How a Solar Power Purchase Agreement (PPA) Works
A Solar Power Purchase Agreement lets you use solar power without buying the panels. A provider funds, installs, and maintains the system. You simply pay for the electricity it generates, usually at a lower rate than the grid.
Key Takeaways
- A Solar PPA means buying power, not panels.
- There’s no upfront cost, just a fixed rate per kWh.
- Contracts typically run 10 to 25 years.
- Rates usually sit 20 to 40% below grid prices.
- The provider owns, maintains and insures the system throughout.
This guide explains exactly how a PPA works, step by step. You’ll see the costs, the risks, and whether it fits your business.
What is a Solar Power Purchase Agreement?
A Solar PPA is a contract to buy electricity, not equipment. A third party owns the panels on your roof.
You agree to purchase the power they generate. The price is fixed or pre-agreed, often well below standard grid rates.
Ownership stays with the provider throughout the contract. That’s the key difference from a standard solar purchase.
Who Are the Parties in a PPA?
Every PPA involves at least two parties. Sometimes a third gets involved too.
- Generator (provider): Funds, installs and owns the solar system.
- Offtaker (your business): Buys the electricity generated, on-site.
- Supplier (occasionally): Handles billing where a licensed supplier “sleeves” the power into your existing contract.
Most rooftop commercial PPAs only need the first two.
How Does a Solar PPA Work, Step by Step?
The process follows a clear sequence from survey to switch-on. Here’s what typically happens.
- Site assessment: The provider surveys your roof and checks your energy usage.
- Proposal: You receive a savings forecast and a proposed electricity rate.
- Contract signing: You sign the PPA, usually for 10 to 25 years.
- Installation: The provider designs, funds and installs the system at no cost to you.
- Electricity supply: You pay only for power consumed, at the agreed rate.
- Monitoring and maintenance: The provider maintains the system for its full lifespan.
Your first payment is usually your first electricity bill, once the system is live.
How Much Does a Solar PPA Cost?
There’s no upfront capital cost with a PPA. That’s the main appeal for small businesses.
Instead, you pay per kilowatt-hour consumed. Rates typically sit 20 to 40% below standard grid electricity prices.
| Model | Upfront cost | Ongoing cost | Ownership |
| Standard purchase | £16,000–£100,000+ | None (after purchase) | Your business |
| Solar PPA | £0 | Fixed or scaling rate per kWh | Provider |
| Solar lease | Low or £0 | Fixed monthly fee | Provider |
A standard purchase costs more upfront but saves more long-term. A PPA suits businesses wanting zero capital outlay.
What Are the Different PPA Pricing Models?
Providers usually offer one of two pricing structures. Each suits a different priority.
Fixed rate PPA: Your price stays the same for the whole contract. As grid prices rise, your savings grow larger each year.
Scaling PPA: Your rate starts lower and increases by a set percentage annually. This maximises short-term savings, but reduces long-term gains.
Ask your provider to model both scenarios. The right choice depends on your cash flow priorities.
What Are the Benefits of a Solar PPA?
PPAs offer several advantages over buying a system outright. These matter most to cash-conscious SMEs.
- No upfront investment: Capital stays free for other priorities.
- Immediate savings: Rates are typically lower than grid electricity from day one.
- No maintenance burden: The provider handles servicing and repairs.
- Price certainty: Fixed rates protect against volatile energy markets.
- Sustainability credentials: Renewable power supports ESG and net-zero targets.
What Are the Risks of a Solar PPA?
PPAs aren’t without downsides. Understanding these helps you negotiate a fair contract.
- Long-term commitment: Contracts often run 10 to 25 years.
- No asset ownership: You never own the panels, even after the contract ends.
- Site restrictions: Moving premises can complicate or void the agreement.
- Contract complexity: Terms around exit clauses and rate increases need careful review.
Always get contract terms checked before signing. A good broker or solicitor earns their fee here.
Is a PPA Better Than Buying Solar Outright?
It depends on your priorities. Neither option is universally better.
Choose a PPA if you want zero upfront cost and don’t mind not owning the system.
Choose a direct purchase if you have capital available and want maximum long-term savings, since Welton Renewables’ solar PV installation service can help you compare both routes for your site.
Real-World Example: A Small Retail Unit
Picture a retail unit spending £6,000 a year on electricity. Under a PPA, they’d pay roughly 30% less per unit, with zero installation cost.
That’s an estimated saving of £1,800 in year one, growing as grid prices rise. Over a 15-year term, total savings could reach tens of thousands of pounds, without touching their capital.
Every site differs. A tailored assessment gives exact figures for your business.
Frequently Asked Questions
1. What is a solar Power Purchase Agreement?
A contract to buy electricity from a solar system a third party owns, funds and maintains on your roof.
2. How long does a solar PPA last?
Most UK commercial PPAs run between 10 and 25 years, depending on the provider.
3. Do I own the solar panels under a PPA?
No. The provider retains ownership throughout the contract term.
4. Is a PPA cheaper than buying solar outright?
Short-term, yes, since there’s no upfront cost. Long-term, buying outright usually saves more overall.
5. Can I end a solar PPA early?
Sometimes, but exit terms vary widely. Always check the contract before signing.
6. Does a PPA include maintenance?
Yes. The provider is responsible for servicing, repairs and performance monitoring.
7. What happens to the panels at the end of the contract?
This varies by provider. Some offer a buyout option; others remove the system or extend the term.
8. Will a PPA affect my building if I move premises?
Potentially, yes. Relocating can complicate or void the agreement, so check the small print first.
9. Are PPA electricity rates fixed or variable?
Both models exist. Fixed rate PPAs lock your price; scaling PPAs increase gradually each year.
10. Is a solar PPA suitable for small businesses?
Yes, particularly those wanting solar benefits without capital outlay or ownership responsibilities.
