Payback vs PPA vs Lease: Three Ways to Fund Business Solar
The calculator models a capital purchase, because that is the cleanest way to see whether a system makes sense at all. But plenty of strong projects are funded without capital. This page runs the same 100kWp Midlands warehouse from our worked examples through all three routes.
Route 1 — Capital purchase: best return, real capital
You pay £75,000–£90,000, you own the system, and every benefit lands on your side: £20,045 of year-1 value, the AIA deduction worth around £20,625 at 25% corporation tax, and 20 or so years of post-payback generation that costs you only maintenance — typically £1,000–£1,800 a year on a system this size. Pre-tax payback is 4.1 years; post-tax it is nearer 3.1. Over 25 years the net benefit approaches £390,000 before tax effects.
The honest downsides: the capital is committed and competes with whatever else your business could do with £82,500, the performance risk is yours (insure the system and budget for one inverter replacement around year 12–15, roughly £5,000–£8,000), and you need taxable profits to use the allowances. If your internal hurdle rate is north of 20%, few solar projects clear it on capital alone — which is exactly when the next two routes earn their place.
Route 2 — Power purchase agreement: no capex, a slice of the saving
Under a PPA, a funder installs and owns the system on your roof and sells you its output at an agreed rate — typically 14–20p/kWh in 2026, escalating with an agreed index, on a 15–25 year term. Against a 26p grid rate, buying solar power at say 16p saves you 10p on every on-site kWh from day one, with no capital, no maintenance obligation and no performance risk. On the warehouse example's 61,750 on-site kWh, that is roughly £6,200 a year of saving for writing no cheque at all.
The trade-offs are structural. The funder takes the capital allowances and the export income, and over 25 years your £6,200-a-year saving totals around £150,000 against the £390,000 ownership case — the price of someone else carrying the risk. PPAs also bind the building: a charge or lease sits on the roof for the term, which your landlord (if you have one) must consent to and any future buyer of the building must accept. Read the escalation clause with care; a 16p starting rate escalating at 4% a year crosses today's grid rate within a decade if grid prices stand still.
Route 3 — Lease or asset finance: ownership economics, spread payments
Asset finance splits the difference: a funder pays for the system, you repay over 5–10 years, and the system is yours (immediately, or for a nominal sum at term-end, depending on structure). On the £82,500 warehouse system, a 7-year agreement at 2026 commercial rates runs in the region of £1,150–£1,300 a month. Against £1,670 a month of year-1 value, the system is cash-positive or close to it from month one, and once the finance ends you keep the full £20,000+ a year for the remaining 18 years of panel life.
Tax treatment varies by structure — under hire purchase you typically claim the capital allowances yourself; under an operating lease the funder does and your rentals are deductible instead — and this is genuinely worth an hour of your accountant's time before signing. Total finance cost over the term typically adds 15–25% to the system price, which is the fee for keeping your capital free.
100kWp warehouse system — funding routes compared
Figures from the worked example: £82,500 mid-band capex, £20,045 year-1 value at default calculator assumptions.
| Capital purchase Own it outright | PPA Funder owns, you buy the power | Lease / asset finance Funder pays, you repay | |
|---|---|---|---|
| Upfront capital required | £75,000–£90,000 | None | None (deposit sometimes) |
| Year-1 cash benefit | ~£20,045 | ~£6,200 | ~£4,500–£6,300 net of payments |
| Capital allowances (AIA/FYA) | Yours | Funder's | Depends on structure |
| Export income | Yours | Usually funder's | Yours |
| Maintenance & performance risk | Yours | Funder's | Mostly yours |
| Charge on property / landlord consent | Sometimes | ||
| 25-year net benefit (indicative) | ~£390,000 | ~£150,000 | ~£330,000–£360,000 |
| Best suited to | Profitable firms with capital headroom | No capex, no risk appetite, long tenure | Cash-positive from month one |
How to choose in practice
Run the calculator first regardless of route — every funding decision starts from the same three numbers: what the system costs, what it generates, and what that generation is worth at your rates. If pre-tax payback comes out under 6 years and you have the capital and the taxable profits, purchase usually wins and it is not close. If capital is committed elsewhere but the project is strong, asset finance preserves most of the ownership economics. If you want zero capital, zero risk and a simple line on the P&L — or you cannot use the tax relief — a PPA converts your roof into a discount on daytime electricity, and a 10p/kWh discount for 20 years is not nothing.
Tenure is the quiet decider. Under five years left on your lease rules out a PPA and weakens every other route; the first question any funder asks is who controls the roof and for how long. Sort that answer out before requesting proposals and the whole process moves faster.