Commercial solar funding: PPA, CapEx and Energy‑as‑a‑Service for UK businesses

Thesis

Choosing the right financing model for a commercial solar installation is a strategic decision that balances upfront capital, risk exposure and the ability to capture value over the asset’s life. In the UK, a mix of regulatory incentives, market‑based contracts and emerging Energy‑as‑a‑Service (EaaS) platforms means there is no one‑size‑fits‑all solution.

The three primary routes

Capital‑expenditure (CapEx) purchase

A CapEx purchase means the business funds the entire system upfront, either from cash reserves or a dedicated loan. The asset sits on the balance sheet, and the company owns the electricity generated, the Renewable Energy Guarantees of Origin (REGO) certificates and any export revenue under the Smart Export Guarantee (SEG).

Pros

• Full control of the asset and all revenue streams.
• Eligibility for accelerated capital allowances under the SECR regime, allowing up to 100 % of the cost to be written‑off over 12 months.
• No long‑term contractual lock‑in; the business can optimise the system as market conditions evolve.

Cons

• Significant upfront capital outlay, which can strain cash flow.
• Exposure to performance risk – if the system under‑delivers, the return on investment falls.
• Ongoing O&M responsibility unless outsourced.

Power‑Purchase Agreement (PPA)

A PPA is a long‑term contract (typically 10‑15 years) where a third‑party developer installs, owns and operates the solar farm, and the business agrees to purchase the electricity at a pre‑agreed price, often indexed to the wholesale market.

Pros

• Zero upfront capital – the developer bears the installation risk.
• Predictable energy cost trajectory, useful for budgeting under the SECR reporting requirements.
• The developer usually secures the REGO and SEG revenues, reducing administrative burden.

Cons

• Contractual rigidity – early exit can be costly.
• The agreed price may lag behind market declines, especially after the recent 20 % drop in wholesale electricity prices.
• Limited ability to benefit from ancillary services such as voltage optimisation, where TUS typically delivers 5‑15 % savings with a 2‑3 year payback.

Energy‑as‑a‑Service (EaaS)

EaaS bundles the solar asset, financing, installation, operation and performance guarantees into a single service contract. The provider retains ownership, but the client pays a fixed monthly fee that covers both electricity and a performance‑based uplift.

Pros

• Combines the cash‑flow simplicity of a PPA with the performance guarantees of a CapEx model.
• Providers often include advanced monitoring and flex‑management; TUS currently manages over 150 GWh of flexibly‑controlled generation, beating supplier forecasts by 20 % in the last 12 months.
• The service fee can be structured to align with the client’s ESG targets, leveraging the free Yolk portal where the average switching saving is 27 %.

Cons

• Higher overall cost than a pure CapEx purchase, as the provider embeds financing margins.
• Dependence on the provider’s O&M capability; any lapse can affect the agreed service level.
• Complexity in contract negotiation, particularly around data ownership and regulatory compliance.

Alternative routes worth considering

Leasing

Leasing mirrors a PPA but the lessee retains the right to purchase the asset at the end of the term. It offers modest capital relief while preserving a future ownership option.

Green loans

Green loans, often supported by the UK Green Finance Strategy, provide lower‑interest financing for renewable projects. Interest rates can be 0.5‑1 % below standard corporate loans, improving the net present value of a CapEx purchase.

UK incentives and regulatory backdrop

• Smart Export Guarantee (SEG) – guarantees a minimum export tariff for electricity fed back to the grid, applicable to installations commissioned after 1 April 2020.
• Renewable Energy Guarantees of Origin (REGO) – tradable certificates that can be monetised or used to meet corporate sustainability commitments.
• SECR – requires large UK companies to report energy use and carbon emissions; solar generation directly reduces reported Scope 2 emissions.
• Carbon Capture and Storage (CCS) levy – not directly relevant to solar, but the broader policy environment encourages low‑carbon generation.
• Capacity Market – solar projects can bid into the Capacity Market, providing an additional revenue stream for reliable output.
• Transmission and Distribution Use of System (TNUoS & DUoS) – charges apply to exported electricity; careful site selection can minimise these fees.
• DESNZ – the Department for Energy Security and Net Zero continues to fund the Renewable Heat Incentive (RHI) transition and supports solar through the UK’s Net Zero Strategy.

How to match the route to your balance‑sheet and risk profile

Risk appetite	Cash‑flow preference	Recommended route
Low – prefers no capital outlay	Predictable monthly expense	PPA or EaaS
Medium – willing to take some upfront cost for higher upside	Mix of upfront and service fee	Leasing + green loan
High – strong balance sheet, seeks full control	Capital available	CapEx purchase

When evaluating, factor in:

1. Weighted average cost of capital (WACC) – a higher WACC favours low‑capex models.
2. Regulatory exposure – ensure the contract accounts for future changes to SEG rates or TNUoS charges.
3. Performance guarantees – TUS’s flex‑management track‑record (150 GWh managed, 20 % better than supplier forecasts) can be a decisive differentiator for EaaS contracts.
4. ESG reporting – REGO and Yolk portal data simplify ESG disclosures under the UK Corporate Governance Code.

TUS Group’s added value

• Panel depth – Access to a 30‑plus supplier panel ensures competitive pricing and the ability to benchmark offers.
• Data‑driven optimisation – Our voltage optimisation service routinely delivers 5‑15 % savings with a 2‑3 year payback, complementing solar generation.
• Free switching portal – Through Yolk, clients have achieved an average 27 % saving when switching suppliers, reinforcing the financial case for any solar financing route.
• Flexibility expertise – Managing 150 GWh of flexibly‑controlled generation means we can integrate solar output with demand‑side response, unlocking additional revenue streams in the capacity market.

Bottom line

For UK businesses, the optimal solar financing route hinges on cash‑flow constraints, risk tolerance and the desire to capture ancillary revenue streams. CapEx offers maximum upside and ESG clarity but demands capital. PPAs provide zero‑upfront risk with fixed pricing, while EaaS blends predictability with performance guarantees and can leverage TUS’s proven flex‑management expertise. Assess your WACC, regulatory exposure and ESG goals, then align them with the financing model that delivers the best net present value.