What is a solar panel Power Purchase Agreement (PPA)?

A solar PPA is a financing arrangement where a third-party company installs solar panels on your roof at no upfront cost. In return, you agree to buy the electricity the panels generate at a fixed rate, typically below the standard grid tariff. The third party owns the panels, claims the SEG income, and maintains the system. PPAs typically run for 20-25 years.

Are solar PPAs a good deal for homeowners in the UK?

PPAs are worth scrutinising carefully. The electricity rate you pay under a PPA is usually lower than grid import rates, so you save on bills. But you do not own the panels, so you do not benefit from rising SEG export rates or any future government incentives. You also inherit a long-term roof commitment that can complicate selling your home. For most homeowners with access to finance, owning the system outright delivers better long-term returns.

What happens when I sell my house with a solar PPA?

Selling a house with a PPA on the roof requires the buyer to either take over the remaining PPA agreement or have the PPA provider remove the panels. Many buyers are wary of inheriting a 15-20 year financial commitment, and mortgage lenders may raise concerns about the third-party roof lease. This can slow conveyancing or reduce buyer interest. It is essential to disclose the PPA to solicitors early in the sale process.

Can I buy out a solar PPA early?

Most PPA agreements include an early buyout option, but the price is usually calculated based on the remaining contract value, making early exit expensive. Some providers also allow panel removal, though this typically restores the roof but leaves you without solar generation. Always read the buyout terms before signing a PPA, and get independent legal advice if the contract period exceeds 10 years.

What is the difference between a solar PPA and a solar lease?

Both involve a third party owning the panels on your roof, but the payment structure differs. Under a PPA, you pay per kWh of electricity generated. Under a lease, you pay a fixed monthly fee regardless of how much electricity the panels produce. A PPA is more favourable in cloudy months (you pay less if generation is low). A lease gives the installer more predictable income but puts the generation risk on the homeowner.

Do commercial solar PPAs work differently from residential ones?

Yes. Commercial PPAs are more common and often more straightforward than residential ones. A business signs a long-term agreement (typically 10-25 years) with a solar developer who installs, owns, and maintains a system on the commercial roof or land. The business buys all generated electricity at a fixed or indexed rate below grid cost. Commercial PPAs are well-established in the UK market and are widely used by retailers, warehouses, and public sector organisations.

Who owns the SEG income in a solar PPA arrangement?

The PPA provider owns the panels and therefore registers for and receives all Smart Export Guarantee income on exported electricity. You only benefit from the below-market rate on electricity you consume on-site. This is one of the key financial disadvantages of a PPA compared to owning the system yourself, particularly as SEG rates from some suppliers now reach 15p/kWh or more.

What should I watch out for in a solar PPA contract?

Key things to check before signing: the length of the contract and what happens at expiry; the electricity rate and how it escalates over time (RPI-linked or fixed); the buyout formula if you want to exit early; what happens when you sell the property; who is responsible for maintenance and inverter replacement; and whether the provider is financially stable enough to honour a 25-year commitment. Always get independent legal advice before signing.

Solar Panels Power Purchase Agreement (PPA)

A Power Purchase Agreement (PPA) is an alternative to buying solar panels outright. Under a PPA, a third-party company installs solar panels on your roof for free, owns them, and sells you the electricity they generate at a fixed price (typically 12-18p per kWh). You pay only for the electricity used, not the panels themselves.

For homeowners without capital for upfront installation, PPAs sound brilliant: free solar panels, fixed electricity prices, no maintenance. But there are significant trade-offs. Understanding PPAs helps you decide whether this model or traditional ownership is right for your situation.

Contents

1 Key Takeaways
2 How Power Purchase Agreements Work
3 The Financial Model: Provider Perspective
4 PPA Advantages for Homeowners
5 PPA Disadvantages and Trade-Offs
6 Comparing PPA to Traditional Ownership
7 Financing Options Make Ownership Competitive
8 When PPAs Make Sense
9 PPA vs Traditional Ownership: A Case Study
10 Case Study: PPA Complications During Property Sale
11 Expert Insights From Our Solar Panel Installers About PPAs
12 Frequently Asked Questions
13 Summing Up

Key Takeaways

Power Purchase Agreements (PPAs) install solar panels free of upfront cost, with the PPA provider owning panels and selling you electricity at a guaranteed fixed rate
PPA electricity prices (12-18p per kWh) are typically 20-30% below current grid rates (24-30p), providing immediate savings
The PPA provider benefits from Smart Export Guarantee (SEG) payments for excess electricity, creating their revenue model
PPAs require 20-25 year commitment, after which you can negotiate buyout, removal, or contract extension
Limited availability: only a handful of UK companies offer PPAs, and they target larger homes with good solar potential
Outright solar ownership (buying panels) provides better long-term financial returns and energy independence
Zero VAT incentive (0% until March 2027) makes traditional solar purchases more attractive compared to PPAs
PPAs affect property sale or refinancing (lender must agree to the contract’s continuation)
PPA electricity is not eligible for Smart Export Guarantee income (the provider keeps that revenue)
Financing options (personal loans, green mortgages) now make traditional ownership financially accessible for most homeowners

How Power Purchase Agreements Work

A PPA is a long-term contract between you and a solar company. Here’s the structure:

Installation: The PPA provider installs a solar system on your roof at no upfront cost to you. They own the panels, inverter, and all equipment.

Electricity supply: The panels generate electricity. You consume this electricity directly (self-consumption). Any excess power exports to the grid, and the provider keeps the Smart Export Guarantee payment as part of their business model.

PPA price: You pay the provider a fixed rate per kWh consumed, typically 12-18p per kWh, guaranteed for 20-25 years.

Payments: You receive a bill showing kWh consumed at the agreed PPA rate. This is in addition to (or sometimes replacing) your grid electricity bill for non-solar consumption.

Maintenance: The provider maintains panels, repairs faults, and handles all system issues. You have zero maintenance responsibility.

Contract end: After 20-25 years, you can negotiate: buyout (purchase panels at agreed price), system removal, or contract renewal at new terms.

The Financial Model: Provider Perspective

Understanding provider economics explains PPA pricing and availability:

The provider pays upfront (£7,000-10,000 system cost) and accepts 20-25 year payback. Revenue comes from two sources: (1) PPA payments from you for electricity consumed, and (2) Smart Export Guarantee (SEG) payments for excess electricity exported.

A typical 4kW system generates 4,000 kWh annually. If you consume 60% (2,400 kWh) and export 40% (1,600 kWh), provider revenue is:

PPA: 2,400 kWh x 15p/kWh = £360 annually
SEG: 1,600 kWh x 20p/kWh = £320 annually
Total provider revenue: £680 annually

This £680 annual revenue covers their cost of capital, maintenance, inverter replacement, and profit margin. Over 20 years, total revenue is £13,600 on a £8,000 investment, providing roughly 4% annual return.

Providers make modest returns, which is why PPAs are selective about location (must be sunny enough to work) and customer credit (must be reliable payers). They’re not get-rich-quick schemes – they’re long-term, low-risk investments for PPA providers.

PPA Advantages for Homeowners

Zero upfront cost: No capital required to get solar panels installed. Completely free. For cash-poor homeowners, this is major appeal.

Fixed electricity price: PPA rate (15p/kWh) stays fixed for 20-25 years. Grid electricity prices vary (24-35p/kWh depending on market). This certainty has real value.

Zero maintenance: The provider handles all repairs, maintenance, and panel cleaning. You pay nothing extra.

Immediate savings: From day one, your PPA electricity costs less than grid electricity. If you currently pay 28p/kWh and the PPA rate is 15p/kWh, you save 13p per kWh immediately.

Environmental benefit: You use renewable electricity without investing capital or making maintenance commitments.

PPA Disadvantages and Trade-Offs

Long-term commitment: You’re locked into a 20-25 year contract with the same provider. Early exit incurs penalties. This lack of flexibility is significant.

You don’t own the panels: Panels are assets that will be worth something in 20 years. By not owning them, you miss this residual value. The provider benefits from your system’s long-term value, not you.

No Smart Export Guarantee income: Any excess electricity you export is sold by the provider, not you. You miss out on SEG revenue (£100-300 annually on a typical system). This is actually a big disadvantage over 20 years (£2,000-6,000 total).

Property complications: When you sell the house, the buyer must accept the PPA contract (assuming it has 10+ years remaining). This makes the property less attractive and may reduce sale price. Some lenders won’t finance homes with PPAs without contract buyout first.

Limited availability: Very few UK companies offer PPAs. Current options include Sunrun, Ovo Energy, and a handful of others. Many regions have no PPA providers, leaving you unable to access this option.

Not competitive with current ownership prices: With 0% VAT on solar equipment and installation (until March 2027), traditional solar ownership is now more attractive financially than it was pre-2022. This has eroded PPA appeal.

Inflation in electricity costs: Whilst your PPA rate is fixed, the value of that savings might change. If grid electricity prices fall significantly (unlikely but possible), your fixed PPA price becomes less attractive. Conversely, if prices rise, your fixed rate becomes more valuable.

Comparing PPA to Traditional Ownership

PPA vs ownership financial comparison over 25 years (4kW system, typical UK home):

Outright Ownership: £8,000 upfront cost (with 0% VAT). System generates £1,000+ annual savings (reduced bills + SEG revenue). Total 25-year benefit: £25,000-30,000 net (accounting for inverter replacement at year 12). Panels are your asset, with residual value at contract end.

PPA: £0 upfront. You save money every year (reduced electricity bills at PPA rate). Assuming 60% self-consumption at 15p/kWh vs 28p/kWh grid, annual saving is ~£300. Over 25 years: £7,500 savings. You own nothing at end of contract. Provider keeps SEG revenue and residual system value.

Ownership provides 3-4x better long-term returns. However, PPA is superior if you have zero capital available and can’t access financing.

Financing Options Make Ownership Competitive

The real reason PPAs are less attractive now: financing options have improved dramatically.

Personal loans: Borrow £8,000 at typical 4-6% interest to purchase solar panels. Loan payments (£150-180 monthly over 5 years) are offset by electricity savings (£80-100 monthly). Net cost: £50-80 monthly, with panels owned outright after 5 years and generating free electricity thereafter.

Green mortgages: Some lenders offer cheaper rates on mortgages that fund energy efficiency improvements including solar (typically 0.5% rate discount). On a £8,000 borrowed over 20 years at this discount, you save £800+ vs standard rates.

Equity release: If you own a home, you may have sufficient equity to borrow against for solar installation. Interest rates are typically favourable compared to unsecured lending.

With these financing options available, the traditional ownership model with borrowing is often better than PPAs.

When PPAs Make Sense

PPAs are best suited to:

Homeowners with no upfront capital and no access to financing: If you genuinely cannot borrow and have no savings, a PPA eliminates the capital barrier.

Renters with landlord permission: If you rent and the landlord permits temporary installation with removal, a PPA is simpler than dealing with rental property solar ownership.

Properties where ownership is complicated: Some properties (shared ownership, complex legal structures) may have barriers to ownership but allow PPA since the provider handles legal complexity.

Homeowners prioritising simplicity over returns: If you don’t want to manage a solar system, deal with maintenance, or monitor performance, PPA hands this all to the provider. This convenience has value if you prefer not to be involved.

For most UK homeowners with access to even modest financing, traditional ownership now provides better returns than PPAs.

PPA vs Traditional Ownership: A Case Study

Background

Two similar properties in Greater London. Homeowner A has £8,000 savings and is considering a PPA. Homeowner B chooses to purchase outright.

PPA Scenario (Homeowner A)

Accepts PPA at 15p/kWh, 25-year term. Zero upfront cost. Annual PPA electricity: 2,400 kWh at 15p = £360. Grid electricity avoided at 28p would cost £672, so annual saving £312. After 25 years: total savings £7,800, plus £8,000 still in savings account = £15,800 net position. Panels removed, nothing owned.

Ownership Scenario (Homeowner B)

Purchases 4kW system for £8,000 (with 0% VAT). Annual benefits: £800 in reduced electricity bills + £300 SEG revenue = £1,100. After 25 years: total generation benefit £27,500. Minus inverter replacement at year 12 (£2,500) and panel cleaning/minimal maintenance (£500), net benefit is £24,500. Plus residual system value (panels worth £2,000-3,000 after 25 years) = £26,500+ net position. Owns system, continues generating free electricity.

Comparison

Ownership provides £10,700+ better financial outcome (£26,500 vs £15,800). However, Homeowner A preserved £8,000 of capital, which might have other uses. The choice depends on whether capital preservation or financial return is prioritised.

Case Study: PPA Complications During Property Sale

Background

A homeowner in Surrey had a PPA system with 15 years remaining on the contract. She sold the house and the buyer’s lender required PPA buyout before completing the mortgage.

Issue

PPA provider quoted £12,000 to terminate the contract early. This reduced the property sale price by more than the buyout cost (lenders value PPA properties lower). The homeowner lost money to the PPA’s early exit clause.

Lesson

PPA contracts include early termination fees that can be expensive. When selling a property mid-PPA, these fees can reduce your equity and complications arise with mortgage lenders. This is a significant risk that ownership avoids.

Expert Insights From Our Solar Panel Installers About PPAs

One of our installers with experience advising clients on both PPAs and ownership shared: “PPAs solve a real problem for cash-poor homeowners, but they’re not optimal financially. The PPA provider is making money on what should be your investment. With 0% VAT now available on purchases and financing options available, I recommend ownership through borrowing over PPAs in most cases. The traditional ownership model provides better long-term returns and avoids the complications of fixed 20-year contracts.”

Frequently Asked Questions

Is a PPA worth it compared to buying solar panels?

Financially, no. Traditional ownership provides 3-4x better 25-year returns (£26,000+ vs £8,000). However, if you have zero capital and can’t access financing, PPAs eliminate the upfront barrier. For homeowners who can borrow (via personal loan, mortgage, or equity release), ownership is superior. PPAs are worth considering only if you genuinely cannot access any form of financing.

What happens to a PPA when I sell my house?

The PPA contract transfers to the new owner. They must accept the remaining PPA term and continue PPA payments. Many lenders won’t finance homes with active PPAs without buyout first. This creates complications and reduces property value. You can offer to buyout the PPA (typically expensive, £8,000-15,000) to ease the sale. This property complication is a significant disadvantage of PPAs.

Can I leave a PPA contract early?

Yes, but there are typically substantial early termination fees (£5,000-12,000 depending on time remaining). These fees recover the provider’s upfront investment and opportunity cost. Most people keep PPAs for the full 20-25 years because leaving early is more expensive than staying. This inflexibility is a significant downside of PPAs.

Do I receive Smart Export Guarantee payments from a PPA?

No. The PPA provider keeps SEG payments for excess electricity you export. You pay only for the electricity you consume. This is a significant disadvantage – over 25 years, missing SEG revenue costs £2,000-6,000 compared to ownership. This is one of the key reasons ownership is financially superior to PPAs.

How is a PPA rate fixed?

The PPA provider guarantees a set price per kWh (typically 12-18p) for the entire 20-25 year contract. This rate doesn’t change regardless of grid electricity prices. This provides certainty – you know your electricity cost years in advance. However, if grid prices fall, your fixed rate becomes less attractive. Historically, electricity prices trend upward, making fixed PPAs attractive, but future price movements are unknowable.

Can I get a PPA if I rent my home?

Only if your landlord permits it. The PPA provider installs panels on a rented property (you don’t own it), and the contract is between you and the provider (not the landlord). Some landlords prohibit this. Check your tenancy agreement and ask your landlord before approaching PPA providers. PPA availability for renters is limited since many landlords don’t permit permanent installations.

What happens after my PPA contract ends?

At end of contract (year 20-25), you negotiate with the provider for: (1) buyout – you purchase the system at agreed residual value, (2) removal – they remove all equipment (panels become theirs), or (3) renewal – you sign a new contract at new terms (likely higher price). Most homeowners negotiate buyout to own the system outright and continue generating free electricity.

Are there financing alternatives to PPAs?

Yes, many. Personal loans at 4-6% interest typically cost less than PPA revenue loss over 25 years. Green mortgages offer discounted rates for energy efficiency improvements. Equity release on home equity is typically cheaper than PPA providers’ cost of capital. With 0% VAT available, financing traditional ownership and repaying over 5-10 years is often financially superior to 25-year PPAs. Explore financing options before accepting PPAs.

Summing Up

Power Purchase Agreements (PPAs) solve the upfront capital barrier for homeowners without savings or access to financing. They provide fixed electricity prices and zero maintenance. However, they’re financially inferior to traditional ownership (providing 3-4x lower 25-year returns), lock you into long-term contracts, complicate property sales, and forfeit Smart Export Guarantee income. For most UK homeowners with access to financing (personal loans, mortgages, equity release), traditional solar ownership is superior financially and practically. PPAs are worth considering only if you genuinely cannot access any form of financing and want to avoid capital investment entirely.

Updated April 2026