Commercial Solar Financing: Cash, Asset Finance or PPA?

For a warehouse or logistics operator, the case for rooftop solar is usually not the question. The roof is large, the daytime load is steady, and self-consumption economics are strong. The real decision, and the one your finance director will focus on, is how to pay for it. The same physical system can be funded in three very different ways, and each route changes who owns the asset, who gets the tax relief, and what the cashflow looks like from day one.

This guide compares the three routes so you can walk into the conversation with your board or your funder already knowing which one fits your tenure, your balance sheet, and your appetite for capital outlay. It is a general explainer, not personalised advice. Solar funding sits at the intersection of tax, property and finance, so take your own tax and finance advice before committing.

The three routes in one line

1. Capital purchase (cash). You buy the system outright. You own the array, keep every pound of saving, and claim the capital allowances yourself.
2. Asset finance or lease. A lender funds the system and you repay over a term. The cost is spread, but the allowances may sit with the financier depending on structure.
3. Power Purchase Agreement (PPA). A third party funds, owns and maintains the array on your roof and sells you the electricity below grid price. Zero capex, cash-positive from month one, no allowances for you.

None of these is universally “best”. The right answer depends almost entirely on whether you own the building, how long your lease runs, and whether you would rather deploy capital elsewhere.

Route 1: Capital purchase (cash) plus AIA

Buying outright is the simplest structure and, for an owner-occupier with cash to deploy, usually the strongest long-term return.

What it costs. Indicative 2026 pricing runs from roughly £850 to £1,100 per kWp at around 100 kW, falling to roughly £650 to £850 per kWp by 1 MW as scale kicks in. On a warehouse with genuine daytime load, self-funded payback typically lands in the three to six year range, and the best day-load sites can see 2.5 to four years. Figures are indicative and site-specific; get a modelled quote before you rely on any number.

The tax position. This is where a cash purchase pulls ahead, and it is also where the detail matters. Solar generation assets fall into the special-rate pool of plant and machinery. That has two consequences worth stating plainly:

• The Annual Investment Allowance (AIA) gives 100% first-year tax relief on qualifying plant up to £1m per year, which covers the full cost of most single warehouse projects.
• Full expensing does not apply to solar. Full expensing is a main-rate relief; because solar sits in the special-rate pool, you cannot use it. Above the £1m AIA cap, the relevant relief is the 50% First-Year Allowance on special-rate expenditure, with the remaining balance then attracting the 6% writing-down allowance each year.

So for a typical sub-£1m project, AIA usually mops up the whole spend in year one. For a very large or multi-site rollout that exceeds the cap, the mix of 50% FYA and 6% writing-down allowance changes the timing of your relief, not the eligibility. Your accountant should model this against your actual profits and tax position.

VAT and rates. Commercial solar is standard-rated at 20% VAT. There is no 0% VAT rate on commercial installations (that relief is for domestic property only), but a VAT-registered business reclaims the input VAT in the normal way. Separately, solar installed on commercial property benefits from a business-rates exemption in England running to 31 March 2035, which removes what used to be a real disincentive to putting generation on your own roof.

Best for: owner-occupiers with capital to deploy and a long horizon on the building. Key risk: it ties up capital you might otherwise put into fleet, racking, automation or working capital.

Route 2: Asset finance or lease

Asset finance keeps the ownership logic of a purchase but removes the upfront cash hit. A lender pays for the system and you repay over an agreed term, typically alongside the energy savings the system generates.

The appeal is straightforward: the monthly repayment is often designed to sit below the energy saving, so the project can be broadly cashflow-neutral or better while you still move towards owning the asset. It preserves working capital for the core logistics operation, which many FDs prefer to a large one-off outlay.

The detail to interrogate is who holds the capital-allowance benefit. Depending on how the agreement is structured, whether it is a hire purchase, a finance lease, or an operating lease, the allowances may sit with you or with the financier. This changes the after-tax economics materially, so it is the first question to put to any finance provider, and it is worth confirming with your own accountant rather than taking the sales sheet at face value.

Best for: owner-occupiers who want the system but would rather not deploy the capital in one go. Key risk: the allowance treatment and the total cost of finance over the term. Spreading the cost is not free, and a poorly structured lease can quietly hand your tax benefit to the lender.

Route 3: Power Purchase Agreement (PPA)

A PPA flips the model. A third-party funder installs, owns, insures and maintains the array on your roof at no cost to you, then sells you the electricity it generates at a fixed rate below what you would pay the grid. You buy only the power you use.

The attractions are real and specific:

• Zero capex. Nothing on your balance sheet, no drain on capital.
• Cash-positive from month one. Because the unit rate is set below grid price, you save from the first bill without ever having funded the kit.
• No maintenance burden. The funder owns the performance risk and the upkeep.

The trade-offs are equally real. Because the funder owns the array, the funder gets the capital allowances, not you. Your saving is the gap between the PPA rate and the grid rate, which is a smaller margin than owning the whole saving outright. PPAs also run over long terms, and end-of-term options vary, so you may keep the array, buy it out, extend, or have it removed; check that clause carefully before signing.

Crucially, a PPA does not require you to own the building outright in the same way an outright purchase does, which makes it a natural fit where tenure is shorter or split.

Best for: tenants, shorter leases, and operators who will not or cannot deploy capital. Key risk: a smaller share of the saving, a long contract, and end-of-term terms that need reading closely.

Side-by-side comparison

	Capital purchase (cash)	Asset finance / lease	PPA
Upfront cost	Full cost upfront	Little or none; repaid over term	None
Who owns the array	You	You (usually, on completion of the term)	The third-party funder
Capital allowances / tax benefit	You claim them (AIA, then 50% FYA / 6% WDA above the cap)	May sit with you or the financier, depending on structure	The funder, not you
Cashflow	Large outlay, then keep 100% of savings	Broadly neutral if repayment set below saving	Cash-positive from month one
Best for	Owner-occupiers with capital and a long horizon	Owner-occupiers preserving working capital	Tenants, shorter leases, no-capex operators
Key risk	Ties up capital	Cost of finance; allowance may go to lender	Smaller share of saving; long term; exit terms

Figures and treatments above are indicative and general. Confirm your own position with a qualified accountant.

How to choose, by scenario

The routes are not really competing on merit in the abstract. Your circumstances usually point clearly to one.

If you are an owner-occupier

You own the building and expect to hold it for years. This is the classic case for a capital purchase: you claim the allowances, keep the full saving, and the array adds value to an asset you already control. If deploying the full amount is unattractive, asset finance gives you most of that upside while preserving working capital, provided you confirm the allowance treatment lands with you. A PPA is usually the weakest fit here, because you are giving away savings and tax relief you could have kept.

If you are a tenant

If you occupy someone else’s building, ownership routes need landlord consent before you can bolt generation to their roof, and the funding logic gets tangled with lease terms. A PPA or a purpose-built green-lease structure often fits far better, because it does not require you to buy an asset attached to a building you do not own. Our guide on the green lease for a leased warehouse covers the landlord and tenant mechanics in detail, and our multi-tenant leased warehouse page walks through the specifics of shared-occupancy sites.

If your lease is short

Where you have only a few years left on a lease, the payback maths on any owned system rarely works before you move out. A PPA is often the only route that makes sense, because you save from month one without ever recovering a capital cost. Match the PPA term against your realistic occupancy and read the end-of-term clause before committing. If you are a contract logistics operator running client sites, our 3PL and contract logistics page covers the tenure and contract-length issues specific to that model.

A note on Freeports

If your site sits inside a Freeport tax zone, the capital-allowance position on an owned system can be more generous still, which can tip a marginal owner-occupier decision back towards purchase. See our dedicated guide on Freeport capital allowances for warehouse solar.

Where the return actually comes from

Whichever route you pick, remember where the money is made. The return on warehouse solar comes overwhelmingly from self-consumption, using the power on site rather than buying it from the grid. Export income under the Smart Export Guarantee (SEG) is supplier-set and generally modest, so it is a bonus rather than the business case. A warehouse with strong, steady daytime load (chillers, conveyors, MHE charging, lighting) is exactly the profile where the numbers work, because most of what you generate is used behind the meter.

For the underlying system economics, our cost guide breaks down pricing by system size, and our grants and funding page covers the current support landscape. Any unfamiliar terms, from AIA to WDA to SEG, are explained in the glossary.

Getting the numbers for your site

The right funding route falls out of two things you already know: whether you own the building and how long you will be in it. Once those are settled, the comparison above usually points to a clear answer, and your accountant can confirm the tax treatment against your own position.

This guide is general information, not personalised tax, finance or legal advice. Every point above should be checked against your own circumstances with a qualified professional before you commit to a structure.

When you are ready to put real figures against your roof, request a quote and we will model system size, indicative cost and the funding routes that suit your tenure.