Pillar guide
Power purchase agreements explained: the UK business guide to PPAs
A power purchase agreement lets a business take the benefit of solar or battery infrastructure without buying it: a third party funds, owns and maintains the system, and you pay for the energy it produces at an agreed rate. This guide explains how the structures work in the UK, what they cost, and when owning the asset is the stronger route.
The short version
- A PPA is an energy supply contract, not a loan. No capital outlay and no asset on your balance sheet.
- On-site or private wire PPAs put the system on your roof or land; sleeved and virtual PPAs buy power from projects elsewhere.
- Contract lengths are long, commonly ten to twenty five years, and the exit terms matter as much as the rate.
- The rate you pay sits below your grid import price, which is where the saving comes from.
- Businesses with capital available often keep more value by financing and owning the system instead.
What a power purchase agreement actually is
A power purchase agreement, usually shortened to PPA, is a long term contract to buy electricity at an agreed price. In the commercial version most relevant to UK businesses, a funder or energy company pays for a solar array, a battery system or both on your site, owns and maintains the equipment, and sells you the power it produces at a rate fixed or indexed for the life of the contract.
You keep buying whatever extra power you need from your normal supplier. The PPA simply displaces the most expensive part of your consumption with a cheaper, predictable source that you did not have to pay to install.
The important distinction is ownership. Under a PPA the asset belongs to someone else and your commitment is to buy its output. Under asset finance the asset is yours from day one and your commitment is a repayment. Both routes get the same equipment onto the site; they suit different balance sheets, different appetites for risk and different views on the long term value of the asset.
The three structures you will encounter
The label PPA covers several quite different arrangements. Understanding which one is being offered matters more than the headline rate.
| Structure | How it works | Typical fit |
|---|---|---|
| On-site or private wire | System installed on your roof or land, power sold directly to you behind the meter | Factories, warehouses, farms, estates with roof or land and steady daytime load |
| Off-site or sleeved | You contract for output from a project elsewhere, delivered through the grid via a supplier | Larger corporates with multi site demand and a net zero commitment |
| Virtual or synthetic | A financial contract for difference against a market price, no physical power changes hands | Sophisticated buyers hedging energy cost exposure at scale |
- For most small and mid sized UK businesses, the on-site private wire arrangement is the relevant one.
- Sleeved and virtual PPAs are normally negotiated by energy intensive corporates with specialist advisers.
- Hybrid arrangements combining on-site solar, storage and a grid supply agreement are increasingly common.
How the economics work
The saving on an on-site PPA comes from the gap between your grid import price and the PPA rate. If your electricity costs you twenty six pence a unit and the PPA rate is sixteen pence, every unit the system generates saves you ten pence, with no capital spent to get it.
That rate is possible because the PPA provider earns its return over the contract life rather than from the installation itself. The longer the term and the better the site, the keener the rate tends to be. Rates are usually fixed, fixed with an annual escalator, or indexed against a published measure, and the difference between those three over fifteen or twenty years is substantial.
Figures on this page are indicative ranges drawn from UK market pricing we see across quotes and funder appetite. They are illustrations, not quotations, and every project prices on its own scope, site and credit profile.
- Ask for the rate in year one, the escalator, and the implied average rate across the full term, not just the opening figure.
- Check what happens to generation you cannot use. Some contracts charge for output whether you consume it or not.
- Confirm who carries performance risk when the system underproduces.
The commitment you are actually making
An on-site PPA is a long relationship with the building. Contract lengths commonly run from ten to twenty five years, and the obligations usually attach to the site as much as to the business.
That cuts both ways. The provider needs confidence the site will consume the power for the term, which is why PPAs favour owner occupiers and long leaseholders. You need confidence the exit terms are survivable if you sell the building, relocate or want to buy the system out early.
- Early buyout: most contracts allow you to purchase the system at a schedule of values. Read the schedule, not the promise.
- Assignment: check whether the agreement can transfer to a buyer or incoming tenant if you sell or move.
- Roof and access: the provider will need rights over the roof or land for the term, documented in a lease or licence alongside the PPA.
- Make good: establish what happens to the equipment and the roof when the contract ends.
PPA or finance: how to think about the choice
This is the comparison we walk clients through most often, because GRID sits on both sides of it. The honest answer is that neither route is universally better; they optimise for different things.
A PPA optimises for zero capital outlay and zero responsibility for the equipment. Financing and owning optimises for total value captured over the life of the system, because once the repayments finish the power is effectively free for the remaining working life of the asset, which on a solar array can be another fifteen years or more.
| PPA | Finance and own | |
|---|---|---|
| Upfront cost | None | Deposit, often VAT only on well supported cases |
| Balance sheet | No asset or debt recorded | Asset and liability recorded |
| Ownership | Provider owns the system | You own it, normally from day one on hire purchase |
| Maintenance | Provider's responsibility | Yours, usually via an O&M contract |
| Saving | Gap between PPA rate and import price | Full value of every unit generated |
| Term | Ten to twenty five years | Three to seven years typical |
| Position at the end | Renew, buy out, or system removed | You own a still productive asset outright |
Who a PPA suits, and who it does not
PPAs suit businesses with significant, steady daytime consumption, a suitable roof or land, and either a genuine preference to keep capital elsewhere or a balance sheet that would rather not carry the asset.
They are a weaker fit where consumption is small or erratic, where the premises are leased on a short term, or where the business has capital available and wants the full long term value of the generation. In that last case, owning through finance usually wins on total return, and we will say so.
What the process looks like with GRID
We start with the same exercise we run for a funding proposal: your half hourly consumption, your current supply costs, the roof or land available and what you are trying to achieve. That data decides whether a PPA, ownership or a combination is the right answer before anyone talks terms.
Where a PPA is the right route, we introduce you to a specialist provider from our market relationships and stay alongside you through the negotiation, because the details that matter are the ones listed on this page: the escalator, the buyout schedule, the assignment terms and the roof rights.
GRID Asset Finance acts as an introducer to specialist PPA providers and may receive a fee if an introduction completes. GRID does not supply electricity, is not a party to the PPA itself and is not FCA authorised. We recommend taking independent legal advice on any long term energy contract before signing.
Where this applies
FAQs
Common questions
The questions that come up most often on this subject.
What is a power purchase agreement in simple terms?
A contract to buy electricity at an agreed price for a long period, usually ten to twenty five years. For most UK businesses it means a third party installs solar or battery equipment on your site at no cost to you, and you buy the power it produces at a rate below your grid price.
How long is a typical PPA contract in the UK?
On-site PPAs commonly run from ten to twenty five years. Shorter terms exist but push the rate up, because the provider recovers its investment over the life of the contract. The length is why the buyout and assignment terms deserve as much attention as the rate.
Is a PPA better than financing solar panels?
It depends on what you are optimising for. A PPA needs no capital and carries no maintenance responsibility, but the provider keeps most of the long term value. Financing and owning costs a deposit and a repayment for three to seven years, after which the generation is effectively free. Businesses with available capital usually capture more by owning.
What happens if I sell my building during a PPA?
That depends on the assignment clause. Well drafted PPAs allow the agreement to transfer to the new owner or occupier, or offer a buyout at a pre agreed schedule of values. Establish this before signing, not when the sale is on the table.
Do I still need an energy supplier with an on-site PPA?
Yes. The PPA covers the power the on-site system generates, which is rarely all of your consumption. You keep a normal supply contract for everything else, and the PPA rate only applies to what the system actually produces.
What size of business qualifies for a PPA?
Providers look for enough steady consumption to absorb the system's output and a credible covenant for the contract term. As a working guide, sites spending upwards of roughly £50,000 a year on electricity with usable roof or land tend to attract serious interest, though criteria vary by provider.