Ways to pay for a commercial solar project

The phrase free business solar panels almost always describes a power purchase agreement. A funder pays for the system, owns it, and sells you the electricity it generates at an agreed rate below your import rate. The panels are not free, they are someone else's asset on your roof, and the arrangement is genuinely useful when capital is the obstacle.

That is what no upfront cost solar means in practice, and it is a real option rather than a trick. You save from day one and you carry no capital outlay or performance risk. In exchange you give up a share of the lifetime return and you sign a contract measured in decades, which is set out in full further down this page.

On business solar grants, be careful. There is no general grant scheme paying for commercial solar panels in Great Britain at the time of writing, and anyone implying otherwise is usually describing a power purchase agreement or a finance product. Genuine support does exist in narrower forms, including devolved and local authority schemes, sector specific funds and tax reliefs on plant and machinery, and eligibility is specific. We will tell you if we think something applies to you, and we will tell you when nothing does.

Solar panel funding for business therefore comes down to four honest routes: buy it, finance it, lease it, or let a funder own it and buy the power. The rest of this page compares them.

Buying the system outright produces the best lifetime return, because there is no financing cost and every saved unit is yours. It also puts the asset, the maintenance obligation and the performance risk on your balance sheet.

Using indicative UK commercial averages for installed cost, annual yield and import rate, the arithmetic is straightforward, though the actual payback depends heavily on how much generation you consume on site.

Capital allowances usually apply to plant and machinery, and the treatment depends on your tax position and the rules in force when you spend, so confirm the position with your accountant before assuming it in a business case.

Asset finance spreads the capital cost over a term, and the intention is that the monthly payment sits below the monthly saving so the project is cash positive from the start. Whether it actually does depends on the rate, the term and your self consumption.

Hire purchase generally ends with you owning the asset, while an operating lease may not, which affects both the accounting treatment and who benefits from the years after the finance term ends. Those later years are where much of a solar asset's value sits.

Read the term against the asset life. A twenty five year asset financed over seven leaves a long tail of essentially free generation, provided the maintenance obligation has been thought about.

Under a rooftop power purchase agreement, a funder installs and owns the system and sells you the generated electricity at an agreed rate, usually below your import rate. There is no capital outlay and the funder carries the performance risk.

The trade off is the long term. You are signing a contract measured in decades, with terms covering price escalation, roof access, what happens if you sell the building, and what happens to the asset at the end. Those clauses deserve the same scrutiny as the price.

A power purchase agreement suits organisations that cannot or will not deploy capital. Where capital is available, outright purchase almost always returns more over the asset life.

The comparison that matters is total cost of energy over the asset life, not the monthly payment. A cheap looking monthly figure can conceal escalation, a longer term or an obligation to buy the asset at an inflated residual.

Check who carries what. Maintenance, insurance, monitoring, inverter replacement and performance shortfall all sit somewhere, and where they sit differs sharply between purchase, lease and power purchase agreement.

NRG Solar presents the options and the questions to ask. We are not a lender, a broker of credit or a financial adviser, and any funding arrangement is between you and the provider.

Roof condition and remaining life matter to funders as much as to you, because an asset that has to be lifted for a re roof midway through the term is a problem for whoever owns it.

Tenure matters too. Funders will ask about lease length, landlord consent and any break clauses before committing to a long term arrangement on a building you do not own.

Deal with both at feasibility. They are the two issues that most often turn an approved scheme into a stalled one.