Payback vs PPA vs Lease: Three Ways to Fund Business Solar

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. Simple payback is 4.1 years on the worked example. With running costs and an inverter replacement included, the payback calculator gives 4.4 years, and the same 4.4 years after tax with the Annual Investment Allowance, because the saving is taxed as well as the cost relieved. Over 25 years the net benefit approaches £390,000 on the worked example’s simple method (no running costs or inverter), or £356,679 net cash before tax on the calculator’s fuller engine.

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 a rate the two sides agree. We use 14–20p/kWh as an illustrative 2026 range (our assumption, not a quote), usually escalating with an agreed index over 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 simple-method 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 an assumed interest rate of roughly 4.5–8.5% a year (our illustration, not a quote; the rate depends on the business and the funder) 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. On those assumptions the interest over the term adds roughly 17–33% to the system price, which is the fee for keeping your capital free.

Funding solar in Scotland, Wales and Northern Ireland

Tax works the same way in every nation: capital allowances are UK-wide, and businesses pay 20% VAT on solar (reclaimable if VAT-registered). Funding is where the nations differ. Each scheme below was checked on its own page on 3 November 2026.

Scotland. Business Energy Scotland’s SME Loan is interest-free over up to eight years, but the scheme says it is not accepting new applications for solar PV projects; it still covers measures such as heat pumps and lighting. The Scottish Industrial Energy Transformation Fund closed after its fourth call in March 2025. The Scottish National Investment Bank typically invests £1 million to £50 million, so it is not a route for a rooftop system.

Wales. The Development Bank of Wales Green Business Loan Scheme is a loan, not a grant. It names solar PV, offers discounted fixed interest with terms linked to payback, and is for businesses based in Wales that have traded for two years or more; the Welsh Government has described loans of £1,000 to £1.5 million over up to 15 years (Senedd written answer WQ96151). Ynni Cymru, the capital grant that SMEs could bid for, closed for 2026/27 on 21 May 2026, and a project of solar plus a battery alone was not eligible. Business Wales gives advice rather than solar grants.

Northern Ireland. Invest NI’s Energy Efficiency Capital Grant is paused and is not taking enquiries or new applications. Power NI’s NISEP-funded grant for business solar PV (20%, capped at £30,000) has closed for applications for 2026/27; Power NI expects the next round to open in April 2027, subject to funding approval. If you buy outright, the Smart Export Guarantee does not apply in Northern Ireland: export is paid at a supplier’s own tariff, such as Power NI’s 11.88p per kWh from 1 October 2026 to 30 September 2027.