For a UK manufacturer considering rooftop solar, the decision is no longer simply whether to install panels. An equally important question is how to pay for the electricity they will generate.
Two common routes are to buy the commercial solar installation outright or use an onsite Power Purchase Agreement (PPA), where a third party typically finances and owns the system and the factory purchases the electricity it generates under a long-term contract.
Both approaches can reduce dependence on grid electricity, but ownership, capital requirements, maintenance responsibilities and long-term economics are very different.
What is an onsite commercial solar PPA?
An onsite solar PPA is a contractual arrangement under which a provider typically finances, installs, owns and maintains a solar PV system at the customer’s premises. The factory then buys electricity generated by that system at an agreed contractual rate.
The precise structure varies between providers and contracts, so manufacturers should examine the actual agreement rather than assume all PPAs operate in the same way.
The UK Government has highlighted the role of long-term power purchase agreements in helping industrial and commercial electricity users access low-carbon power and manage exposure to electricity-price volatility.
How is buying a factory solar system different?
With an outright purchase, the business funds the installation and normally owns the resulting asset. Electricity generated and consumed on site directly reduces the amount of electricity the factory needs to purchase from the grid.
The owner also carries the responsibilities associated with the asset, including appropriate monitoring, maintenance and eventual equipment replacement. Our guide to commercial solar maintenance for UK factories explains why those responsibilities matter over the system’s operating life.
Solar PPA vs outright purchase: the key differences
| Consideration | Outright purchase | Onsite solar PPA |
|---|---|---|
| Initial capital | Business funds the installation | Provider typically finances the installation |
| Asset ownership | Business normally owns the system | Provider typically owns the system during the agreement |
| Solar electricity | Owner benefits from electricity generated | Customer purchases generated electricity under the PPA |
| Maintenance | Owner arranges and funds appropriate O&M | Commonly provider responsibility, subject to contract |
| Contract exposure | No long-term electricity PPA for the owned asset | Long-term contractual obligations apply |
| End-of-term position | Business retains its asset | Depends on the PPA’s end-of-term provisions |
Why might a factory choose a solar PPA?
The principal attraction is often capital preservation. A manufacturer may have an excellent roof and strong daytime electricity demand but prefer to deploy available capital into production equipment, automation, acquisitions or working capital.
A PPA can potentially allow the factory to access onsite solar generation without funding the full installation cost upfront. It can also transfer specified operating and maintenance responsibilities to the provider.
For businesses prioritising cash preservation, that can be commercially attractive. But the value must be assessed across the entire contract rather than judged solely by the absence of an upfront purchase price.
Why might a factory prefer to buy the solar installation?
Businesses with available capital may prefer ownership because they retain the asset and the economic benefit of its generation, subject to operating costs and performance.
Ownership can also provide greater control over future decisions concerning the system. The appropriate choice depends on the company’s cost of capital, investment criteria, tax position, expected site tenure and competing uses for cash.
Tax treatment should be confirmed with the company’s accountant or tax adviser rather than assumed as part of the solar proposal.
Self-consumption matters whichever funding route you choose
A financing structure cannot compensate for poor system design.
Whether a factory buys the system or signs a PPA, the relationship between solar generation and the site’s electricity demand remains fundamental. Electricity generated while the factory is consuming power can reduce grid imports, while surplus generation has different economics.
That is why half-hourly electricity data should inform the design. Read our guide to maximising factory solar self-consumption and our article on correctly sizing a commercial solar installation.
Seven PPA terms a factory should understand
A commercial PPA is a significant long-term contract. Before signing, manufacturers should obtain appropriate legal, financial and technical advice and understand at least the following areas.
- Starting electricity price: What price will the factory pay for solar electricity at the beginning of the agreement?
- Price adjustment: Is the PPA price fixed, indexed or subject to another escalation mechanism?
- Contract duration: How long is the factory committed to the arrangement?
- Maintenance and performance: Who monitors, maintains and repairs the installation, and what service obligations apply?
- Property changes: What happens if the factory is sold, the lease changes or the business relocates?
- Early termination: What rights, costs or restrictions apply if the agreement needs to end early?
- End of term: Is the equipment removed, transferred, purchased or covered by an extension arrangement?
Don’t confuse an onsite PPA with every other type of PPA
The term “PPA” covers several structures in the energy market. A factory rooftop arrangement where electricity is generated at the customer’s premises is not necessarily the same as an offsite corporate PPA with a remote renewable generator.
Manufacturers comparing proposals should therefore establish exactly where the electricity is generated, how it reaches the site, who owns the generating equipment and what contractual obligations sit with each party.
A practical decision framework for factory directors
Rather than asking whether PPAs are universally better or worse than purchasing, finance and operations teams can compare both routes against the same project assumptions.
- How long do we expect to occupy this factory?
- What is our daytime electricity profile?
- What solar system size is commercially appropriate?
- What proportion of generation should we consume on site?
- What return could ownership provide under our assumptions?
- What is the total contractual cost of the PPA under its pricing mechanism?
- What alternative return could our capital generate elsewhere in the business?
- How valuable is transferring specified maintenance responsibility?
- What happens under each route if the property or business changes?
The same technical design can then be compared under different funding structures rather than allowing the financing method to dictate the engineering.
Which route is right for a UK factory?
There is no universal answer. A capital-rich owner-occupier expecting to remain at the site for decades may evaluate the options differently from a rapidly growing manufacturer that wants to preserve cash for new production equipment.
The important point is to compare like with like: the same roof, the same expected generation, the same consumption data and realistic assumptions about future electricity use.
Only then should the business compare ownership economics with the proposed PPA terms.
Frequently asked questions
What is a commercial solar PPA?
An onsite commercial solar PPA is typically a long-term agreement under which a third party finances and owns solar equipment installed at a business site and the customer purchases electricity generated by that equipment according to the contract.
Does a solar PPA mean no upfront cost?
Many PPA structures are designed so that the provider finances the solar installation rather than the customer making the full capital purchase. Businesses should still review all contractual costs, obligations and any fees applicable to the particular proposal.
Who maintains solar panels under a PPA?
The provider commonly has defined operations and maintenance responsibilities because it owns the equipment, but the exact allocation of responsibilities must be confirmed in the individual contract.
Can a factory buy the solar system at the end of a PPA?
That depends entirely on the agreement. End-of-term options can vary, so transfer, purchase, removal and extension provisions should be understood before signing.
Is buying commercial solar cheaper than a PPA?
The answer depends on system cost, financing, PPA pricing and escalation, maintenance, tax treatment, site tenure, electricity consumption and the company’s cost of capital. Both options should be modelled over an appropriate long-term period using consistent assumptions.
Compare the solar system first — then the finance
Commercial Solar Systems specialises in solar solutions for UK factories and industrial businesses. We can assess your roof and half-hourly electricity profile to establish an appropriate solar design before the business evaluates how it wants to fund the project.
Explore our solar panels for factories guide or call 0333 888 0607 to discuss your site.
This article provides general information and is not financial, tax or legal advice. Commercial PPA terms vary and should be reviewed with appropriate professional advisers before commitment.
