Commercial Solar Financing: PPA vs Outright Purchase vs Lease
A detailed comparison of commercial solar financing options to help you choose between PPA, outright purchase, and leasing arrangements.
Commercial Solar Financing Options
Businesses have several options for financing commercial solar installations. Each has distinct advantages depending on your capital position, tax situation, and business objectives.
1. Outright Purchase
Paying upfront for your solar installation offers the highest returns but requires available capital.
Advantages:
- Highest ROI (14-20% annually)
- Full ownership from day one
- Claim 100% AIA tax relief
- No ongoing payments
- All savings and export income retained
Considerations:
- Requires capital outlay
- Business bears maintenance responsibility
2. Power Purchase Agreement (PPA)
A third party installs, owns, and maintains the system. You buy the electricity generated at a fixed rate, typically 10-15% below grid prices.
Advantages:
- No upfront cost
- Immediate savings
- No maintenance responsibility
- Fixed energy prices
Considerations:
- Lower savings than ownership
- Long contract terms (15-25 years)
- Third party owns the system
- May affect property sale
3. Solar Lease
You lease the equipment, paying fixed monthly amounts while using all generated electricity.
Advantages:
- Low or no upfront cost
- Fixed monthly payments
- Predictable costs
- May include maintenance
Considerations:
- Total cost often exceeds outright purchase
- May not qualify for AIA
- Contract obligations
4. Commercial Loan/Finance
Borrow to purchase the system outright, spreading cost over 3-7 years while maintaining ownership.
Advantages:
- Own the system
- Claim AIA tax relief
- Spread cost over time
- Savings often exceed repayments
Which Option is Best?
For most businesses with available capital or borrowing capacity, outright purchase delivers the best returns. PPAs suit businesses wanting zero capital commitment, while loans offer a middle ground.