CapEx vs PPA vs Lease
A detailed comparison of the three main funding routes for commercial solar in the UK.
By Keith Lin, KLY Energy. Last reviewed: April 2026.
UK businesses can fund commercial solar through three routes: capital purchase (CapEx), Power Purchase Agreement (PPA), or lease/hire purchase. The right choice depends on your available capital, site occupancy and appetite for ownership.
Overview
Overview of three funding routes
Each funding model has a different impact on your cash flow, balance sheet and long-term savings. There is no single best option — the right choice depends on your financial situation, how long you plan to occupy the site and whether you want to own the equipment.
Below, we explain each option in detail, then compare them side by side so you can identify the best fit for your business.
Option 1
Capital purchase (CapEx)
With a capital purchase, your business buys the solar system outright. You own it from day one, keep 100 per cent of the electricity generated and benefit from any export income. This route delivers the highest long-term return but requires the most upfront investment.
Advantages
- ◆Full ownership — you retain 100 per cent of energy savings and export income
- ◆Fastest payback — typical commercial systems pay back within 4 to 7 years
- ◆Capital allowances — 50 per cent first-year allowance or Annual Investment Allowance (AIA) for qualifying expenditure
- ◆No ongoing contract or third-party obligations
- ◆Increases property value — solar systems are an asset on your balance sheet
- ◆25+ years of savings after payback
Considerations
- ◆Requires significant upfront capital investment
- ◆You are responsible for maintenance and monitoring (or must arrange a service contract)
- ◆Technology and performance risk sits with you
- ◆Capital is tied up in a physical asset rather than available for core business activities
Typical payback
Most commercial solar systems purchased outright achieve payback within 4 to 7 years, depending on system size, energy consumption, tariff and orientation. After payback, the system continues generating free electricity for 20 or more years.
Option 2
Power Purchase Agreement (PPA)
With a PPA, a funding partner finances, installs and maintains the solar system on your property at no upfront cost. You buy the electricity generated at a pre-agreed rate that is lower than grid price. The funding partner owns the system for the contract term.
Advantages
- ◆Zero upfront cost — no capital outlay required
- ◆Immediate savings — discounted electricity rate from day one
- ◆All maintenance, monitoring and repairs included
- ◆No technology or performance risk — the provider bears this
- ◆Possible off-balance-sheet treatment depending on accounting standards
- ◆Supports ESG and carbon reduction targets
Considerations
- ◆Long-term contract commitment — typically 15 to 25 years
- ◆You do not own the system during the contract
- ◆Export revenue goes to the provider
- ◆Annual price escalation may apply (typically 1-3 per cent)
- ◆Early termination involves a buyout fee
- ◆Requires creditworthiness assessment
Contract terms
PPA contracts typically run for 15 to 25 years. The electricity rate is usually 20 to 50 per cent below grid price at the start, with an annual escalation of 1 to 3 per cent. At the end of the term, you can usually buy the system, renew, or have it removed. For a deeper look at PPA mechanics, see our Solar PPA Guide.
Option 3
Lease / hire purchase
With a lease or hire purchase, you spread the cost of the solar system over a fixed period — typically 5 to 10 years. You own the system at the end of the term. During the lease, you keep 100 per cent of the electricity generated, but you make regular payments to the finance provider.
Advantages
- ◆No large upfront payment — cost is spread over the lease term
- ◆You keep 100 per cent of the energy savings from day one
- ◆You own the system at the end of the term
- ◆Lease payments are typically structured so that energy savings offset a significant portion of the cost
- ◆Capital allowances may still be available depending on the lease structure
- ◆Shorter commitment than a PPA — typically 5 to 10 years
Considerations
- ◆Total cost over the term is higher than an outright purchase due to interest
- ◆You are responsible for maintenance (or must arrange a service contract)
- ◆Monthly payments are a fixed commitment regardless of energy generation
- ◆The system appears as a liability on your balance sheet during the lease period
- ◆Creditworthiness assessment required by the finance provider
Side by side
Detailed comparison
The table below compares all three funding routes across the key factors that matter to UK businesses.
| Factor | CapEx | PPA | Lease |
|---|---|---|---|
| Upfront cost | Full system cost | None | Deposit or none |
| Ownership | Immediate | Funder (during term) | You (end of term) |
| Energy savings | 100% | Discounted rate vs grid | 100% |
| Export income | Yours | Provider's | Yours |
| Maintenance | Your responsibility | Included | Your responsibility |
| Contract length | None | 15-25 years | 5-10 years |
| Typical payback | 4-7 years | Immediate savings (no payback) | Energy savings typically offset lease payments |
| Capital allowances | Yes (50% FYA / AIA) | No (you do not own) | Depends on structure |
| Balance sheet impact | Asset | Possible off-balance-sheet | Liability during term |
| Best for | Available capital, max ROI | Zero capex, no risk | Spread cost, eventual ownership |
Decision guide
Which option suits your business?
Choose CapEx if...
- ◆You have capital available and want to maximise long-term returns
- ◆You want full ownership and control of the system from day one
- ◆You can benefit from capital allowances (50% first-year allowance or AIA)
- ◆You have a long site occupancy and want 25+ years of free electricity after payback
Choose a PPA if...
- ◆You want solar with zero upfront cost and no financial risk
- ◆You prefer to keep the investment off your balance sheet
- ◆You want all maintenance and monitoring handled for you
- ◆You have a stable site occupancy of 15+ years
Choose a Lease if...
- ◆You want to own the system but need to spread the cost
- ◆You want 100 per cent of the energy savings from day one
- ◆You prefer a shorter financial commitment than a PPA
- ◆You are comfortable managing maintenance or arranging a service contract
FAQ
Frequently asked questions
Capital purchase (CapEx) typically delivers the highest long-term return because you own the system from day one and keep 100 per cent of the energy savings. However, it requires the most upfront capital. If cash flow is a priority, a PPA or lease may be more practical even though the total savings over 25 years will be lower.
References
Sources
- ◆Ofgem — energy regulation and electricity pricing. ofgem.gov.uk
- ◆Solar Energy UK — industry data and guidance. solarenergyuk.org
Not sure which funding route is right?
Explore our funding page or learn more about rooftop solar.
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