What is a solar PPA?
A complete guide to Power Purchase Agreements for UK commercial solar.
By Keith Lin, KLY Energy. Last reviewed: April 2026.
A Power Purchase Agreement (PPA) is a long-term contract where a funding partner finances, installs and maintains a solar system on your property at no upfront cost. You buy the electricity at a pre-agreed rate lower than grid price.
Process
How a PPA works
A solar PPA follows a straightforward process. Here is what happens at each stage:
Site assessment
Your site is assessed for solar potential — roof condition, structural capacity, orientation, shading and energy consumption are all evaluated to determine feasibility.
PPA proposal
Based on the assessment, a funding partner proposes a system size, electricity rate and contract term. The rate is typically 20 to 50 per cent below the current grid tariff.
Agreement and installation
Once terms are agreed, the funding partner finances and installs the system at no cost to you. Installation is managed to minimise disruption to your operations.
Generation and billing
The solar system generates electricity on your roof or car park. You are billed only for the electricity you consume at the agreed PPA rate. Excess power is exported to the grid.
End of contract
At the end of the PPA term you typically have three options: purchase the system at fair market value, renew the agreement, or have the equipment removed at the provider's cost.
Eligibility
Who is eligible for a solar PPA?
PPAs are designed for businesses with certain site and operational characteristics. The key eligibility criteria include:
- ◆Large, structurally sound roof area or car park — typically 200+ kWp system potential
- ◆Stable site occupancy of at least 10 to 15 years, matching the PPA contract term
- ◆Consistent energy consumption during daylight hours to maximise self-consumption
- ◆Creditworthy organisation — funding partners assess financial standing before committing
- ◆Suitable sectors include commercial property, industrial and logistics, retail, hospitality, public sector and healthcare
Contract details
PPA contract terms explained
A solar PPA contract sets out the electricity rate, contract length, escalation mechanism, maintenance responsibilities and end-of-term options. Here is what each term means in practice:
Electricity rate
The price per kWh you pay for solar electricity. This is fixed or subject to an annual escalation. PPA rates are typically 20 to 50 per cent below grid electricity prices at the start of the contract.
Contract length
Most PPAs run for 15 to 25 years. Longer contracts allow the funding partner to recover their investment and often result in a lower electricity rate for you.
Escalation clause
Many PPAs include an annual price escalation, typically 1 to 3 per cent per year. This is usually well below grid electricity inflation, so the savings gap widens over time.
Maintenance and monitoring
The funding partner is responsible for all maintenance, monitoring, repairs and insurance throughout the contract term. You have no operational responsibilities for the solar system.
End-of-term options
When the contract expires, you can typically buy the system at fair market value, renew at a renegotiated rate, or have the system removed. Most businesses choose to purchase, as the system still has significant generating life remaining.
Comparison
Advantages and considerations
A PPA offers clear benefits but also comes with trade-offs. The table below sets out what to expect.
| Advantages | Considerations |
|---|---|
| Zero upfront capital required | Long-term commitment (15-25 years) |
| Immediate electricity savings from day one | You do not own the system during the contract |
| All maintenance included | Export revenue goes to the provider |
| No technology or performance risk | Annual escalation may apply to your rate |
| Supports carbon reduction targets | Early termination may involve a buyout fee |
| Off-balance-sheet treatment possible | Requires creditworthiness assessment |
Funding routes
PPA vs CapEx vs Lease
A PPA is one of three main routes to funding commercial solar. Here is how it compares to capital purchase and lease.
| CapEx | PPA | Lease | |
|---|---|---|---|
| Upfront cost | Full system cost | None | Deposit or none |
| Ownership | Immediate | Funder (during term) | You (end of term) |
| Energy savings | 100% of generated power | Discounted rate vs grid | 100% of generated power |
| Maintenance | Your responsibility | Included by provider | Your responsibility |
| Best for | Businesses with capital to invest | Zero-capex, risk-free route | Spreading cost, eventual ownership |
For a more detailed comparison of all three funding routes, see our Commercial Solar Funding Guide.
Suitability
When a PPA is the right choice
A PPA is often the best route when your business wants to reduce energy costs and carbon emissions without committing capital upfront. It is particularly well suited if:
- ◆You have a large roof or car park but limited capital budget for energy projects
- ◆You want guaranteed electricity savings from day one with no financial risk
- ◆You prefer to keep solar investment off your balance sheet
- ◆Your building has a long remaining occupancy — ideally 15 years or more
- ◆You want to avoid the operational responsibility of maintaining a solar system
- ◆You need to meet corporate sustainability or carbon reduction targets
If you have capital available and want to maximise long-term savings, a capital purchase may deliver a better overall return. For businesses that want ownership but need to spread the cost, a lease or hire purchase could be the right fit.
FAQ
Frequently asked questions
Most commercial solar PPA contracts run for 15 to 25 years. The exact term depends on the system size, site conditions and the funding partner. At the end of the contract you may have the option to purchase the system, renew the agreement or have it removed.
References
Sources
- ◆Ofgem — energy market regulation and electricity pricing data. ofgem.gov.uk
- ◆Solar Energy UK — trade body for the UK solar industry. solarenergyuk.org
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