Finance
How can I finance commercial solar panels?
UK SMEs typically finance commercial solar via four routes: cash purchase (best long-run economics), 5-7 year asset finance (cash-flow positive from month one), operating lease (rental with VAT-recoverable monthly), or PPA (zero capex, discounted electricity rate over 15-20 years). Most SMEs choose asset finance because monthly bill saving exceeds the finance payment from day one.
UK SMEs typically finance commercial solar via four routes: cash purchase (best long-run economics, best AIA tax efficiency), asset finance over 5-7 years (cash-flow positive from month one because finance payments are lower than monthly bill savings), operating lease (effectively rental with VAT-recoverable monthly payments), or Power Purchase Agreement (zero upfront capex, you pay a discounted unit rate to a third party who owns the system over 15-20 years). The best route depends on your tax position, cash availability, and whether you want to own the asset. Around 60% of our SME clients choose asset finance because it requires no capex and produces immediate positive cashflow.
The four financing routes side-by-side
| Route | Upfront cost | Monthly impact | Asset ownership | Tax treatment |
|---|---|---|---|---|
| Cash purchase | Full capex | -£0 (own asset) | Own day 1 | 100% AIA year 1 |
| Asset finance | £0 (or 10% deposit) | Finance payment, lower than bill saving | Own at end of term | Interest is tax-deductible |
| Operating lease | £0 | Lease payment | Lessor owns | Lease payments fully tax-deductible |
| PPA | £0 | Discounted electricity unit rate | Third party owns 15-20 years | Operating expense |
When to use each route
Cash purchase
Best when you have surplus cash, sit on a profitable year-end, and want maximum lifetime return. Pre-AIA capex of £100k becomes £75k net for a Ltd at 25% corporation tax. 25-year cumulative saving £450k+. IRR typically 18-28%.
Asset finance (the SME default)
Best when you want zero capex and positive cashflow from month one. Typical structure: 7 years, fixed rate around 7-9% APR, monthly payments. For a £92,000 install, monthly payment around £1,400. Monthly bill saving from day one: ~£1,800. Net positive cashflow: £400/month from month one. AIA available to the owner of record at year-end (usually the borrower under hire purchase).
Operating lease
Best when you want the lease payments fully tax-deductible against operating profits, no asset on balance sheet (depending on FRS 102/IFRS 16 treatment), and don’t care about owning the asset at the end of term. Useful for lessees on tight leasing-rather-than-buying policies.
Power Purchase Agreement (PPA)
Best when you have no capex appetite, no debt capacity, want immediate savings, and don’t mind a third party owning your roof for 15-20 years. PPA provider installs at their cost, you pay a unit rate (typically 10-25% below grid, with a fixed annual escalator e.g. RPI capped at 3%) for the energy you self-consume. They take all SEG export income. At end of term: extend, buy out, or system removed.
Worked example: same install, four routes
100 kW system, headline cost £92,000, year-1 saving £22,000.
| Route | Year 1 cashflow impact | Year 7 cumulative | Year 25 cumulative |
|---|---|---|---|
| Cash + AIA | -£69,000 (after tax refund) | +£81,000 | +£480,000 |
| Asset finance (7yr @ 8%) | +£5,000 (saving > finance payment) | +£35,000 (asset paid off) | +£446,000 |
| Operating lease (10yr) | +£3,000 | +£21,000 (lease ongoing) | +£280,000 (lessor takes residual) |
| PPA (15yr @ 25p/kWh) | +£12,000 (vs grid at 38p) | +£84,000 | +£295,000 |
Cash purchase wins long-term. Asset finance wins cashflow + medium term. PPA wins year 1 cashflow.
Asset finance specifics worth knowing
- Hire purchase (HP): most common. You borrow, you own from day one for AIA purposes, lender has security over asset.
- Finance lease: similar to HP but ownership transfers at end of term.
- Personal guarantees: most lenders require a director PG up to £25,000-£100,000 on solar finance.
- Term: 5, 6, or 7 years standard. Longer = lower monthly but more interest paid.
- Rates: 6-10% APR depending on covenant strength, 2026 base rate environment.
- Lenders: specialist green lenders (Connect Asset Finance, Aldermore, Triodos), high-street banks via asset finance arms (Lombard, Close Brothers).
Common misconceptions about solar finance
“Asset finance is just expensive debt” — no. Match the asset’s cashflow to the finance payment and you’re using HMRC’s tax relief plus electricity bill savings to pay for the system. Effective IRR on the small upfront deposit is usually 25-40%.
“PPA is a no-cost option” — it’s no-capex, not no-cost. You pay a unit rate for 15-20 years that escalates annually. By year 18 you may be paying close to grid rates. A 5-year asset finance can have a lower lifetime cost.
“You can’t claim AIA on financed solar” — wrong. Hire purchase finance still entitles you to AIA on the underlying asset. Operating lease and PPA do not (because you don’t own the asset).
Next steps
For a quote modelled across all four finance routes, contact us. See our cost guide and grants and funding overview. Related FAQs: PPA detail, tax relief, grants.
Related questions
Can I claim tax relief on commercial solar panels?
Yes — UK businesses can claim 100% Annual Investment Allowance (AIA) on commercial solar PV, deducting the full capex from taxable profits in year one (up to £1m/year). For a profitable limited company at 25% corporation tax, that's effectively a 25% discount on the install. Capital allowances rules and timing matter — verify with your accountant before signing.
What's the payback period for commercial solar in the UK?
Commercial solar payback in the UK is 5-8 years for most SMEs in 2026, dropping to 3-5 years after 100% AIA tax relief for profitable limited companies. Payback depends on self-consumption, grid tariff, and system size. Daytime-occupied sites with high baseload (manufacturing, retail) hit the lower end; office-only sites with weekend gaps run 7-9 years.
What is a Power Purchase Agreement (PPA)?
A Power Purchase Agreement (PPA) is a contract where a third party installs and owns solar panels on your roof at zero capex to you, and you buy the electricity they generate at a discounted unit rate (typically 10-25% below grid) over 15-20 years. The provider takes the export income. At end of term you extend, buy out at residual value, or have the system removed.