Commercial Solar: Buy vs Lease vs PPA — 2026 UK Comparison

Should your business buy, lease or PPA-fund its commercial solar in 2026? An honest comparison of CAPEX + AIA, hire purchase, operating lease and Power Purchase Agreements — with real numbers and the questions to ask before signing.

The 4 main routes — head-to-head

CAPEX + AIA — when it's the right answer

Best for: CT-paying limited companies with strong profits, cash on hand not needed for higher-return alternatives, and a 5+ year ownership horizon for the building.

Mechanics: Buy outright. Claim £1m Annual Investment Allowance (AIA) on the year of acquisition. For a 25% CT rate that converts to a 25% effective capex reduction in Year 1. You own the asset, you keep all SEG export income, you keep all generation savings.

Real example: Nottinghamshire food processor, 240 kWp, £186k bound cost. AIA Year-1 relief: £46,500. Net cash cost Year 1: £139,500. Year-1 bill saving £58,200 + £6,400 SEG = £64,600. Effective net cost in Year 1: £74,900. Payback before AIA: 4.6yr. Payback with AIA: 3.4yr.

Asset finance via Barclays Green Cashback — the smart middle

Best for: profitable businesses with cash earmarked for growth (acquisitions, marketing, product development) where opportunity cost on cash > finance rate.

Mechanics: Barclays Green Cashback rebates 1.5% of the loan value on green-rated projects (solar PV qualifies). 1-15 year terms. You own the asset from day 1 so you keep AIA in Year 1. Loan amortises against the bill savings.

Real example: Same 240 kWp food processor via Barclays Green 7-year finance. £200k loan + £3k Green Cashback rebate. Year-1 AIA still £46,500. Monthly payment £2,820. Year-1 bill saving £58,200 = £4,850/month. Net positive cash flow from month 1.

PPA — when it's the right answer

Best for: charities, schools, NHS trusts, councils, mutuals, faith institutions — entities with no corporation tax position. Also multi-site portfolio operators who want one administrative contact per site.

Mechanics: Third-party funder owns the asset, installs it on your roof, sells you the kWh at a tariff fixed below grid for 20-25 years. You pay nothing upfront. You pay only for the kWh you consume.

Honest truth: Donovan's brief was clear — KMM does not lead with PPA. PPAs strip the asset and SEG income from your balance sheet. The funder's IRR is 9-12%, which means you are paying for a financing cost that a CT-paying limited company would not pay. We model PPA in side-by-side comparisons, but rarely recommend it as the lead route.

Real example: Newark primary school, 75 kWp, 20-year PPA at 11p/kWh fixed Year 1-10, RPI-linked Years 11-20. Grid rate at install £0.32/kWh. Lifetime PPA bill: £142,000. Lifetime grid alternative: £348,000. Net 20-year benefit: £206,000. Compare to CAPEX route where school cannot use AIA — payback 13.4 years, lifetime benefit £142,000 (smaller because grant funding needed elsewhere).

FAQs — Buy vs Lease vs PPA