Factory Solar Financing UK: Complete Guide to Paying for Industrial Solar 2025

Option	Upfront Cost	Ownership	Best For
Cash Purchase	100%	Immediate	Maximum ROI, ECA claims
Commercial Loan	0-20%	Immediate	Preserve cash, still own asset
Finance Lease	0%	End of term	Off-balance sheet, tax deductible
Operating Lease	0%	Never	No ownership risk, fixed costs
PPA	0%	Never	Zero capital, immediate savings

Financing solar panels for factories isn't one-size-fits-all. The optimal choice depends on your company's financial position, tax situation, balance sheet preferences, and risk appetite.

This guide examines each option in detail, including real-world examples and the financial implications for UK manufacturers.

Option 1: Cash Purchase (Capital Expenditure)

Outright purchase delivers the highest overall returns and maximum flexibility. For profitable companies, the Enhanced Capital Allowance (ECA) makes this option even more attractive.

Cash Purchase Advantages

Maximum ROI: No interest or fees - all savings go to you
100% ECA tax relief: Deduct full cost in year one (25% effective rebate for profitable companies)
Full ownership: Asset on your balance sheet from day one
SEG income: Export payments come directly to you
Flexibility: No restrictions on modifications or use
No ongoing commitments: Beyond maintenance, no further payments

Cash Purchase Example: 500kW Factory System

Investment

System cost: £475,000
ECA tax relief (25%): -£118,750
Effective cost: £356,250

Returns (Year 1)

Annual savings: £108,000
Payback period: 3.3 years
25-year NPV: £1.85M

When Cash Purchase Makes Sense

Company is profitable and can use ECA tax relief
Strong cash reserves or access to low-cost capital
Want maximum long-term returns
Prefer owning assets outright
Planning to hold property long-term

For detailed cost breakdowns, see our Factory Solar Panel Costs UK 2025 guide.

Option 2: Commercial Solar Loan

Solar-specific loans preserve your cash while still providing asset ownership and tax benefits. Many lenders offer favourable terms for renewable energy projects.

Commercial Loan Advantages

Preserve working capital: Keep cash for operations or other investments
Immediate ownership: Asset goes on your balance sheet
ECA eligible: Full tax relief still available
Interest tax deductible: Loan interest reduces taxable profit
Cash-positive from day one: Energy savings typically exceed loan payments

Typical Commercial Solar Loan Terms

Feature	Typical Range
Loan term	5-15 years
Interest rate	5-9% (depending on credit profile)
Deposit required	0-20%
Security	Solar system (asset finance) or unsecured
Early repayment	Usually permitted with small penalty

Loan Example: 500kW System with 7-Year Finance

Financing Structure

System cost: £475,000
Deposit (10%): £47,500
Loan amount: £427,500
Interest rate: 7%
Monthly payment: £6,450

Cash Flow Analysis

Annual loan cost: £77,400
Annual savings: £108,000
Net annual benefit: +£30,600
ECA relief (Year 1): £118,750

Result: Cash-positive from day one. After loan payoff, full £108,000/year savings retained.

Option 3: Finance Lease

A finance lease is a rental agreement where you use the equipment for most of its useful life, with an option to purchase at the end. The lessor retains legal ownership, but the asset may appear on your balance sheet under IFRS 16.

Finance Lease Characteristics

No upfront capital: 100% financing with regular payments
Fixed payments: Budget certainty for lease term
Ownership option: Purchase at end for nominal sum (typically £1-1000)
Balance sheet treatment: Asset and liability both recorded (IFRS 16)
Lease payments tax deductible: Reduces taxable profit

Finance Lease Limitations

No ECA benefit: Cannot claim Enhanced Capital Allowances (lessor claims instead)
Total cost higher: Interest equivalent embedded in payments
Balance sheet impact: Creates lease liability under IFRS 16
Exit restrictions: Early termination can be costly

Option 4: Operating Lease

An operating lease is a short-term rental (relative to asset life) where the lessor retains risks and rewards of ownership. Less common for solar but available through some providers.

Operating Lease Characteristics

Off-balance sheet: May qualify for operating lease treatment under certain conditions
No ownership: Equipment returned at end of term
Maintenance included: Often bundled with service
Flexibility: Potentially upgrade or terminate easier
Fully tax deductible: Entire payment is operating expense

Operating leases for solar are less common because panels have 25+ year lifespans, making long-term arrangements more economical.

Option 5: Power Purchase Agreement (PPA)

A PPA is fundamentally different from other options: you don't own or lease the system. Instead, a third party installs solar on your roof at their expense, and you simply buy the electricity generated at an agreed rate.

How a Solar PPA Works

1. Installation: PPA provider installs system on your roof at zero cost to you
2. Operation: Provider owns, maintains, and insures the system
3. Purchase: You buy generated electricity at agreed price (typically 15-25% below grid)
4. Duration: Contracts typically 15-25 years
5. End of term: Options usually include purchase, renewal, or removal

PPA Advantages

Benefits

Zero capital investment
No maintenance responsibility
Immediate electricity savings
No technology risk
Off-balance sheet
Predictable energy costs

Drawbacks

Lower total savings (provider takes profit)
No ECA tax benefit
Long-term commitment
Roof use restrictions
Complexity if selling property
No asset ownership

PPA vs Purchase: 25-Year Comparison

Metric	Cash Purchase	PPA
Upfront cost	£475,000	£0
Year 1 savings	£108,000	£27,000 (25% discount)
ECA tax relief	£118,750	£0
25-year total benefit	~£2.4M	~£675,000
Asset ownership	Yes	No

When a PPA Makes Sense

No capital available for solar investment
Company not profitable (cannot use ECA)
Don't want equipment ownership responsibility
Tenant without landlord willing to invest
Short-term property tenure (may transfer PPA)

Financing Decision Framework

Use these questions to identify the best financing option for your factory:

Question 1: Is your company profitable?

Yes: Purchase or loan to maximise ECA benefit

No: PPA or lease may be preferable (no ECA to lose)

Question 2: Do you have capital available?

Yes: Cash purchase delivers highest returns

No: Loan, lease, or PPA based on other factors

Question 3: Do you want asset ownership?

Yes: Purchase or loan

No: Operating lease or PPA

Question 4: What's your planning horizon?

Long-term (10+ years): Purchase or loan maximises value

Medium-term (5-10 years): Loan or lease provides flexibility

Uncertain: PPA offers transferability options

Enhanced Capital Allowances: The Game Changer

The ECA scheme makes capital purchase significantly more attractive for profitable companies. Understanding this benefit is essential for financing decisions.

ECA Benefit Calculation

100% of qualifying solar investment can be deducted from taxable profits in year one.

Example: £500,000 system x 25% corporation tax = £125,000 tax saving

Effective cost reduction: 25% (for companies paying full corporation tax)

For more on grants and incentives, see our Industrial Solar Panel Grants UK 2025 guide.

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Factory Solar Financing UK: Complete Guide to Paying for Industrial Solar

Financing Options at a Glance