Commercial solar funding: PPA vs CapEx vs Energy-as-a-Service

Navigating the Funding Landscape for Commercial Solar in the UK

For UK businesses with suitable roof space or land, on-site solar is a proven route to reduce energy costs and emissions. However, choosing between CapEx, Power Purchase Agreements (PPAs), and Energy-as-a-Service (EaaS) models is not straightforward. Each approach affects the balance sheet, risk profile, and return on investment differently. With the UK’s energy market undergoing structural change—driven by Ofgem’s MHHS reforms, rising TNUoS charges, and the shift to a decarbonised grid—selecting the right model is critical. TUS Group’s experience managing 150+ GWh under flexible energy contracts highlights that the best choice depends on financial capacity, risk tolerance, and strategic objectives.

CapEx: Full Ownership, Full Control

CapEx involves the business financing the entire solar installation from its own capital. This model offers the highest long-term return, as the organisation owns the asset, captures all generation benefits, and can claim Renewable Obligation (RO) certificates or Renewable Energy Guarantees of Origin (REGO) for export or self-consumption. For larger businesses with strong balance sheets and access to green loans or internal capital, this route can deliver a 10–15% internal rate of return over 20 years.

However, CapEx requires upfront investment—typically £100,000 to £500,000 for a 1–5 MW system—along with ongoing maintenance and insurance responsibilities. It also ties up capital that could be deployed elsewhere. For companies with limited liquidity or those prioritising capital efficiency, this model may not be viable. The UK’s current energy market volatility, including the 2023–24 price spikes, further amplifies the risk of capital lock-in during periods of low energy prices.

Power Purchase Agreements: Off-Balance-Sheet, Low Risk

PPAs allow a third-party developer to install and own the solar system, while the business agrees to purchase the generated electricity at a fixed or indexed rate over 10–20 years. This model is popular among mid-sized businesses seeking predictable energy costs without capital outlay. TUS Group’s analysis shows that PPAs typically deliver 15–25% below grid prices, with 30+ supplier panel options ensuring competitive terms.

PPAs are structured to be off-balance-sheet, improving financial ratios and freeing up capital. The developer assumes responsibility for maintenance, insurance, and grid connection, reducing operational burden. However, the business forfeits ownership and any potential RO or REGO benefits. Additionally, PPA pricing may not fully reflect market volatility, and early termination clauses can carry penalties. For businesses with stable energy demand and long-term site tenure, PPAs offer a low-risk, high-visibility path to decarbonisation.

Energy-as-a-Service: Fully Outsourced, Performance-Based

EaaS is an evolution of the PPA model, where the provider manages the entire lifecycle of the solar system—from design and installation to operation, maintenance, and performance guarantees. Unlike a standard PPA, EaaS often includes additional services such as battery storage integration, demand response, and real-time monitoring via platforms like Yolk, TUS Group’s free energy management portal.

This model is ideal for organisations with limited in-house expertise or those seeking a hands-off approach. It typically includes a performance guarantee, ensuring that the system delivers a minimum level of output. TUS Group’s clients report an average 27% saving on energy procurement through EaaS arrangements, with no capital outlay and full risk transfer to the provider.

However, EaaS contracts are often longer-term (15+ years), and exit options may be limited. The provider’s margin is built into the pricing, which can reduce the overall saving compared to a self-owned system. For businesses prioritising operational simplicity and guaranteed outcomes, EaaS is increasingly the preferred choice.

Leasing, Green Loans, and Government Incentives

Leasing offers a middle ground between CapEx and PPA, where the business pays a fixed monthly fee to use the system. It is off-balance-sheet in many cases, but lease terms can be restrictive, and residual value is usually retained by the lessor. Green loans are another option, offering lower interest rates for energy efficiency projects under the UK’s Green Finance Strategy. These are available through providers like the British Business Bank and can be used to fund CapEx.

Government incentives remain limited post-FiT and RO closures. However, the Contracts for Difference (CfD) scheme now includes small-scale projects under 5 MW, and the Smart Export Guarantee (SEG) allows small generators to earn income from exporting surplus power. While not a direct funding route, these mechanisms can improve project economics, especially when paired with battery storage.

Choosing the Right Model: A Decision Framework

The optimal solar funding route depends on three core factors:

• Balance sheet strength: Businesses with strong liquidity and low leverage may benefit from CapEx. Those with tighter capital constraints should consider PPA or EaaS.

• Risk appetite: CapEx exposes the business to technology, performance, and market risk. PPA and EaaS transfer these to the provider, reducing financial exposure.

• Strategic objectives: If the business aims to demonstrate net-zero progress or build internal energy resilience, ownership (CapEx) may be preferable. For those focused on cost reduction and operational simplicity, EaaS is often superior.

TUS Group’s 30+ supplier panel and 150+ GWh of managed energy enable data-driven comparisons across models, ensuring clients achieve the best outcome. Our analysis shows that, over the last 12 months, businesses using flexible models like PPA or EaaS beat supplier projections by 20% on average.

Bottom line

There is no one-size-fits-all solution for commercial solar deployment in the UK. CapEx offers long-term ownership and returns but requires capital and risk management. PPAs provide cost stability and off-balance-sheet benefits with moderate control. EaaS delivers a fully outsourced, performance-based solution with minimal operational burden. The choice should align with financial capacity, risk tolerance, and decarbonisation goals. With TUS Group’s market intelligence and supplier network, businesses can make an informed decision backed by real-world performance data.

FAQs

What’s the difference between a PPA and EaaS?

A PPA is a contract to buy electricity at a fixed rate, with the developer owning the asset. EaaS includes the PPA but adds full service management, performance guarantees, and often battery integration, making it a more comprehensive solution.

Can I switch from CapEx to a PPA later?

Yes, but it may involve exit fees or asset transfer costs. It’s better to plan the model upfront based on long-term strategy.

Are there government grants for commercial solar in 2024?

Direct grants are limited post-FiT and RO. However, the Smart Export Guarantee (SEG) and CfD scheme offer income streams, and green loans are available through the British Business Bank.