Solar PPA (Power Purchase Agreement) vs cash purchase is the highest-stakes financing decision in commercial solar — it dictates whether you capture the full long-term asset value, who carries operational risk, what your year-one cash position looks like, and what your balance sheet does. This page lays out the side-by-side comparison with full worked examples on 250 kW and 500 kW projects, financial output tables (IRR, NPV, payback, cash flow), and the decision framework for choosing between the two routes. For broader finance route comparison including asset finance and operating lease see commercial solar finance.
What is a solar PPA?
A solar Power Purchase Agreement is a 15-25 year contract under which a third-party funder owns and operates a solar PV system on your roof (or on adjacent land), and you agree to buy the electricity generated at a fixed per-kWh price below your current grid retail tariff. You pay zero upfront capex. The PPA funder pays all install costs, owns the system as their asset, claims all available capital allowances (AIA, capital gains treatment), pays for all maintenance and inverter replacement, handles G99 connection and ongoing DNO compliance, and collects SEG export income on any unused generation. At the end of the PPA term (year 20-25) the system is typically transferred to you for a nominal sum, sold to you at market value, or removed from site. Annual escalator clauses (2-3% typically) lock in modest annual price increases over the life of the PPA. PPA providers active in UK commercial in 2026 include Bright Light Solar, Bryt Energy, Custom Solar, Empower Community Energy, Energise Africa, ENGIE, Smartest Energy, Sungrid Solar, and Squeaky Clean Energy among 20+ active players.
What is a cash purchase + AIA?
A cash purchase means you (the building owner or occupier with landlord consent) buy the solar PV system outright at install. Capital outlay £190,000-£820,000 typical for 250 kW-1 MW systems. You own the system as your asset, claim 100% Annual Investment Allowance (which delivers 25% tax relief at the main corporation tax rate for profitable Ltd Cos), capture 100% of the generation value (avoided import + SEG export income), and assume all operational responsibilities (insurance, maintenance, inverter replacement at year 12-15, end-of-life). The financial outcome is strongest because all the asset value accrues to you over the 25-30 year operational life. Variations within "cash purchase": pure cash from reserves, cash funded by overdraft or commercial loan, cash funded by internal management buy-out, cash funded by parent company. All variants yield the same operational economics; the funding cost varies.
Side-by-side comparison table (250 kW project)
The table below compares cash + AIA versus PPA on the same physical 250 kW system (£210k capex, 232,500 kWh/year generation, 80% self-consumption, 25-year analysis horizon, 7% discount rate, 4% bill inflation).
| Metric | Cash + AIA | PPA (15-year) |
|---|---|---|
| Year-1 capex outlay | £210,000 | £0 |
| Year-1 AIA tax relief | £52,500 | £0 (PPA funder claims) |
| Net year-1 capex | £157,500 | £0 |
| Year-1 savings vs grid | £48,000 (full retail tariff) | £14,000-£18,000 (PPA discount) |
| Year-1 SEG export income | £3,500 (you keep) | £0 (PPA funder keeps) |
| 25-year DCF NPV @ 7% | £790,000 | £260,000 |
| IRR | 22.1% | n/a (zero capex) |
| Maintenance responsibility | You (≈£1,500/yr) | PPA funder |
| Inverter replacement at yr 12-15 | You (£15-25k) | PPA funder |
| Asset on your balance sheet | Yes (£210k asset) | No (IFRS 16 minor lease) |
| Performance risk | You (P50/P90) | PPA funder (you pay only for delivered kWh) |
| Building sale / occupier change | Simple (asset transfers with building) | PPA novation required (complex, possible early termination) |
The cash + AIA route delivers £790k of NPV vs £260k for the PPA — a £530k gap over 25 years. The PPA delivers operational simplicity, no capex, and full performance risk transfer.
When cash + AIA wins
Cash + AIA is the correct choice for the majority of UK commercial solar projects in 2026. The qualifying conditions: (1) You\'re a profitable UK limited company at the 25% main rate of corporation tax — AIA delivers £25 of year-one tax relief per £100 of solar capex, materially shortening payback. (2) You have capex headroom — either cash reserves, available credit facilities, or willingness to use a commercial loan or asset finance to fund the capex outlay. (3) Long-term occupancy outlook — you expect to be in the building (or able to transfer the asset with a sale) for 8+ years, allowing the long-term NPV to crystallise. (4) Committee approval is achievable — capex above £200k typically requires board or finance director approval, which adds 4-8 weeks to project timeline but is rarely a blocker. (5) You can absorb minor operational responsibilities — annual inverter monitoring, periodic cleaning, inverter replacement around year 12-15. If all five conditions hold, cash + AIA is essentially always the correct choice.
When PPA wins
PPA is the correct choice in specific situations where one or more of the cash + AIA qualifying conditions fail. (1) Charities and not-for-profits — no corporation tax position means AIA is worthless. PPA delivers immediate operational savings without capex. (2) Public sector — same as charities. Note: Salix PSDS grant funding is usually preferable to PPA for public sector, delivering 100% grant rather than just an electricity discount. (3) Exit-bound businesses — planning to sell or relocate within 5-7 years. The cash + AIA NPV doesn\'t crystallise in that timeframe; PPA delivers immediate operational savings with no asset transfer complexity. (4) Tenanted properties without landlord capex agreement — if the building is leased and the landlord won\'t agree to install solar as part of the building, a PPA can be structured to sit alongside the lease. (5) Multi-stakeholder sites where capex approval is impractical — academy chains, NHS trusts, complex partnerships where the committee approval process for £200k+ capex is genuinely impossible to navigate. (6) Risk-averse boards prioritising operational over financial outcomes — some boards prefer guaranteed annual savings over higher-IRR-but-with-risk capex investment.
Asset finance: the SME middle ground
For SMEs that don\'t fit cleanly into either cash + AIA or PPA, asset finance is typically the right answer. Asset finance structure: a lender (typically a commercial finance company specialising in renewables — Close Brothers, Triodos, Connect Subsidy, Anglian Renewable Energy, Energy 4) provides 100% capex funding repayable over 5-10 years. You own the asset from day one, claim AIA tax relief in year one, capture all generation value (avoided import + SEG export), and pay monthly repayments to the lender. Typical 2026 rates: 6.5-9% APR over 7-year term. On a £210,000 250 kW system the monthly payment runs £3,200/month over 7 years (£38,400/year). Year-one savings of £48,000 minus annual finance cost of £38,400 = £9,600 cash-flow positive from year one (and the gap widens as bill inflation outpaces fixed finance cost). Asset finance gives you the asset value and AIA upside of cash purchase combined with the zero-capex of PPA — at the cost of monthly finance payments. Most popular SME route for projects £100k-£500k in 2026. See finance options overview.
Operating lease: off-balance-sheet alternative
For businesses prioritising balance-sheet treatment (e.g. for covenant compliance, parent-company reporting, or sector-specific regulatory ratios), an operating lease can be the right structure. Under IFRS 16, leases below £5,000/month annual value can be treated as short-term leases and kept off-balance-sheet. Solar PV typically requires longer-term leases that go on-balance-sheet, but the right-of-use treatment is more capex-efficient than direct ownership. Operating lease economics: monthly payments £2,700-£3,000 over 10 years on a £210k 250 kW system. Net cash-flow position year one: +£14,500 (savings £48k - lease payment £33.5k). End-of-term option: purchase the system at fair market value (typically 8-15% of original capex), continue the lease at peppercorn rate, or have the lessor remove the system. Less common than asset finance but useful for specific balance-sheet-driven situations.
The 4-route decision matrix
The decision framework below summarises which route fits which business situation.
| Business situation | Recommended route |
|---|---|
| Profitable Ltd Co, capex headroom, long-term occupancy | Cash + AIA |
| Profitable Ltd Co, no capex headroom, long-term occupancy | Asset finance |
| Profitable Ltd Co, off-balance-sheet priority | Operating lease |
| Charity or not-for-profit | PPA (or grant-funded purchase) |
| Public sector (schools, NHS, council) | Salix PSDS grant funding |
| Energy-intensive manufacturing (IETF SIC codes) | IETF grant + AIA on residual |
| Planning to sell within 5-7 years | PPA |
| Tenanted property, landlord won\'t agree to capex | PPA |
| Multi-site SME, projects below £200k each | Asset finance (bundled across sites) |
Common PPA contract pitfalls
Read the PPA contract carefully. Three common pitfalls. (1) Aggressive escalator clauses: some PPA providers offer a low headline year-one price (12p/kWh) with a 4-5% annual escalator. Over 20 years this compounds materially — by year 20 the PPA price is 26p/kWh, no longer materially below grid. Always check the escalator and run NPV against your specific tariff inflation assumption. (2) Punitive early termination clauses: some PPAs charge 80-100% of remaining contract NPV as early-termination penalty. This can be £100k+ on a 500 kW PPA 5 years into a 20-year contract. Always negotiate to 30-50% of remaining NPV with step-in rights for successor occupiers. (3) Maintenance and performance scope ambiguity: ensure the PPA explicitly covers all maintenance, inverter replacement at year 12-15, panel cleaning, monitoring system upgrades, and end-of-term removal. Some PPAs leave inverter replacement as your obligation, materially undermining the "zero responsibility" pitch.
Recommended next step
If you\'re evaluating PPA vs cash + AIA vs asset finance for a specific project, the right starting point is a side-by-side financial model against your actual half-hourly meter data, specific import tariff, and corporation tax position. We deliver this as standard with every quote — three- or four-route comparison showing year-one cash position, payback, IRR and NPV for each route. Decision typically takes 2-3 hours of finance director time once the comparison is in front of you. Most profitable Ltd Cos go cash + AIA or asset finance; charities and exit-bound businesses go PPA; public sector goes Salix PSDS. See commercial solar finance overview and finance options service page.
Common questions on solar PPA vs cash purchase
What is the difference between a solar PPA and a cash purchase in 2026?
A solar PPA (Power Purchase Agreement) is a contract where a third-party funder owns and operates the solar PV system on your roof, and you buy the generated electricity at a fixed per-kWh price (typically 13-18p/kWh in 2026) that's below your grid retail tariff (typically 24-32p/kWh). You pay zero upfront capex and zero maintenance — the funder handles everything for 15-25 years. A cash purchase means you buy the solar system outright (£190,000-£430,000 for a 250-500 kW system), claim 100% Annual Investment Allowance tax relief, and capture 100% of the generation value (savings + SEG export income). Cash + AIA delivers materially higher long-term financial returns; PPA delivers zero-risk operational savings with no capex outlay.
Which is better — solar PPA or cash purchase — for my business?
Cash + AIA wins on long-term financial return (22-30% IRR, £1m+ NPV per 500 kW system) for profitable UK limited companies with sufficient capex headroom and a corporation tax position to absorb AIA. PPA wins on cash-flow simplicity and risk transfer for: (a) businesses without capex headroom or strong corporation tax position, (b) charities and not-for-profits that can't use AIA, (c) public-sector bodies that don't pay corporation tax (Salix PSDS is usually preferable to PPA here), (d) businesses planning to sell or relocate within 5-7 years, (e) tenanted properties where the freeholder won't agree to capex, (f) sites with multiple stakeholders where committee approval for capex is impractical, and (g) businesses prioritising operational expense over balance-sheet capital investment.
How much cheaper is solar PPA electricity vs grid in 2026?
2026 commercial PPA rates typically run 13-18p/kWh fixed (with 2-3% annual inflation built in over 15-25 year terms), versus grid retail commercial tariffs of 24-32p/kWh (highly volatile, subject to inflation). The PPA discount to grid in year one is typically 30-50% — i.e. you save 8-14p per kWh on every PPA-supplied unit. Over a 20-year PPA term with grid bills inflating at 4-5% annually and PPA bills inflating at 2-3% annually, the cumulative saving expands materially. A 250 kW PPA generating 232,500 kWh/year at 90% self-consumption delivers approximately £14,000-£24,000 year-one savings vs grid.
What are the downsides of a solar PPA vs cash purchase?
Three main downsides. First, you don't capture the asset value — at the end of the PPA term (typically year 20-25) the system is depreciated or transferred to you for a nominal sum, but you've been paying for solar electricity instead of generating it free for 20 years. Second, you lose AIA tax relief — for a profitable Ltd Co at 25% corporation tax, AIA on a £400k 500 kW system delivers £100k of year-one tax relief that the PPA funder claims instead. Third, you sign a long-term contract (15-25 years) with the PPA provider — early termination clauses can be punitive, and the PPA provider becomes your landlord-equivalent for the solar asset. The compensating advantages: zero capex, zero performance risk, zero maintenance responsibility, and the PPA provider handles the G99 connection process.
What size does a project need to be to qualify for a commercial solar PPA?
Most UK commercial solar PPA providers in 2026 target projects 100 kW and above. Below 100 kW the PPA economics struggle because the fixed transaction costs (legal, due diligence, ongoing administration) don't spread across enough generation to give the PPA provider acceptable returns. Sweet spot for PPA is 250 kW to 5 MW. Some specialist PPA providers do bundled multi-site PPAs for SMEs with multiple smaller premises (typically 5+ sites of 50-100 kW each). Below 100 kW single-site, asset finance is typically a better zero-capex alternative.
Can I exit a solar PPA early if I sell the building?
Standard solar PPAs include "step-in rights" allowing transfer to a new occupier with similar covenant. If the new occupier accepts the PPA, the contract continues unchanged. If the new occupier rejects the PPA, the PPA provider has options: continue the PPA with the building seller (who then sub-bills the occupier), terminate the PPA with an early-termination payment (typically a percentage of remaining PPA value, often 30-60% of NPV), or buy out the system (typically NPV of remaining contract). Always read the early-termination clause carefully before signing — punitive early-termination clauses are the most common PPA contract issue.
Does the PPA provider own the SEG export tariff income?
Yes — under a standard commercial PPA the funder owns the system and retains all SEG export income. You pay the PPA provider for self-consumed electricity at the PPA price; exported electricity income goes to the PPA provider. This is reflected in the PPA price — funders factor expected SEG export revenue into the per-kWh price they offer you. For sites with very high self-consumption (90%+) the SEG income is minor; for sites with low self-consumption (under 60%) the SEG revenue stream is significant and you effectively miss out on capturing it. Some PPAs structure as "consumption-only" (you pay only for what you self-consume, funder takes export plus a small charge per consumed kWh) — but these are less common.