Solar PPA vs Outright Purchase: The Business Decision
UK businesses exploring commercial solar installation face a fundamental question: should you buy the system outright, or use a Power Purchase Agreement (PPA) where a third party owns and maintains the panels while you buy the electricity at a discounted rate? Both models have genuine advantages, and the right choice depends on your business's financial position, risk appetite and energy strategy.
This guide compares the three main commercial solar procurement models available in the UK in 2026, with honest analysis of when each makes sense.
Model 1: Outright Purchase (Capital Expenditure)
The business buys the solar system outright. You own all the equipment, receive all the generated electricity, and benefit from any export income.
Advantages:
- Maximum financial return — all savings flow directly to the business with no split
- Annual Investment Allowance provides 100% tax deduction in year one (up to £1 million)
- Typical payback: 2.5-4 years after tax relief, then 21-27 years of free electricity
- Full control over system specification, maintenance and expansion
- Adds asset value to the property (relevant if you own the building)
- No ongoing contractual obligations or escalation clauses
Disadvantages:
- Requires upfront capital (£25,000-£200,000+ depending on system size)
- Business assumes maintenance responsibility (minimal for solar, but still a consideration)
- Performance risk sits with the business (though panel warranties mitigate this)
Best for: Profitable businesses with available capital or borrowing capacity, those who own their building, and businesses with predictable long-term energy demand. This is the model ALPS Electrical most commonly installs, and delivers the strongest financial return.
Model 2: Power Purchase Agreement (PPA)
A third-party developer installs, owns and maintains the solar system on your roof. You agree to buy the electricity generated at a fixed rate (typically 10-20% below grid price) for 15-25 years.
Advantages:
- Zero upfront capital requirement — no impact on cash flow or borrowing
- Electricity cost savings from day one (typically 10-20% discount vs grid)
- Maintenance and performance guaranteed by the PPA provider
- No technology risk — if panels underperform, the provider's problem
- Can work on leased buildings where outright ownership is impractical
Disadvantages:
- Significantly lower total savings than ownership (the PPA provider takes 60-70% of the economic benefit)
- Long contractual commitment (15-25 years) with complex exit clauses
- No AIA tax relief (you don't own the asset)
- PPA rate escalation clauses (typically RPI or 2-3% annual increases) can erode savings over time
- Complications if you sell the property or change operations
- Provider controls system specification — may install lower-cost equipment
- No export income — any surplus goes to the PPA provider
Best for: Businesses that cannot access capital, very large roof areas where the system cost would be prohibitive, or short-lease properties where you need certainty of savings without asset ownership complications.
Model 3: Operating Lease
You lease the solar equipment from a finance provider, making monthly payments over 5-10 years. At the end of the lease, you may have an option to purchase the equipment for a nominal sum.
Advantages:
- Preserves capital while spreading cost over time
- Monthly payments often less than electricity savings (cash-flow positive from month one)
- May still qualify for capital allowance treatment depending on lease structure
- Shorter commitment than PPA (5-10 years vs 15-25)
- You typically receive all the generated electricity and export income
Disadvantages:
- Total cost is higher than outright purchase due to finance charges
- AIA treatment depends on specific lease classification (finance vs operating)
- Monthly obligation regardless of system performance (though warranties mitigate this)
- Some lease agreements restrict system modifications
Best for: Businesses that want ownership economics without the upfront capital outlay, particularly those with strong credit ratings who can access favourable lease terms.
The Numbers Compared: 50kW System Example
For a 50kW commercial solar installation on a warehouse in the North East:
- Outright purchase: Cost £40,000. After AIA tax relief: £30,000 net. Annual savings: £15,000. Payback: 2 years. 25-year benefit: £345,000.
- PPA (15% discount to grid): Cost £0. Annual savings: approximately £2,250 (15% of £15,000). 25-year benefit: approximately £56,000.
- 7-year lease: Cost £0 upfront, £520/month payments. Annual savings net of payments: £8,760. 25-year benefit: approximately £295,000 (after lease payments end at year 7).
The difference is stark. Outright purchase delivers 6x the total benefit of a PPA and approximately 17% more than leasing. The only scenario where PPA wins is when the alternative is doing nothing — it is always better to have a PPA than no solar at all.
Our Recommendation
For most UK businesses in 2026, outright purchase is the clear winner. The combination of short payback periods (2-4 years), AIA tax relief, and 25-year system lifespans makes solar one of the best capital investments available. The returns significantly exceed typical business bank account interest, and the "investment" reduces ongoing operating costs rather than simply generating a return.
If capital is genuinely unavailable and borrowing is not an option, a PPA is better than nothing — but check escalation clauses carefully. A PPA with 3% annual escalation may cost more than grid electricity within 10-15 years if wholesale electricity prices stabilise or fall.
ALPS Electrical installs commercial solar systems on an outright purchase basis. We can introduce you to lease finance providers if that model suits your business better. Contact us for a free commercial solar assessment and we will provide clear ROI projections based on your actual electricity consumption, roof size and orientation.