CapEx routes side by side so you can see the net-present-value difference before deciding.

Zero-capex: the core appeal of a PPA

The single defining feature of a PPA is zero capital expenditure. For a finance director, that is significant: a 250kWp solar system that would cost around £200,000 to buy outright costs nothing under a PPA. The investment sits on the funder's balance sheet, not yours.

This matters for several reasons:

• No drain on cash reserves — capital stays free for core business investment.
• Off-balance-sheet treatment is often possible (subject to your accounting standards and auditor) — the PPA can be treated as an operating expense rather than a capital asset and matching liability.
• No financing risk — you are not borrowing, so there is no loan to service, no covenant impact and no effect on your borrowing headroom.
• Day-one positive cash flow — because your PPA unit rate is below grid price from the first kWh, you save money immediately rather than waiting years for payback.

The contrast with buying outright is stark on cash flow but reverses over the asset's full life. With CapEx you fund £200,000 up front and recover it over roughly 3-4 years (after the 100% Annual Investment Allowance — see our commercial solar payback worked examples), then enjoy two decades of effectively free power. With a PPA you never recover free power, but you also never risk a penny.

The fixed unit rate — how PPA pricing works

Under a PPA you agree a fixed price per kWh for the solar electricity you consume. In 2026 typical UK commercial PPA rates run 8p to 14p per kWh, compared with grid import at 22p to 30p. The exact rate depends on system size, your site's solar yield, the contract length and the funder's cost of capital.

Most PPAs include an annual escalator — the unit rate rises by a small fixed percentage (commonly 2-3%) or is indexed to RPI/CPI each year. This protects the funder's return against inflation, but because grid prices have historically risen faster than the escalator, the gap between your PPA rate and grid price tends to widen over time — improving your savings as the contract matures.

Here is how the saving stacks up at different consumption levels, assuming an 11p PPA rate versus 27p grid:

A crucial detail: you pay the PPA rate only for solar power you actually use. Surplus generation is either exported (with the export income usually going to the funder) or, on most modern PPAs, you can pair the system with battery storage to lift self-consumption and capture more of the cheap solar. The more daytime load you have, the better a PPA works.

Who owns and maintains the system?

This is the question that most clearly separates a PPA from the alternatives. The funder owns the system for the entire term. That ownership carries responsibilities the funder shoulders entirely:

• Maintenance and repairs — all routine servicing, inverter replacement (typically needed once around year 12-15) and fault rectification.
• Monitoring — the funder monitors performance remotely and is contractually motivated to fix underperformance fast, because their revenue depends on generation.
• Insurance — the system is insured by the funder against damage, theft and failure.
• Performance guarantee — many PPAs guarantee a minimum annual generation, with the funder compensating you if output falls short.

For your business this means no maintenance budget, no performance risk, and no technical headaches — a genuine operational advantage over owning. You are buying a service (cheap electricity), not running an asset.

At the end of the 15-25 year term you typically have three options: buy the system for a pre-agreed nominal residual value (often a few percent of the original cost), extend the PPA at a renegotiated rate, or have the funder decommission and remove it at their cost. Ownership transfers to you only if you exercise the buy-out — a point worth clarifying in the contract before signing, alongside the early-termination terms.

CapEx vs Lease vs PPA — the full comparison

The three funding routes suit different balance sheets, tax positions and risk appetites. Here is the head-to-head:

The decisive differences are ownership, who carries the generation risk, and the tax treatment:

• CapEx delivers the strongest lifetime return because you own 25+ years of free power and claim the 100% Annual Investment Allowance — a £200,000 system cuts your corporation-tax bill by around £50,000 in year one (see gov.uk capital allowances). The cost is the up-front capital and the performance risk.
• A lease spreads the cost into fixed monthly payments and you usually own the asset at the end — but you pay the rental whether or not the system performs, so generation risk sits with you.
• A PPA carries zero capex and zero risk — you pay only for power produced, at a rate below grid — but you forgo the tax relief and the long-term free power, and the funder keeps the export income.

Worked example: a 250kWp system, three ways

Take a manufacturer with strong daytime demand installing a 250kWp rooftop system generating ~230,000 kWh a year, self-consuming 80% (184,000 kWh). Grid price 27p; PPA rate 11p; corporation tax 25%.

The CapEx route saves the most over 25 years — you avoid the full 27p grid rate, not just the 16p spread, and you bank the £50,000 tax relief. The PPA saves less in absolute terms (because you still pay the funder 11p) but requires no capital, carries no risk and starts saving on day one. For a cash-conscious business, or one that cannot use the capital allowance (a charity, school or loss-making entity), the PPA is frequently the better practical choice despite the lower headline return. According to Solar Energy UK, PPAs are one of the fastest-growing commercial funding routes precisely because they remove the capital barrier.

When a PPA is the right choice (and when it isn't)

A PPA is the strongest fit when:

• You have high daytime electricity demand (so you self-consume most of the cheap solar)
• You want to conserve capital for core business investment
• You cannot use the 100% AIA — charities, schools, NHS bodies, or loss-making companies with no taxable profit to offset
• You want zero maintenance and zero performance risk
• You have a strong, stable covenant — funders price the PPA on your creditworthiness, so a solid balance sheet gets a better unit rate

A PPA is usually not the best route when:

• You are a profitable company with cash to invest — CapEx plus the 100% AIA beats it over the asset life
• You want to own the asset and the export income outright
• Your roof or lease is short-term — funders need a long, secure tenure to underwrite a 15-25 year agreement
• Your daytime consumption is low — if you would export most of the generation, the self-consumption savings that justify a PPA do not materialise

The honest answer is that the right route depends on your tax position, your balance sheet and your appetite for capital expenditure — which is exactly why we model all three. Per Ofgem's guidance on commercial energy, the Smart Export Guarantee and grid-services income can also be layered in, but who captures that income differs sharply between owning outright and signing a PPA.

Bottom line

A solar PPA is the zero-capex, zero-risk route into commercial solar: a funder installs, owns and maintains the system for 15-25 years, and you buy the power at a fixed 8p-14p per kWh — well below the 22p-30p grid rate — saving from day one with no investment. The trade-off is real: you forgo the 100% Annual Investment Allowance and the long-term free power that buying outright (CapEx) delivers, and the funder keeps the asset and export income. A lease sits in between — fixed monthly cost, you own the asset, but you carry the generation risk. For a profit-making, cash-rich business, CapEx almost always wins over 25 years; for a school, charity, or any organisation conserving capital or unable to use the tax relief, a PPA is frequently the smarter call. The only way to know is to model all three against your actual half-hourly consumption — which is precisely what our commercial solar panel installers UK team does in a fixed-price feasibility study before you commit a penny.

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