What a Solar PPA actually is
A Solar PPA (Power Purchase Agreement) is a contract under which a third-party developer installs solar PV at your office building at their cost, owns and operates the system, and sells you the electricity it generates at a discounted per-kWh rate over a long-term (typically 15-25 year) contract.
The customer commits to buying electricity from the system at the contractual rate. The PPA provider takes the system performance risk and operational responsibility. The customer typically pays nothing upfront (zero capex) and is cash-flow positive from month one.
In essence, a PPA converts solar from a capex investment into an opex line item.
How the numbers work
A typical UK office solar PPA in 2026:
- PPA tariff: 10-13p/kWh for self-consumed electricity (versus 28-32p/kWh grid retail)
- Tariff escalation: Either fixed (3% annual) or RPI-linked
- Contract length: 15-25 years (occasionally up to 30)
- Performance risk: PPA provider bears underperformance vs PVSyst model
- Maintenance: Fully included by PPA provider
- Roof rights: PPA provider has exclusive PV roof use for contract term
- Exit: Buy-out at present value of remaining contract payments, or transfer with building sale
For a 400 kWp office system generating 368,000 kWh/year at 78% self-consumption (287,000 kWh self-used), the customer typically saves £45-60k/year on grid electricity costs while paying £29-37k/year to the PPA provider — net positive £18-25k/year from day one with zero capex outlay.
When PPAs win
Three situations where PPAs clearly outperform cash purchase, asset finance, or operating lease:
1. Capex-constrained organisations. Where the customer cannot or will not commit £200k+ of capex, PPA enables solar deployment that would otherwise not happen.
2. Multi-let landlords. Where the building has multiple tenants with varied lease terms and complex service-charge structures, PPA simplifies cost-recovery — the PPA provider sells electricity directly to tenants under sleeve PPA arrangements.
3. Off-balance-sheet preference. Under IFRS 16, most leases now go on balance sheet, but PPAs structured as electricity supply contracts can remain off-balance-sheet. For some businesses (particularly those with restrictive borrowing covenants), this matters.
When PPAs lose
Three situations where alternative funding routes outperform PPA:
1. Long-tenure owner-occupiers with capex available. Cash purchase delivers 25-year NPV roughly 2× the PPA equivalent because the customer captures full electricity savings rather than splitting with the PPA provider.
2. Strong covenant SMEs with asset finance access. Asset finance at 6-8% APR over 7 years typically delivers higher 25-year NPV than PPA because the customer owns the asset after the financing term.
3. Short remaining lease tenants. Sub-7 year lease tenants generally cannot make PPA work — the long-term commitment doesn’t fit the short-term occupancy.
The exit problem
The single biggest PPA risk is exit. Three scenarios:
Building sale. PPA must transfer to the new owner or be bought out by the seller. Buy-out typically requires paying the PV provider the present value of remaining PPA payments — often £80-£200k on a system in year 5 of a 20-year PPA. This can affect building sale price.
Tenant move-out. Tenants on sleeve PPA arrangements need novation provisions allowing PPA transfer to the next tenant. If the building stands vacant, the landlord typically becomes the PPA counterparty by default.
PPA provider failure. PPA providers occasionally go out of business. The PV asset typically continues operating (the customer keeps buying electricity at PPA rates from whoever acquires the asset), but service quality may decline.
We model exit scenarios specifically in PPA proposals — including the present-value buy-out calculation at multiple year-of-exit assumptions.
What we do
We work with the major UK commercial solar PPA providers (Aggreko, Atrato Onsite, Custom Power, Hive Energy, Lightsource bp) and can structure PPA proposals across all of them.
For every PPA proposal, we model:
- 25-year cash flow under PPA vs cash purchase, asset finance, and operating lease
- Exit scenarios at years 3, 5, 7, 10, 15
- Tenant cost-recovery implications (for multi-let buildings)
- Sleeve PPA vs landlord PPA legal structures
The PPA route wins on net call for roughly 30% of office solar customers we model. The rest are better served by cash, asset finance, or operating lease structures — and we recommend accordingly rather than push the PPA option where it doesn’t fit.
Request a feasibility study with PPA and alternative funding modelling.
PPA vs SPPA: an important distinction
In the UK commercial solar market, two distinct contract structures are sometimes both called a “solar PPA” — but they have very different structures and implications.
Solar PPA (Power Purchase Agreement). The classic form: a developer installs solar on your building, owns and operates the system, and sells you the electricity it generates at a discounted per-kWh rate. You buy the power, not the system. The developer takes performance risk. Typically 15-25 year contract length.
SPPA (Solar Panel Purchase Agreement) or Solar Lease. An alternative structure where the developer installs the system, you pay a fixed monthly fee (equivalent to a lease), and you receive all the electricity the system generates. The distinction: under SPPA/lease, you are paying for access to the system rather than buying electricity by the kWh. The developer still owns and operates the system.
The SPPA structure creates different financial and accounting treatment:
- Under SPPA, the monthly payment is fixed regardless of generation — so a low-irradiance year does not reduce your payment
- Under PPA, payment is tied to actual generation — less sun means less electricity purchased and lower payment
For commercial finance teams, the SPPA is more predictable as a liability (fixed monthly payment), while the PPA has variable payment linked to generation (which may be desirable where electricity tariff escalation is the primary concern — a PPA escalates the per-kWh rate, not a fixed monthly amount).
OpEx treatment: P&L vs balance sheet
One of the most frequently cited benefits of solar PPA is that it converts solar from a capital expenditure (balance sheet) to an operational expenditure (P&L). However, the accounting treatment is more nuanced than this simple statement suggests.
Under UK GAAP (FRS 102) and IFRS 16 (Leases): IFRS 16 (effective 2019) requires lessees to recognise a right-of-use asset and a corresponding lease liability on the balance sheet for most lease arrangements. This significantly reduced the off-balance-sheet benefit that made PPA structures attractive pre-2019.
Is a solar PPA a lease under IFRS 16? The key test is whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A PPA where:
- The panels are exclusively installed on your roof
- The developer has no practical ability to substitute different equipment
- You receive essentially all the economic benefit of the panels
…is likely to be assessed as a lease under IFRS 16 and will need to go on balance sheet. The IASB (International Accounting Standards Board) has published guidance (in the context of renewable energy contracts) indicating that many “PPA” structures are in fact leases for accounting purposes.
Exception — third-party supply contracts. Where the PPA is structured as a genuine electricity supply contract (the developer sells electricity from a portfolio of systems, not from equipment specifically on your building) — the arrangement may fall outside IFRS 16. This structure is less common for on-site building solar.
Practical implication: For companies with restrictive balance sheet covenants or for whom off-balance-sheet treatment is important, the PPA structure needs to be reviewed with the company’s auditors before signing. The installer’s characterisation of a PPA as “off-balance-sheet” is not an accounting opinion.
PPA contract terms to negotiate
A 15-25 year commercial PPA is a significant long-term commitment. The following terms are negotiable and materially affect the economics over the contract life.
1. Floor rate. Does the PPA set a minimum electricity tariff (floor rate) below which the per-kWh rate cannot fall, regardless of wholesale price movements? A floor rate of 8p/kWh provides protection against a scenario where grid electricity prices fall significantly, which would make the PPA less competitive. Not all PPA providers offer floor rates; those that do typically offer them in exchange for accepting a cap (ceiling rate) as well.
2. Tariff escalation mechanism. PPA tariffs typically escalate annually, either at a fixed rate (e.g., 3%/year) or RPI/CPI-linked. Fixed escalation provides predictability; RPI-linkage means the real cost of the PPA is constant over time but nominal payment varies. For businesses with RPI-linked revenue (e.g., regulated sectors or inflation-protected leases), RPI-linked PPA escalation is a natural match.
3. Performance guarantee. Does the PPA provider guarantee a minimum annual generation? If the system underperforms due to installer error or equipment failure, does the provider compensate? Performance guarantees are negotiable — larger transactions typically command stronger guarantees.
4. End-of-term options. Three standard options at PPA expiry: (a) extend the PPA at renegotiated tariff, (b) purchase the system at pre-agreed residual value (often set at 5-15% of original capex), or (c) require the provider to remove the system and restore the roof at the provider’s cost. Option (c) can be valuable if the roof needs replacement at term end. Option (b) is attractive if the system is still performing well and capex is available at term end.
5. Building sale provisions. The PPA must address what happens if the building is sold during the contract term. Standard options: assignment to the new owner (typical, but new owner must agree to assume PPA obligations), buyout by the seller (present value of remaining PPA payments), or novation (new PPA between developer and new owner). Buyout cost in year 5 of a 20-year contract can be 80,000-200,000 for a 400 kWp system — this should be explicitly quantified in the contract.
6. Termination for convenience. Some PPA providers offer a break clause at specific intervals (e.g., year 10 of a 20-year PPA) allowing the customer to terminate with 6 months notice, subject to a break fee. Break fees are typically the PV of remaining contracted payments discounted at a commercially agreed rate.
UK PPA providers: who is active in 2026
The major UK commercial solar PPA providers active on office building projects above 100 kWp:
Squeaky Clean Energy. Focuses on medium-large commercial, including multi-let office buildings. Strong track record on multi-tenant PPA structures (sleeve PPA) where electricity is sold directly to tenants.
Atrato Onsite Energy. Listed on AIM (LSE:ROOF), providing visibility and financial stability. Focus on large commercial portfolios, frequently used by REIT landlords. Strong reporting and documentation capability for institutional investors.
Smartest Energy (part of Macquarie). Large platform covering commercial and industrial solar PPA. Backing of Macquarie’s infrastructure investment platform provides contractual security.
Total Energies / Sunpower by TotalEnergies. Active in large commercial and industrial PPA structures. Strong European track record and substantial UK operational team.
EDF Renewables UK. Active in large commercial solar PPA, particularly for corporate customers with existing EDF relationship. Integrated offering covers PPA, REGO, and RE100 documentation.
Nexus Energy Group. Specialist in commercial and public-sector solar PPA, including managed service PPA for schools and NHS trusts.
Hive Energy. UK-headquartered, focus on commercial and industrial rooftop across South East and Midlands.
Note: the PPA market consolidates periodically through acquisitions and fund deployments. Current market activity should be verified at point of procurement — the above list reflects known active participants in mid-2026.
When PPA wins and when it loses: a side-by-side
| Scenario | Best route |
|---|---|
| Owner-occupier, 10+ year horizon, capex available | Cash purchase (max NPV, AIA benefit) |
| Owner-occupier, no capex appetite | PPA (zero upfront, immediate cash-flow positive) |
| Multi-let landlord, complex tenant structure | PPA (developer manages billing complexity) |
| Cash-constrained SME with strong credit | Asset finance (own the asset, cash-flow positive from month 1) |
| Public sector, Salix-eligible | Salix PSDS loan or grant (lowest cost of capital) |
| Short lease (under 7 years) | None viable (insufficient time for any structure to work) |
| Off-balance-sheet preference (pre-IFRS 16 thinking) | Requires legal/accounting review — may not achieve off-B/S under IFRS 16 |
Key takeaways
- PPA and SPPA are distinct structures: PPA pays by the kWh generated; SPPA is a fixed monthly payment regardless of generation
- IFRS 16 (2019) significantly reduced the off-balance-sheet benefit of PPAs — get an accounting opinion before relying on off-balance-sheet treatment
- Six terms are negotiable and material over a 25-year contract: floor rate, escalation mechanism, performance guarantee, end-of-term options, building sale provisions, and termination for convenience
- Major UK PPA providers in 2026: Squeaky, Atrato, Smartest Energy, TotalEnergies, EDF Renewables, Nexus, Hive Energy
- PPA wins for capex-constrained organisations, multi-let landlords with complex tenant structures, and situations where zero upfront cost is the primary constraint