Something we have been hearing more from our customers recently, is the recognition that they need to do something about generating more renewable energy, but that they are struggling to get the investment from the business. We have been encouraging our customers to explore multiple options and find the best solution to fit their individual situation.
There are several ways for UK businesses to fund solar PV installations. Here’s a guide to the key funding options available.
1. Direct Capital Purchase
For businesses with the cash reserves, a direct capital purchase is one of the most straightforward funding options. By purchasing the system outright, the business retains full ownership, allowing it to take advantage of energy savings, government incentives, and tax reliefs. This approach also provides long-term returns on investment and maximises control over the solar assets.
Pros:
Full ownership of the system
Eligibility for tax incentives and energy savings
Long-term financial returns and higher asset value
Cons:
High upfront cost
Requires available capital or financing arrangements
2. Power Purchase Agreement (PPA)
A popular option for large businesses, a Power Purchase Agreement (PPA) allows a third-party provider to install, own, and maintain the solar PV system on-site at no upfront cost to the business. However, the provider takes a 20-year charge on the roof. The business agrees to buy the electricity generated at a fixed rate, often lower than grid prices, helping it reduce energy expenses while maintaining a steady budget. With a PPA, there’s no capital investment, and maintenance is handled by the provider, making it an attractive option for companies with high energy demands.
Pros:
No upfront cost to the business
Fixed, often lower energy costs
Maintenance and performance guarantees provided by the provider
Cons:
Long-term agreement in the form of a charge on the roof that can limit flexibility
No ownership or access to tax incentives
The business is subject to agreed-upon energy rates
3. Green Loans and Asset Financing
UK banks and lenders increasingly offer green loans and asset financing specifically designed for sustainable investments, including solar PV. These loans often come with lower interest rates and flexible terms, and repayment can sometimes be matched to the projected energy savings. This option allows businesses to maintain ownership of the solar system, helping them benefit from tax reliefs and any future savings after the loan is repaid.
Pros:
Ownership of the solar asset with tax benefits
Lower interest rates and flexible terms
Long-term savings after loan repayment
Cons:
Adds debt to the business’s balance sheet
Requires meeting lender criteria
Potential interest costs
4. Capital Allowances
In the UK, businesses investing in energy-efficient equipment, including solar PV, can claim capital allowances on their investments. The Annual Investment Allowance (AIA) allows businesses to deduct up to £1 million of qualifying capital expenditure from taxable profits, providing significant tax savings up front in your one
Pros:
Significant tax relief on capital expenditure
Complements other funding methods
Reduces the effective cost of investment
Cons:
Limited to businesses with available tax liabilities
The value of the relief depends on tax position and available allowances
Some programs, like the Super Deduction, have expiry dates
5. Government Grants and Local Incentives
In the UK, various government grants and regional incentive programs support solar PV installations for businesses. Programs like the Industrial Energy Transformation Fund (IETF) offer grants for energy efficiency projects in certain industries, and local governments may also provide support. The availability and scope of these grants vary by region, industry, and business size, so researching current programs can yield valuable funding sources.
Pros:
Can substantially reduce upfront costs
Complements other funding models
Provides additional financial support for green initiatives
Cons:
Availability and criteria can vary significantly
Applications can be competitive and time-consuming
Some grants may come with specific usage restrictions
6. Climate Change Levy (CCL)
Introducing renewable energy systems may help companies lower their Climate Change Levy (CCL) obligations on electricity bills, reducing operating expenses for qualifying businesses.
Pros:
Reduces ongoing operating costs through CCL savings
Cons:
The value of allowances and CCL reductions depends on company profile
Only available to businesses with substantial energy usage and tax liabilities
Choosing the Right Funding Path
The best way to fund a solar PV system depends on the business’s financial structure, energy needs, and sustainability goals.
At PM Renewables, we work with you to assess which system is right for you and guide you on funding options. Get in touch with us here.
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