Solar PV: cash purchase vs PPA — which wins?

Side-by-side comparison

Worked example: 320 kWp on a multi-let London office. £288,000 total capex. 294 MWh/year generation. 78% self-consumption. 28p/kWh grid rate.

Asset finance in detail — the practical middle ground

Asset finance for commercial solar sits between cash purchase and PPA on both NPV and cashflow metrics. In 2026, common asset finance structures for UK office solar include hire purchase and finance lease. Under hire purchase, ownership transfers to the customer after the final instalment. Annual Investment Allowance applies to the full system cost in year one of the agreement — not spread over the finance term — so the tax benefit is identical to cash purchase. Monthly instalments are serviced from the operating cost saving. For a £288,000 system financed over 7 years at 7.5% APR, monthly instalments are approximately £4,400. If the system saves £8,000 per month from day one, the net cashflow position is positive from month one. HP is the most common structure for limited companies with stable revenue and a clear asset ownership preference.

Under a finance lease, the lessor owns the asset throughout the term and the customer makes monthly lease payments. Unlike HP, AIA does not apply to the customer (the lessor claims capital allowances). However, lease payments are fully deductible from corporation tax as an operating expense in each year paid — so the tax benefit is spread over the lease term rather than concentrated in year one. For companies with high current-year tax liability (a profitable property company, for example), HP or cash is superior. For companies with lower current-year tax liability or who prefer operating-cost accounting treatment, finance lease may be preferable. Since the adoption of IFRS 16 in 2019, both HP and finance lease typically appear on the balance sheet as right-of-use assets and lease liabilities, so the balance-sheet distinction between the two is now smaller than it was under IAS 17.

Dedicated asset finance for commercial solar is available from Siemens Financial Services, Close Brothers, Aldermore, Assetz Capital, and several green-specialist lenders including Triodos and Ecology Building Society for certain project types. Solar-specialist brokers typically achieve better terms than going direct to a bank — they know which lenders have current solar credit appetite, what documentation they require (typically 3 years' audited accounts, a PVSyst yield report, and MCS installer credentials), and can often reduce credit decision timelines from 6-8 weeks to 3-4 weeks.

PPA structures: what the contract actually says

A Power Purchase Agreement for commercial solar is a private contract between the building owner or occupier (the offtaker) and the PPA provider (the solar developer). The PPA provider installs, owns, operates, and maintains the system; the offtaker agrees to purchase all solar electricity generated at an agreed per-kWh tariff for a fixed term. The key contract terms to scrutinise before executing a PPA are tariff escalation clause, break clause mechanics, and assignment provisions on building sale.

Most PPAs include an annual tariff escalation of RPI or CPI plus 0-1 percentage points. On a 12p/kWh starting tariff with RPI escalation, the effective tariff at year 20 is approximately 19-22p/kWh assuming 3-4% annual inflation. Compare this against projected grid tariffs — currently 30-45p/kWh commercial in 2026, expected to remain at 25-40p/kWh in real terms based on current National Grid ESO modelling for the 2030-2045 period. The price-to-beat PPA model is valid if you believe grid prices will maintain their premium over solar PPA tariffs, which they have consistently done since 2017.

Most commercial PPAs allow the offtaker to exit the agreement from year 5-7 onwards, with a buyout payment equal to the PPA provider's NPV of remaining contracted cash flows. For a 12p/kWh PPA on a 320 kWp system, buyout at year 7 typically costs £40,000-£75,000 — affordable if the building is sold and the new buyer prefers to own the system outright. PPA agreements must be novated to the building's new owner on sale. This is a standard condition in commercial property transactions and most institutional property buyers are familiar with the process. A well-drafted PPA with a reputable provider does not materially impede building sale — but a poorly drafted one with ambiguous novation provisions can delay the sale process by 3-6 weeks while lawyers negotiate assignment terms.

Which finance route suits which buyer type

The optimal finance route depends on four factors: balance sheet position, tax position, lease structure, and risk appetite. For a freehold owner-occupier operating as a limited company, cash purchase with AIA is optimal. The year-one tax saving of 25% of capex reduces effective cost to £216,000 on a £288,000 system. The 25-year NPV is highest of all routes. AIA is fully absorbed assuming the company has corporation tax liability exceeding the AIA amount — typical for any business with £1,000,000 or more annual turnover.

For a multi-let landlord operating as a property company, PPA or sleeve PPA is typically optimal. PPA removes asset management complexity — maintenance, monitoring, inverter replacement — from a landlord already managing multi-tenant service charges. Sleeve PPA (the landlord buys solar electricity from the PPA provider and resells it to tenants through the service charge at a margin) is increasingly common for MEES 2030 compliance-driven installs. For leaseholder-occupiers with a short remaining lease, asset finance over the remaining lease term or a PPA with a short-form break clause is preferable. Cash purchase is rarely appropriate on a lease with fewer than 10 years to expiry — the asset value may not be recoverable at lease end.

For public sector bodies including NHS trusts, local authorities, and universities, the Salix Public Sector Decarbonisation Scheme provides up to 100% grant funding — removing the finance route comparison entirely for eligible projects. Where Salix is not available (private office, above Salix threshold), asset finance with operating lease accounting is typically preferred by local authorities and NHS bodies as it keeps debt off the balance sheet under local authority accounting rules. For private equity-owned assets with typical hold periods of 3-7 years, PPA or PPA-lease structure is preferred — the shorter investment horizon makes long-term asset ownership less certain, and a PPA with a break clause from year 5 aligns with the typical PE exit timeline.

The decision

Pick on the basis of your specific situation:

How we model it for you

For every office solar proposal, we model the relevant comparison options side-by-side. Send us your half-hourly meter data and roof plan via the quote form, and we'll return a fixed-price proposal within 7 working days with all relevant routes compared in your specific situation.