Installing solar panels on your factory isn’t just about cutting your electricity bill…
It’s also about assessing applicable UK capital allowances and other commercial benefits.
In this guide, we explain potential financial considerations for UK factory owners. Availability and eligibility should always be checked against current scheme guidance.
1. Capital Allowances: The Big One for Manufacturers
Capital Allowances allow UK businesses to deduct the cost of qualifying equipment—like solar panels—from their taxable profits. For factory owners, this can significantly reduce Corporation Tax liabilities.
Current capital allowance options for eligible UK businesses include:
Special-rate first-year allowance (50%, subject to eligibility):
Solar panels are classified as special-rate expenditure and do not qualify for 100% full expensing. Subject to eligibility, businesses may instead claim the Annual Investment Allowance (AIA) or the 50% special-rate first-year allowance. The same expenditure cannot receive both allowances.
This includes:
✅ Solar panels
✅ Inverters
✅ Mounting structures
✅ Cabling and electrical infrastructure
Example:
You install a £250,000 solar PV system on your factory roof. Solar panels are special-rate expenditure, not eligible for 100% full expensing. Depending on eligibility, the Annual Investment Allowance or 50% special-rate first-year allowance may apply—with any Corporation Tax benefit depending on the company’s qualifying expenditure, available capital allowances and tax position.
Annual Investment Allowance (AIA):
The Annual Investment Allowance can provide a 100% deduction on qualifying plant and machinery expenditure, subject to the £1 million limit and the amount of AIA available to the business. Qualifying solar expenditure may be eligible, but the same expenditure cannot receive both AIA and a first-year allowance. Confirm eligibility with your accountant.
2. Smart Export Guarantee (SEG)
The Smart Export Guarantee is a UK government scheme requiring licensed electricity suppliers to pay businesses for exporting excess solar electricity back to the grid.
For factories that don’t consume all their solar generation – such as those with weekend shutdowns or night-heavy shifts – SEG provides a modest revenue stream.
3. Renewable Energy Guarantees of Origin (REGO Certificates)
REGO accreditation and eligibility depend on the generating station and applicable Ofgem rules; owning a solar PV system does not automatically entitle a business to trade certificates. These certify that the electricity you produce is 100% renewable and can be sold to buyers looking to improve their green credentials.
While not always high-value, REGOs are increasingly sought after by large corporations under Scope 2 reporting frameworks. Some suppliers offer buy-back programs for REGO certificates bundled with energy export.
4. Industrial Energy Transformation Fund (IETF) – Check Current Funding Availability
This is a targeted scheme aimed at energy-intensive industries.
Funding availability and eligibility can change. Check the current government scheme information before including any potential grant in a solar project financial case.
5. What About Renting a Solar System?
If you are installing solar panels through a rental agreement, the system provider (not your factory) owns the equipment – so they typically claim the tax incentives and export income.
However, you still benefit from discounted energy, improved ESG reporting, and reduced grid dependence – all with no upfront cost.
Conclusion…
For detailed tax eligibility and allowance rules, read our commercial solar capital allowances guide. For the wider investment case, see solar panels for factories.
With potential capital allowances, avoided electricity purchases and any eligible export revenue, a carefully assessed solar installation may offer long-term financial benefits. Savings and income depend on the project and commercial arrangements.
…don’t leave money on the table.
