The two approaches in one paragraph
Outright purchase: your business buys the solar system as a capital asset, gets capital allowances, owns the electricity generated, and takes on maintenance/operational responsibility. Solar PPA: a third-party funder buys, installs, and maintains the system; your business buys the electricity generated at a fixed per-kWh rate, no upfront cost, no maintenance responsibility.
Side-by-side comparison
| Outright Purchase | Solar PPA | |
|---|---|---|
| Upfront cost | A substantial upfront amount | None |
| Ongoing cost | Maintenance, insurance, monitoring (a modest amount per year) | Per-kWh PPA rate for electricity generated (typically 20-40% below grid) |
| Maintenance liability | Yours, usually outsourced to O&M contractor | Funder's, included in PPA |
| Insurance liability | Yours | Funder's |
| Capital allowances | Yes, typically 100% first-year for AIA-eligible spend up to threshold, then writing down allowances | No (it's not your asset) |
| Balance sheet impact | Capital asset, depreciation | Off balance sheet (operational expense) |
| Payback | 6-10 years typical for self-funded | Immediate (lower per-kWh rate from day one) |
| Long-term return | Typically higher absolute return (~15-20 year IRR of 8-15%) | Lower absolute return but no capital tied up |
| System lifespan beyond payback | 15-25 years of free electricity after payback | End of PPA: nominal transfer option gives you 5-15 years of free electricity |
| Performance risk | Yours, if system underperforms, you bear it | Funder's, they only get paid for electricity generated |
| Procurement complexity | EPC contractor selection, capital approval, project management | Single PPA contract with funder; we coordinate installation |
When outright purchase makes more sense
- You have spare capital available and the IRR of solar (typically 8-15%) is better than your alternative investment opportunities
- Tax planning, significant taxable profits and you can use the capital allowances (AIA threshold or full expensing where applicable)
- Asset accumulation, your business strategy values owning energy infrastructure as a capital asset
- Long-term occupancy certainty, owned freehold, no intent to move for 20+ years
- Internal operational capacity, you have the in-house technical and procurement capacity to manage installation and ongoing maintenance
When a Solar PPA makes more sense
- Capital is constrained or has higher-return alternative uses, investing in product development, acquisitions, or operational growth offers higher returns than self-funded solar
- You want zero operational burden, your team doesn't want to manage maintenance, monitoring, repairs
- You want immediate energy bill reduction, savings start from day one rather than after payback
- You want off balance sheet treatment, for investor presentation, debt covenant management, or accounting simplicity
- You want to hedge electricity price risk, fixed-rate PPA protects against grid volatility for 10-35 years
- You're a public sector body, capital constraints make PPA the only viable route in most cases
- You have leasehold property, PPA structures work well with landlord-tenant arrangements
The decision framework
The right question isn't "PPA or purchase?", it's "what's the highest-return use of our capital?"
- Calculate the IRR of buying solar outright for your specific site (we model this in our free assessments)
- Compare against your weighted average cost of capital (WACC) or your hurdle rate for capital investment
- Compare against alternative investment opportunities, what else could that capital achieve in your business?
- If solar IRR comfortably beats both, outright purchase is the right answer
- If alternative uses of capital have higher returns, PPA is the right answer (still gets you the energy savings without tying up capital)
Hybrid approaches
Some businesses choose hybrid structures:
- PPA with end-of-term transfer for a nominal sum, gets the PPA economics during the term, then asset ownership for the system's remaining lifespan
- PPA with early-buyout option, start with PPA, buyout in years 5-10 once capital becomes available and economics shift
- Mixed portfolio, for multi-site businesses, some sites bought outright (highest IRR sites) and others on PPA (capital-constrained or shorter-lease sites)
Want to compare for your specific business?
We can model both routes for your site in a free assessment, showing you the capital cost, IRR, and total long-term return for outright purchase alongside the PPA economics. You decide which structure fits your strategy.