Finance route · Updated May 2026

Solar Power Purchase Agreement (PPA) for UK businesses

The honest guide to commercial solar PPAs — what they are, when they make sense, what to negotiate, and the trade-offs vs cash purchase, asset finance and operating lease.

What is a commercial solar PPA?

A Power Purchase Agreement is a third-party finance arrangement for commercial solar PV. The PPA provider — typically a specialist solar finance company, infrastructure fund, or major energy supplier's commercial arm — installs, owns and maintains a solar system on your roof. You pay them per kWh of electricity the system generates and you use, at a fixed price agreed upfront, for the duration of the contract (typically 15-25 years).

From the operator's perspective, a PPA is electricity at a known, low rate. From the PPA provider's perspective, it's an infrastructure investment with contracted long-dated cashflows — attractive to pension funds, insurance companies and renewable infrastructure funds. The PPA structure has powered the majority of UK commercial solar above 200kWp since 2018.

When does a PPA make sense?

• Your business has limited capex headroom and prefers to deploy capital in higher-IRR uses.
• You want predictable energy costs without taking on operational solar PV maintenance.
• The site has a long lease tenor or freehold — PPAs typically need 15+ year property tenure.
• You have ESG / Scope 2 reduction targets but limited internal capacity to manage solar PV operations.
• The roof is large enough (200+ kWp) for PPA providers to find the project worth structuring.

When PPAs don't make sense

• You have abundant capex and want to capture the full IRR (cash buy beats PPA every time on IRR).
• You're a tax-paying limited company and can use Full Expensing — that single tax relief is worth more than the financing benefit a PPA provides.
• Your site has uncertain long-term occupancy (planning to sell or relocate in <15 years).
• The system is small (<100 kWp) — most PPA providers won't structure smaller systems economically.
• Your business has variable load — PPAs work best with steady, predictable consumption.

Key contract terms to negotiate

Term	Typical range	What to negotiate
Contract length	15-25 years	Shorter = higher PPA rate but more flexibility. 20 years is the typical sweet spot.
Year-1 rate	8-18p/kWh	Should be 15-40% below your current grid rate. Get 3+ quotes — they vary materially.
Annual escalation	CPI or RPI capped 1-3%	Negotiate a cap. Uncapped CPI escalation can leave you paying more than grid by year 15.
Take-or-pay	50-100% of generation	Lower take-or-pay = lower risk for you. 70% is typical.
Exit fee schedule	0-150% of remaining payments	Cap at 100% in year 1, stepping to 0% by year 15.
O&M responsibility	PPA provider	Confirm 100% — including inverter replacement, panel cleaning, vegetation management.
Insurance	PPA provider	Confirm in PPA agreement — protects you from third-party damage claims.
Change-of-control clause	Various	Negotiate easy transfer to new occupier if you sell.

UK commercial PPA providers (2026)

Major UK commercial PPA providers include Octopus Energy For Business, Tesco-style retail PPA (where retailers self-fund their own estate), SmartestEnergy Business, Bryt Energy, Drax Commercial, Centrica Business Solutions, Custom Solar, and several specialist infrastructure funds (Greencoat UK, BSIF, NextEnergy Capital). Specialist commercial brokers can help match your project to multiple PPA providers competitively. Always seek 3+ tenders.

FAQs

Solar PPA FAQs

What is a commercial solar PPA?

A Power Purchase Agreement is a contract where a third-party investor (the PPA provider) installs solar panels on your property at their own cost and sells you the electricity the system generates at a fixed price for the duration of the contract (typically 15-25 years). You pay nothing upfront; you save on electricity bills; the PPA provider earns the difference between their cost of capital and your electricity import savings.

Do I own the solar panels under a PPA?

No — not until the end of the contract, unless you pay to buy them out earlier. The PPA provider owns the system throughout the term. At end of contract, ownership typically transfers to you for a nominal sum (£1) or you can extend the agreement, or the provider removes the system.

What rate per kWh do PPAs offer?

UK commercial PPA pricing in 2026 typically ranges from 8p/kWh (very large arrays, prime credit, 25-year contracts) to 18p/kWh (smaller systems, weaker credit, shorter contracts). The savings vs grid import are usually 15-40%.

Can I get out of a PPA early?

Usually yes — but with an exit fee. Typical PPA exit fees fall over time, starting at 100-150% of remaining payments in year one and stepping down to 0-20% by year 15. Read the contract carefully — exit terms vary dramatically between providers.

What happens if my business goes bust during the PPA?

Most PPAs include 'change of control' clauses transferring the PPA to the new owner / occupier of the property. If the property is sold to a buyer unwilling to take on the PPA, exit fees apply. PPAs are typically registered as charges against the property — affecting saleability and re-mortgageability.

Are PPAs on or off balance sheet?

Under IFRS 16 and UK GAAP FRS 102, most operational PPAs are accounted for as service contracts (operating expense) — off balance sheet. However, the lease accounting rules (IFRS 16 / FRS 102 Section 20) can require capitalisation in some structures. Get specialist advice from your auditor.

Why don't I just install the system myself?

Cash purchase delivers higher IRR — typically 12-22% over 25 years vs 6-9% effective saving under a PPA. But PPAs preserve your capex for higher-return uses (working capital, growth investment), are off balance sheet, and shift technical and performance risk to the PPA provider.