Power Purchase Agreements & Procurement

Power purchase agreements and procurement for business

A power purchase agreement, or PPA, is a long-term contract to buy electricity at an agreed price, and for many UK businesses it is the route to clean, cheaper power without touching the capital budget. In an on-site PPA a funder installs and owns solar or other generation on your roof or land at zero capex, and you buy the power it produces at a fixed rate below the grid price. In a corporate or sleeved PPA you contract clean power from an off-site wind or solar farm through a licensed supplier. Either way you fix a large part of your energy cost for the long term and take a defensible carbon claim, without the balance-sheet commitment that stops many boards saying yes.

We are independent across every renewable technology, so our job here is not to sell you one structure but to model the honest cost of each. A power purchase agreement is one of several ways to fund the same generation, and it is not always the cheapest over the full life of the kit. What it does is remove the upfront barrier and shift the ownership, maintenance and performance risk to the funder. Whether that trade is worth it depends on your cost of capital, your appetite for owning assets, and how long you expect to occupy the site. We put PPA, asset finance and cash purchase side by side so the decision is made on numbers, not on whichever option a single-product supplier happens to offer.

Why procurement matters now

Commercial electricity in the UK now costs roughly 25 to 45p per kWh, around double what it was in 2021, and it erodes margin on every unit consumed. At the same time customers, investors, lenders and tender scoring increasingly ask what a business is doing about its carbon. A well-structured procurement route answers both questions at once: it locks in a lower, predictable unit price for a decade or more, and it delivers a clean-power claim that stands up to scrutiny. The businesses getting this right treat the funding decision as part of the energy strategy, not an afterthought bolted on once the technology is chosen.

How a power purchase agreement works

On-site PPA

An on-site PPA is the simplest to picture. A funder pays for and owns a solar array, or occasionally another form of generation, installed on your roof, car park or land. You host the equipment and sign a long-term agreement to buy the electricity it generates at a fixed unit rate, typically set below what you would pay the grid. You pay nothing upfront and nothing for maintenance; the funder carries the capital cost, the installation, the insurance and the performance risk, and recovers its return through the power you buy.

Because the power is generated and used on the same site, you avoid the grid and network charges that load the delivered cost of imported electricity, which is why the PPA rate can sit comfortably below your standing supply price. You only pay for the units the system produces and you consume, so the arrangement scales naturally with your generation. Any surplus is typically exported and handled by the funder, or a battery can be added to lift the share you use on site.

Corporate and sleeved PPA

A corporate PPA contracts clean power from a large off-site renewable project, usually a wind or solar farm, that you do not host. Because you cannot physically wire that farm to your meter, a licensed electricity supplier “sleeves” the power to you: they take the generator’s output, match it against your consumption, and deliver it through your normal supply with the green attributes and REGO certification attached. You agree a fixed price with the generator for a long term, often ten years or more, which insulates you from wholesale market swings.

Sleeved and corporate PPAs suit businesses that want large volumes of renewable power, cover across multiple sites, or a hedge against energy-price volatility that a single rooftop cannot provide. They are more complex to arrange than an on-site PPA and generally make sense at higher consumption levels, but they open renewable procurement to firms whose own roofs and land cannot host enough generation to matter.

The additionality point

The reason a PPA carries more ESG weight than a green energy tariff comes down to additionality. A conventional green tariff for business is usually backed only by REGO certificates purchased on the open market. Those certificates do not fund any new renewable capacity, and their value as a carbon claim is widely regarded as weak, increasingly so as reporting frameworks tighten. An on-site PPA, and a genuinely additional corporate PPA that underwrites new-build generation, funds real new clean power onto the grid. That is a credible, auditable claim for SECR, CDP and the customer and investor questionnaires that now drive supply-chain decisions. When we model a procurement route we are explicit about the strength of the resulting carbon claim, not just the price.

Sizing and economics

A power purchase agreement is a funding route rather than a technology, so the “size” is really the size of the generation behind it and the shape of your demand. The headline figure that matters to most boards is simple: an on-site PPA delivers on-site generation at £0 capital cost, because the funder owns the kit. There is no payback period to calculate on your side, because there is no upfront outlay to recover; instead you compare the fixed PPA unit rate against your projected grid price over the term, and against the net cost of owning the same system yourself.

That comparison is where the real work lies, and it is why we model three routes side by side:

• Cash purchase. You buy the system outright. Highest upfront cost, lowest lifetime cost per unit, and you keep the full benefit of 100% Annual Investment Allowance and, for larger firms, Full Expensing, which recovers roughly a quarter of the capex through corporation tax relief. VAT is separately reclaimable if you are VAT registered. You carry the maintenance and performance risk, and you own an asset that adds value to the building.
• Asset finance. You own the system but spread the cost over five to seven years. Structured well, the energy saving exceeds the finance repayment, so the project is cash-flow positive from month one while still capturing the capital allowances and eventual ownership.
• On-site PPA. Zero capex and zero maintenance burden, with a fixed unit rate below grid from day one. You do not own the asset and you do not claim the allowances, since the funder does, so the lifetime cost per unit is usually higher than owning. What you buy is certainty and the removal of the balance-sheet barrier.

To make the comparison honest we size the underlying generation from your half-hourly meter data, not from your roof area or a nameplate figure. As a rough guide, one kWp of solar needs about 5 to 6 square metres and yields roughly 900 to 1,000 kWh a year in the UK, and a commercial system runs from around £600 to £1,300 per kWp installed. Those numbers set the funder’s capital base and therefore the PPA rate they can offer. A representative on-site PPA on a mid-sized commercial roof might fix your rate for the generated units well below your current grid price while requiring nothing upfront, but the precise figures always come from modelling your actual load, which we share with you in full.

For a worked view of how these funding structures compare on a specific commercial solar project, our sister specialists at commercialsolarfinance.co.uk go deeper into the finance side.

Funding and grants

The tax reliefs and grants that shape the economics differ depending on whether you own the kit or take it on a PPA, and this is often the deciding factor. When you own generation, whether through cash or asset finance, the primary lever is 100% Annual Investment Allowance and Full Expensing, which lets a profitable company deduct the full cost of qualifying plant and machinery, including solar PV, batteries, heat pumps and EV chargepoints, from taxable profit. That recovers a meaningful share of the outlay through tax, and VAT is reclaimable on top for VAT-registered businesses.

Under an on-site PPA the funder owns the equipment, so the funder claims those allowances, not you. That is not a loss so much as a difference: the value of the allowances is one of the inputs a funder uses to price the deal, so it feeds into the rate you are offered. The Smart Export Guarantee, which pays for surplus power exported to the grid, is similarly captured by whoever owns the system. Where a business hosts EV charging alongside PPA-funded solar, the Workplace Charging Scheme and the EV infrastructure grant can still apply to the charging hardware you install, since those are separate from the generation.

For public-sector bodies the picture changes again: the Public Sector Decarbonisation Scheme and Salix funding, and for energy-intensive manufacturers the Industrial Energy Transformation Fund, may make grant-supported ownership more attractive than a PPA. We check every route that applies to your organisation before recommending a structure, and we set out clearly who captures which relief under each option. Our grants and funding page covers the schemes in full.

Compliance and grid connection

An on-site PPA involves the same technical and regulatory steps as any on-site generation project, with a few extra contractual points because a third party owns the asset. On-site PPA terms typically run 15 to 25 years, with defined buy-out and end-of-term options written in at the start: a schedule to purchase the system during the term, an option to take ownership at the end, an extension, or removal of the equipment. We review these terms so you know exactly what you are committing to and what your exit looks like.

For landlords and tenants, the roof or land lease and its interaction with the Minimum Energy Efficiency Standards (MEES) need care. A long PPA sits on the building, so the lease has to accommodate the funder’s right to access and maintain the equipment for the full term, and any sale or lease event has to deal cleanly with the agreement. Where a landlord hosts generation that serves a tenant, or a tenant wants a PPA on a landlord’s roof, the split of benefit, cost and consent has to be agreed up front. These are solvable, but they are the sort of detail that derails a deal late if it is not addressed early.

On the technical side, on-site generation follows the usual grid rules: small systems use the G98 or G99 fast-track, while most commercial generation and storage need a full G99 application to the Distribution Network Operator, with G100 export or import limiting used to secure a connection quickly and avoid costly reinforcement. Connection timescales run from around 4 to 12 weeks for small systems to 6 to 18 months for large ones, so applications go in early. For corporate and sleeved PPAs the grid work sits with the off-site generator and the licensed supplier; your obligation is the sleeving contract and the associated REGO certification that underpins the green claim.

When a PPA does and does not suit a business

We would rather tell you a PPA is the wrong tool than sell you one, so here is the honest view.

When a PPA fits well

A power purchase agreement suits a business that has good generation potential, a roof, car park or land with matching daytime load in the on-site case, but cannot or does not want to commit the capital, or would rather keep its balance sheet and borrowing capacity for its core operation. It fits organisations that value price certainty and want to offload maintenance and performance risk to a specialist funder. And it suits firms that need a credible additionality claim for reporting and tenders but do not want to become owners of energy infrastructure. A corporate or sleeved PPA fits larger consumers who want renewable cover at volume, or across sites, that no single rooftop could provide.

When ownership is the better call

If your business is profitable, has access to reasonably priced capital or asset finance, and expects to occupy the site for the long term, owning the system almost always wins on lifetime cost. The capital allowances, the export income and the residual asset value all accrue to the owner, and asset finance can make ownership cash-flow positive from month one without any capex, capturing most of the PPA’s benefits while keeping the upside. A PPA also makes less sense on a very short remaining lease, where the 15 to 25 year term does not fit, or where your consumption is too small for a corporate PPA to be worth its complexity. And no funding structure rescues a poor underlying project: if the roof, the load shape or the grid connection do not stack up, the answer is to fix the fundamentals or spend elsewhere first, not to wrap a weak project in a clever contract.

How PPAs fit the wider renewable stack

Procurement is the last of the five moves in a sensible business renewable strategy: measure and reduce, generate, store and shift, electrify heat and transport, then fund and procure. A PPA is one of the funding tools in that final step, and it works best when the generation behind it has been sized correctly against a demand that has already been trimmed.

That sequencing means a PPA rarely stands alone. It most often funds commercial solar, the single biggest lever for most businesses, and it pairs naturally with battery storage to lift the share of PPA-generated power you use on site rather than export. Where the PPA funds solar that also charges vehicles, EV charging lets a fleet or staff run on clean power at a few pence per kWh instead of forecourt fuel. It complements heat pumps, which remove Scope 1 gas that on-site solar alone cannot touch, and it is far more effective when energy management has already cut waste so the funded system is sized to a lower, well-managed demand. For sites where an off-site contract makes more sense than a rooftop, a corporate PPA can sit alongside on-site wind or CHP as part of the same procurement plan. We design these as one integrated system with a single funding strategy, not as a stack of separate deals.

How we work

We start with your data and your goals, not a product. We pull your half-hourly meter data, look at your building, load profile and tenure, and model the honest cost of a power purchase agreement against cash purchase and asset finance, with the fixed rate, the lifetime cost per unit, the carbon claim and the exit terms of each set out plainly. We tell you which route we would choose and why, and we tell you when a PPA is the wrong answer for your situation. Every figure comes from modelling we share, the work is MCS-certified and covered by an insurance-backed warranty, and there is no obligation to proceed. For a costed, independent comparison of your funding options, request a quote and we will build the numbers around your site. You can also see indicative figures on our cost page.