How Do Solar Power Purchase Agreements (PPAs) Work for Businesses in the UK?

Solar Power Purchase Agreements (PPAs) offer a compelling solution for UK businesses interested in renewable energy without the high upfront costs of owning a solar system. It’s sometimes called a ‘Zero Capital Solution’.

Using a PPA, businesses can access clean energy at a fixed rate (subject to indexation), with a third-party provider responsible for system installation, ownership, and maintenance. Here at Eden Sustainable, we are often asked about financing options for commercial solar installations, so here’s a quick explanation of how PPAs work and some of their advantages.

What is a solar PPA?

A solar power purchase agreement (PPA) is a contractual arrangement between a business and a solar provider. Under this agreement, the provider installs, owns, and operates a solar panel system on the business’s premises (roof, ground mount or solar car port), selling the electricity generated directly to the business at a pre-agreed rate. The PPA rate is typically lower than conventional grid electricity, allowing businesses to save on energy costs while reducing their carbon footprint.

Reduced upfront costs

One of the main advantages of a PPA is that it allows businesses to adopt solar energy without the upfront investment typically required for solar installations. The solar provider covers the costs of system design, equipment, installation, operation and maintenance which makes PPAs a low-risk option for businesses looking to integrate renewable energy. Since there are no capital expenditures, PPAs make solar energy accessible to businesses that may not have the budget to purchase a solar system outright. And, for the accountants reading this, a PPA is treated as an off balance sheet instrument.

Fixed energy costs and long-term savings

PPAs are designed to provide a fixed or predictable energy rate for the duration of the contract, which can range from 10 to 25 years. This stability shields businesses from fluctuating energy prices, offering a hedge against future electricity rate increases. Over the long term, the savings from a PPA can be substantial, as businesses continue to benefit from renewable energy at below-market rates.

The PPA will include an annual escalation in rates to account for inflation and operational costs. However, even with these adjustments, PPA rates are typically lower than conventional grid prices, providing ongoing savings over the life of the agreement.

Ownership and maintenance responsibilities

Under a PPA, the solar provider retains ownership of the system, meaning they are responsible for undertaking and the cost of all operations, maintenance, and repairs. This relieves businesses of the technical and logistical responsibilities associated with a solar installation. Routine maintenance and performance monitoring are typically included, ensuring the system operates efficiently without additional costs or oversight from the business.

The provider also handles insurance and warranty claims, further reducing the risk for the business. This arrangement enables companies to focus on their core operations while benefiting from reliable, lower cost, green energy.

Eden offers an operations and maintenance service for all of its installs

Offtake requirements

Solar systems installed under PPAs are always connected to the grid, allowing businesses to draw from the grid when solar production is low and, conversely, export any excess energy generated during peak times. In some cases, the provider may facilitate arrangements to sell excess power back to the grid.

A PPA will include a minimum consumption requirement that specifies the minimum amount of electricity the business must purchase from the solar provider. This commitment ensures that the system’s generated power is efficiently used, allowing the provider to recover their investment.

If the business consumes less than the agreed minimum, they will be required to pay for that minimum amount (less any income the provider has received for selling the power back to the grid). This setup aligns both parties' interests, encouraging consistent energy usage and providing predictable revenue for the solar provider, while the business benefits from a stable, green energy supply at a lower cost than grid rates.

Building Regulations Approval

Solar installations must comply with health and safety standards, especially during installation. The UK’s Construction (Design and Management) Regulations (CDM) 2015 outline responsibilities for both the client and contractor regarding site safety, risk assessments, and safe work practices. For example, the role of a Principal Designer and Principal Contractor may need to be appointed for compliance with CDM 2015.

Health and safety permits may include site assessments for hazardous materials, such as asbestos in older buildings, and additional safety precautions may be required to protect workers and ensure public safety. 

Flexibility and End-of-Term options

PPAs offer flexibility at the end of the contract term, with various options available to suit the business’s long-term goals. Common options include:

• Taking over the System: At the end of the full agreement, businesses have the right to acquire the system at no cost. During the term of the agreement a business will have the right to purchase the system at the current market rate.

• Removing the System: If the business no longer wants to continue with solar, the provider can remove the system, restoring the site to its original state. This cost would need to be factored into the PPA rate at the outset and therefore the first option above is often the most utilised.

• Renewing the PPA: Businesses can extend the PPA with the same provider, usually at a renegotiated rate.

These options provide businesses with flexibility, allowing them to make decisions based on financial performance, energy needs and future sustainability goals

Environmental and sustainability benefits

Adopting a PPA allows businesses to achieve their sustainability goals without major upfront costs. By using renewable energy businesses can reduce their carbon emissions, which resonates with customers, suppliers, employees and investors – all of whom are increasingly focused on sustainability.

Many companies find that going green through a PPA enhances their ESG (Environmental, Sustainability & Governance) profile, differentiating them in the market and boosting their brand’s reputation. For some organisations, the environmental benefits alone are a sufficient incentive for opting into a solar PPA.

Take your step to a more sustainable future

A PPA will provide UK businesses with an affordable, flexible path to renewable energy. By offering predictable energy costs, sustainability benefits, and maintenance-free operation, PPAs allow companies to focus on growth while meeting their energy and environmental targets. For many, a PPA is the ideal way to access the benefits of solar power without the complexity of ownership, helping them save money and lower their carbon impact.

If you’re thinking about making the switch to a more sustainable energy future, then contact us via our website and we’d love to help you unlock the benefits