Blog · Published 2026-05-12

PPA vs cash purchase for commercial solar: which saves more in 2026?

A Power Purchase Agreement (PPA) is often pitched as 'free solar' for businesses without capex. It's not free — and the trade-off vs cash purchase deserves more rigorous analysis than most installer pitches provide. This post compares the two routes with three worked examples at different project scales, using 2026 prices and the corporation tax structure most UK limited companies face.

How PPAs work

A PPA is a long-term contract (typically 15-25 years) where a third-party investor — a specialist solar finance company, infrastructure fund, or major energy supplier's commercial arm — installs solar on your property at their own cost and sells you the electricity it generates at a fixed per-kWh rate. You pay nothing upfront. The PPA provider earns the spread between their cost of capital and your electricity import savings.

From your perspective, the PPA replaces a variable electricity cost with a fixed one. From the PPA provider's perspective, it's an infrastructure investment with contracted long-dated cashflows — attractive to pension funds and infrastructure capital.

How cash purchase works

You pay the full installation cost upfront. You own the system from day one. You pay no per-kWh charge for the electricity it generates — you simply save on the grid import you no longer need. Year-one tax saving under 100% Full Expensing (limited companies) or AIA (all UK businesses, up to £1m) typically recovers 19-25% of the capex.

After 25 years, the system continues to generate at marginal cost (around 1-2p/kWh for O&M only). PPAs typically transfer ownership at end of term — but at year 25 the system has 5-15% of original capex value remaining, so this is a modest benefit.

Worked example 1: 100kWp solar, £85k capex

Cash purchase: - Capex: £85,000 (excl. VAT) - Year-one Full Expensing tax saving (25% main CT rate): £21,250 - Net effective cost: £63,750 - Annual savings (year 1): £15,000 self-consumption + £3,500 SEG = £18,500 - Payback: 3.4 years - 25-year cumulative savings (after inflation): ~£610,000 - 25-year IRR: ~18%

PPA: - Upfront cost: £0 - Year-1 PPA rate: 12p/kWh - Generation: 95,000 kWh; 50% self-consumption (47,500 kWh used) - PPA payments (year 1, on self-consumed only): 47,500 × 12p = £5,700 - Grid cost saved (year 1): 47,500 × 28p = £13,300 - Net saving year 1: £7,600 - 25-year cumulative saving (escalators capped at 3%): ~£270,000 - IRR vs grid: ~8%

Verdict: Cash purchase wins by £340,000 over 25 years for a tax-paying limited company. PPA only wins if your alternative use of capex earns >18%.

Worked example 2: 500kWp warehouse, £370k capex

Cash purchase: - Capex: £370,000 - Full Expensing tax saving: £92,500 - Net effective cost: £277,500 - Annual savings (year 1): £55,000 self-consumption + £22,000 SEG = £77,000 - Payback: 3.6 years - 25-year cumulative savings: ~£2.5m - 25-year IRR: ~17%

PPA: - Upfront cost: £0 - Year-1 PPA rate: 10p/kWh (better rates at this scale) - Generation: 475,000 kWh; 30% self-consumption (142,500 kWh) - PPA payments year 1: 142,500 × 10p = £14,250 - Grid cost saved: 142,500 × 27p = £38,475 - Plus PPA provider takes the export revenue (you don't see SEG income) - Net saving year 1: £24,225 - 25-year cumulative: ~£820,000

Verdict: Cash wins by ~£1.7m over 25 years. PPA only attractive if capex is genuinely unavailable.

Worked example 3: 2MWp solar farm, £1.4m capex

Cash purchase: - Capex: £1,400,000 (excl. VAT) - Full Expensing tax saving: £350,000 - Net effective cost: £1,050,000 - Annual savings/revenue: ~£280k (mix of export + self-consumption + REGO) - Payback: 3.8 years - 25-year cumulative: ~£9.6m - 25-year IRR: ~19%

PPA: - Upfront cost: £0 - Year-1 PPA rate: 8.5p/kWh (best rates at this scale) - Generation: 1.9m kWh - Annual saving vs grid (20% self-consumption): ~£80k - 25-year cumulative: ~£2.7m

Verdict: Cash wins by £6.9m over 25 years.

But — here's the catch. £1.4m of capex tied up for 25 years has a real opportunity cost. If your business has a 20% RoCE and could deploy £1.4m to earn £280k/year in core operations indefinitely, you're losing the marginal return on that capital. For high-RoCE businesses, the PPA route can be economically justified despite the lower headline savings.

When PPA wins

PPA economically wins in 4 specific situations:

1. Capex genuinely unavailable. Either no spare capex or no debt capacity to fund the project. 2. Loss-making business. Can't capture Full Expensing benefit (worth 25% of capex). PPA loses 25% advantage immediately. 3. High-RoCE alternative uses. Marginal return on capital in core business exceeds 18-20%. 4. Short property tenure with strong landlord. PPA with assignment to landlord can preserve the energy benefit through a tenancy change.

For most tax-paying limited companies with stable property tenure and any spare capex headroom, cash or asset finance + Full Expensing wins.

FAQs

FAQs on this topic

Can I refinance a PPA?

Some PPAs allow customer buyout — typically at fair market value plus 10-30% premium during the contract. The economics rarely work in your favour. Most PPAs run their full term.

What happens to the PPA if I sell the property?

Most PPAs include 'change of control' clauses requiring the PPA to transfer to the new occupier — or you to buy out the contract. Buyer-resistance to taking on a PPA can affect saleability and price.

Are PPA payments tax-deductible?

Yes — PPA payments are revenue (operating) expenses, fully deductible against corporation tax. But you don't get the capital allowance benefit (Full Expensing / AIA) that you'd get from owning the asset.