SEG vs PPA: which export route for UK commercial solar?
UK commercial solar offers two main routes for monetising electricity export: Smart Export Guarantee (SEG) and Power Purchase Agreement (PPA). Smaller systems use SEG; larger systems use PPA. The cross-over typically sits at 1MWp. Here's the detailed comparison.
Side-by-side comparison
| Feature | Smart Export Guarantee | Power Purchase Agreement |
|---|---|---|
| Typical scale | 10 kWp - 1 MWp | 200 kWp - utility scale |
| Contract length | 12 months typical (fixed) or rolling | 15-25 years |
| Tariff structure | Per kWh exported, fixed or variable | Per kWh at fixed price (long-term) |
| Current rate (2026) | 3-15p/kWh | 8-18p/kWh |
| Counter-party | Ofgem-licensed energy supplier | Specialist PPA developer / fund |
| Risk allocation | Generator carries volume risk | Take-or-pay covers volume risk |
| Capex required | Yes (you own system) | No (developer owns) |
| Tax treatment | Income on tax return | Operating expense (off-balance-sheet) |
| Termination | 12-month notice typical | 10-30% exit fee (year-dependent) |
| Best fit | Mid-sized commercial 50kWp-500kWp | Large commercial 500kWp+ or property without capex |
Which one for your business? Real scenarios
Mid-sized commercial site with capex
Recommendation: Self-funded + SEG. Strongest IRR. SEG export tariff captures market upside; capex deployment recovers fast.
Large commercial without capex
Recommendation: PPA. £0 upfront. Locked-in energy cost. Off-balance-sheet treatment. Material 25-year savings vs grid.
Multi-site retail rollout
Recommendation: PPA portfolio. Capex preservation across the estate. Standardised contracts. Sustainability disclosure benefits.
Property with limited long-term tenure
Recommendation: SEG. PPA requires 15+ year property tenure. SEG works on shorter horizons.
Energy-intensive manufacturer with self-consumption + small export
Recommendation: Self-funded + SEG. Self-consumption captures retail rate; SEG monetises minor export. IETF grant compatibility.
Key deciding factors
- Self-funded solar + SEG always delivers higher IRR than PPA — but requires capex.
- PPA economics work where capex isn't available or where balance sheet preservation matters (PE-backed, FCA-listed).
- Long property tenure (15+ years) makes PPA viable. Shorter tenure favours SEG.
- System size matters: under 1MWp = SEG; above 1MWp = wholesale market via PPA.
- Tax position drives the calculation: tax-paying limited companies benefit from Full Expensing on capex; loss-makers prefer PPA operating expense treatment.
Comparison FAQs
When does SEG stop applying?
Above 1MWp. Larger systems enter the wholesale electricity market — accessed via PPA or direct supply licensee structures.
Can I have SEG and PPA on same site?
Not on the same generation. But you can have a behind-the-meter PPA covering self-consumption while exporting under SEG.
Are PPA exit fees onerous?
Usually 10-30% of remaining contract value at year of exit. Falls to 0-10% by year 15. Negotiable on contracting.
Why is PPA tariff higher than SEG?
PPA covers all generation (self-consumed + exported) at a single price. SEG covers only export. PPA pricing reflects the avoided retail import savings the customer gains.
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