PPA vs Asset Finance vs Cash Purchase for Commercial Solar

Three ways to pay for the same roof

The physics of a commercial solar PV system does not change with how you fund it. A well-designed array on a daytime-occupied building still generates roughly 900 to 1,000 kWh per kWp a year, still cuts total grid electricity costs by 30 to 60%, and still carries a 25-year performance warranty. What changes with the funding route is who owns the asset, who claims the tax relief, and how the numbers land on your balance sheet.

There are three routes for commercial solar finance: cash purchase, asset finance, and a Power Purchase Agreement (PPA). Most installers push one and describe the others in a sentence. This guide gives you the honest version of all three, with real numbers, so a finance director can decide on IRR rather than on which salesperson called last. We model cash, finance and PPA side by side on every quote, but it helps to understand the trade-offs before you read a proposal.

The three routes at a glance

Feature	Cash purchase	Asset finance	PPA
Upfront capex	Full system cost	Deposit or nil	Zero
Who owns the system	You, from day one	You, after the term	The funder
Balance-sheet treatment	Capital asset	Financed asset or lease	Off balance sheet (usually)
100% Annual Investment Allowance	You claim it	You claim it (own the asset)	Funder claims it
VAT	Reclaimable if registered	Reclaimable if registered	Built into the unit rate
Cash flow	Negative year one, then strong	Positive from month one	Positive from day one
Typical payback	5 to 8 years	Owned free after the term	No payback (you never buy the asset)
Lifetime return	Highest	High	Lowest, but zero risk
Best for	Cash-rich, profit-making companies	Most trading businesses	Landlords, tenants, capex-averse boards

Cash purchase: the strongest lifetime return

Buying outright is the simplest route and, over 25 years, the one that puts the most money back in the business. You pay the full capital cost, you own the system from day one, and every unit it generates is free power against a grid price that keeps climbing.

The headline cost is lower than most boards expect. Commercial solar PV typically runs £900 to £1,300 per kWp for systems under 100 kW, falling to £750 to £950 per kWp between 100 and 250 kW, and £600 to £800 per kWp above 500 kW. In real terms, a 50 kW office system is roughly £45,000 to £60,000, a 250 kW warehouse system £190,000 to £240,000, and a 1 MW factory system around £600,000 to £750,000. Our full cost guide breaks down what is and is not included at each size.

Two levers make cash purchase especially efficient for a profitable limited company. First, 100% Annual Investment Allowance lets you deduct the entire capex from taxable profit in the year of purchase, an effective saving of around 25%. Second, VAT is reclaimable for VAT-registered businesses, so the cash cost nets down again. Note the accuracy point here: commercial solar is not zero-rated for VAT. The 0% relief is a domestic-only measure. Your business charges and reclaims VAT in the normal way, which for most companies means the VAT is neutral.

Put those together and a £200,000 system can have an effective net cost closer to £150,000 for a company paying corporation tax. Simple payback for a daytime-occupied building is typically 5 to 8 years, and because the panels carry a 25-year performance warranty, the system then delivers 15 to 20 years of near-free power. The catch is obvious: cash purchase ties up capital that could earn a return elsewhere. If your internal hurdle rate is high, or cash is needed for core operations, financing the asset can beat buying it outright even though you pay some interest.

Asset finance: cash-flow positive ownership

Asset finance is the middle route and, for most trading businesses, the one that works hardest. A lender funds the system, you repay over a fixed term, usually 5 to 7 years, and you own the asset outright at the end. It comes in two common forms: a hire-purchase agreement (you own it after the final payment) and a finance lease (you use it, then buy it for a nominal sum or roll into ownership). Both let you keep your working capital intact.

The reason it is compelling is the timing. On a well-sized system, the monthly finance payment is usually less than the monthly electricity saving it replaces. That means the project is cash-flow positive from month one: the system pays for its own finance out of the bill reduction, and you keep the difference. You are, in effect, swapping a rising, unhedged electricity cost for a fixed, declining finance cost, and ending up owning a generating asset.

Crucially, because you own the asset under a hire-purchase or finance-lease structure, you still claim the tax relief. 100% Annual Investment Allowance is available on financed plant and machinery, and VAT remains reclaimable. So you get the same tax treatment as cash purchase without the capital outlay. The trade-off is the interest cost over the term, which reduces the lifetime return compared with buying outright, and the fact that the asset sits on your balance sheet as a financed liability. For a warehouse or manufacturing site with strong daytime baseload, this route often produces the best blend of return and cash preservation.

PPA: zero capex, zero risk, lowest return

A Power Purchase Agreement removes the capital question entirely. A third-party funder pays for, installs, owns and maintains the system on your roof or land. You buy the electricity it generates at a fixed rate per kWh, set below your current grid price, usually for 15 to 25 years. At no point do you spend capex, carry the asset, or handle maintenance.

The appeal is real for the right buyer. There is nothing to justify to the board, nothing on the balance sheet, and no technical or performance risk: if the system underperforms, that is the funder’s problem, and you simply buy less power at the agreed rate. For a tenant who does not own the roof, or a landlord who wants to green a building without deploying capital, a PPA is often the only route that works. It also transfers cleanly on a sale, because the agreement moves with the building or the funder relocates the array.

The cost of that simplicity is the lifetime return. Because the funder owns the asset, the funder claims the 100% Annual Investment Allowance and keeps the residual value of a system that runs for another 15 to 20 years after their money is recovered. You save money from day one, typically a slice off your unit rate, but you never own the free-power years that make cash purchase so strong. A PPA is the lowest-return route and the lowest-risk route at the same time. That is the honest trade.

Two practical points. PPAs generally suit larger systems, above roughly 100 to 250 kW, because the funder needs scale to make the economics work. And the detail matters: check the annual price escalator, the term length, the end-of-term options, and what happens if you sell or vacate. A PPA is a long contract, so read it as one.

Which route fits which building

The right answer depends on your cash position, your tax position, your tenure, and how your building uses power. A few patterns hold across the sectors we work in.

Situation	Usual best fit	Why
Cash-rich, profitable, owns the building	Cash purchase	Best lifetime return, full AIA benefit, no interest
Profitable trader, wants to keep working capital	Asset finance	Cash-flow positive, still owns the asset and claims AIA
Tenant, or landlord-tenant split	PPA	No capex, transfers with the building, no roof-ownership needed
Board will not approve six-figure capex	PPA or asset finance	Removes the capex hurdle entirely
Short expected tenure at the site	PPA	Contract moves with a sale, no stranded asset

Building type steers this too. A warehouse or industrial unit with a landlord-tenant split often lands on a PPA or a rent-a-roof structure, because that resolves the question of who pays and who benefits. An owner-occupied office with daytime staff and money in the bank usually does best on cash purchase, capturing the full tax relief and the free-power years. An agricultural business diversifying income might mix owned rooftop PV with a roof-lease PPA on a second building. There is no single correct route, only the route that fits your numbers.

What actually determines the return

Whichever way you fund it, the single biggest driver of commercial solar economics is self-consumption: the share of generation you use on site rather than exporting. A daytime-occupied building consumes 55 to 75% of its solar directly without a battery, and adding storage pushes that to 80 to 95%. Self-consumed power displaces electricity you would have bought at 25 to 45p per kWh; exported power earns only 4 to 15p per kWh under the Smart Export Guarantee. So a system designed to match your consumption shape, not just fill your roof, is worth far more than one sized on area alone.

This is why the funding decision should come after the design, not before it. We model every system from your half-hourly meter data with a PVSyst yield file we share, so the payback and IRR figures you compare across cash, finance and PPA are built on your real load, not a generic estimate. You can test the shape of the numbers yourself with our savings calculator before you ever speak to us.

There is also tax and grant layering to consider alongside the funding route. Beyond the 100% Annual Investment Allowance, energy-intensive manufacturers may access the Industrial Energy Transformation Fund, public bodies use Salix and the Public Sector Decarbonisation Scheme, and some combined authorities run regional SME decarbonisation grants. A grant can change which funding route wins, so it is worth checking what applies before committing. Our grants and funding guide covers the current routes, and the FAQs answer the common finance questions in more detail.

The bottom line

Cash purchase gives you the highest return and full ownership, if you can spare the capital. Asset finance gives you ownership and the same tax relief while staying cash-flow positive, which suits most trading businesses. A PPA gives you savings from day one with zero capex and zero risk, at the cost of the free-power years, which suits tenants, landlords and capex-averse boards. None of them is a trick, and none of them is right for everyone.

The mistake is choosing a route before you have modelled the system. Get the design right from your meter data first, then compare all three funding options with the IRR for each. When you are ready, request a fixed-price quote and we will put cash, asset finance and PPA in front of you side by side, so you can decide on the numbers rather than the pitch.