PPA, Lease or Buy: Paying for a Solar Carport Compared

Capital purchase

You pay the full capex upfront, own the asset, capture the AIA tax benefit, retain all generation savings, and recover residual asset value at year 25. Best for: companies with strong year-end profit positions wanting maximum AIA claim, public sector bodies funded by grants, and asset-rich SMEs with treasury budget for solar.

Asset finance / lease purchase

Indicative terms: 5-7 year term, at the rate set out in a written lender quote. The aim is monthly payments lower than the electricity bill reduction (i.e. cashflow-positive from month one). You own asset at end of term. Captures most of AIA benefit. Best for: cashflow-sensitive operations, owner-managed businesses, and corporates with internal hurdle rates lower than 12%.

PPA (Power Purchase Agreement)

Zero capex from you. PPA provider funds, designs, builds, owns, operates the carport. You sign a 15-25 year contract to buy the electricity it generates at a fixed price (a typical UK market range is 14-18p/kWh, vs 38-52p/kWh grid retail; actual terms come from the funder's offer). Cashflow positive from day one without balance sheet impact. Best for: non-tax-paying entities (charities, some public sector), companies wanting zero balance sheet impact, and SPVs/JVs that cannot easily own generation assets.

Side-by-side: £400k carport, 25 years

Illustrative example using assumed inputs, not a quote. Capital: -£400k year 0; +£170k savings/yr × 25 years; +£70k AIA tax saving year 1; net £4.3m. Asset finance (£400k over 7 yr): -£0 capex; 84 monthly payments whose total depends on the lender's quoted rate; +£170k saving/yr × 25 yr; +£70k AIA; net = the capital figure less the total interest paid. PPA (16p/kWh × 25 yr × 340,000 kWh/yr): -£0 capex; +£105k saving/yr × 25 yr; £0 AIA; net £2.63m.

Cashflow ranking, year 1

PPA: net +£105k/yr (no capex, immediate saving). Asset Finance: the £170k saving plus £70k AIA, less a year of finance payments. Capital: net -£330k/yr (capex offset by saving + AIA, year-one negative). Cashflow ranking, year 25 cumulative: Capital best (£4.3m), Asset Finance middle (the capital figure less interest), PPA worst (£2.63m). The 'cost' of PPA is the foregone long-term saving.

Which to choose: a decision framework

Pick capital if (a) you have surplus year-end profit + working capital, (b) you want to maximise 25-year IRR, (c) you want full energy security beyond 25 years. Pick asset finance if (a) you're cashflow-sensitive, (b) you want positive cashflow from month one, (c) you have alternative high-return uses for capital. Pick PPA if (a) you're public-sector or charity (no AIA benefit anyway), (b) you cannot put solar on balance sheet, (c) you want zero asset-management responsibility.

Related reading: why full expensing does not cover solar · solar panels over parking bays · school car park canopies.