PPA vs Asset Finance vs Cash for Manufacturing Solar

For a UK manufacturer, the case for on-site solar is usually settled before the finance question comes up. A correctly sized rooftop array can self-supply 30 to 60 percent of a plant’s annual demand, hedge against wholesale and network-charge volatility, and deliver the Scope 2 reductions that customers such as JLR, Nestle, GSK and Unilever increasingly require throughout their supply chains. Industrial electricity prices have risen 60 to 120 percent since 2021, so the savings are real and the payback for a typical manufacturing install lands between 4.5 and 7.5 years.

The harder question is how to pay for it. A 500 kW system is a £190,000 to £680,000 decision, and that capital competes directly with production-line investment. The three main routes are a power purchase agreement (PPA), asset finance, and a straight cash purchase. None is universally right. This guide compares them on the terms a finance director actually cares about, so you can pick the route that fits your balance sheet and your appetite for ownership.

The three routes at a glance

Here is how the three options compare across the factors that decide most manufacturing projects.

Factor	PPA	Asset finance	Cash purchase
Upfront capex	Zero	Zero to a modest deposit	Full project cost, £150,000 to over £1m
Ownership	Third party owns and operates the array	You own the system, financed over 7 to 15 years	You own the system outright from day one
Balance sheet treatment	Off balance sheet under standard PPA terms	On balance sheet as an asset with matching finance liability	On balance sheet as a plant and machinery asset
Savings retained	Partial. You pay per kWh, typically 20 to 40 percent below grid retail	Most. You keep all savings once the finance is repaid	All savings, from day one
Cash impact	Day-one saving against your current tariff, no outlay	Typically EBITDA-positive from year one	Largest long-term return, longest cash-flow wait
Capital allowances	Claimed by the PPA owner, not you	You claim the Annual Investment Allowance	You claim the Annual Investment Allowance
Best for	Sites that will not or cannot spend capital and want zero risk	Sites that want ownership without touching the capex budget	Cash-rich sites chasing the lowest lifetime cost per kWh

The sections below unpack what each row means in practice.

Power purchase agreement (PPA)

Under a PPA, a third party funds, owns and operates the solar system on your roof. You pay only for the electricity you consume from it, at a rate set below your current grid tariff, typically 20 to 40 percent below grid retail. There is zero capex, and under standard PPA terms the asset stays off your balance sheet.

Where a PPA fits

A PPA is the cleanest answer to the most common manufacturing objection: “we would rather put the capital into production, not the roof.” It delivers day-one savings against your current grid tariff with no outlay and no technical risk, because the owner carries the performance, maintenance and warranty obligations. For an operations director who needs a Scope 2 reduction to satisfy an EcoVadis, CDP or SBTi audit, a PPA gets solar onto the roof without a capital request competing against a new production line.

PPAs also travel well. The offtake obligation is written to move with the building under standard commercial property terms, so a PPA does not trap you if you sell or relocate. If a site closes, the array can be relocated, sold to a successor occupier, or left in place under a transferred agreement.

The trade-off

You do not own the asset, and you do not keep the full saving. The PPA owner claims the capital allowances and takes the margin between what the system generates and what you pay. Over a 25-year panel life that is a meaningful share of the value you are handing to a third party in exchange for carrying zero risk. A PPA is the right call when preserving capital and avoiding risk matter more than maximising lifetime return.

Asset finance

Asset finance keeps ownership with you while spreading the cost. You take a loan, hire-purchase or lease facility over 7 to 15 years, the system sits on your balance sheet as an asset, and the finance sits alongside it as a liability. Most manufacturing installs funded this way are EBITDA-positive from year one, because the energy saving typically exceeds the finance payment from the outset.

Where asset finance fits

This is the middle route, and for many manufacturers it is the sweet spot. You get ownership and you keep the savings, but the cost does not land on the capex budget in a single year. Because solar PV qualifies as plant and machinery, you claim the Annual Investment Allowance, which covers the first £1m of qualifying expenditure at 100 percent and delivers up to roughly 25 percent effective tax saving in year one for a limited company. You can read the current rules in the government’s capital allowances guidance before you model it.

Asset finance suits a site that wants the asset on its books, values the tax relief, and has a customer sustainability requirement or a hard IRR target to hit but does not want the array to compete with production-line investment for scarce capital. IRR for a UK manufacturing install typically runs 12 to 22 percent, and asset finance preserves most of that for you rather than sharing it with a PPA provider.

The trade-off

Payments are higher per equivalent kWh than a PPA in the early years, and you carry the ownership responsibilities: maintenance, insurance and performance risk sit with you, though an O&M contract at £8 to £12 per kW per year for systems above 250 kW covers most of that. You are also taking on a finance liability, which affects your gearing. In exchange, once the facility is repaid you own an asset that still has value at year 15 and keeps generating for a 30 to 35 year real-world life.

Cash purchase

A cash purchase is the simplest structure and the one that returns the most over the system life. You fund the full project cost up front, own the system outright from day one, and keep every penny of the saving. Cost per kW is usually £750 to £950 for systems above 250 kW, falling towards £600/kW above 1 MW, and the capital is normally fully expensed in year one under the Annual Investment Allowance.

Where cash fits

Cash makes sense for a manufacturer with the balance sheet to absorb the outlay and a clear preference for the lowest lifetime cost per kWh. The levelised cost of electricity from a manufacturing PV system is usually 4 to 7p/kWh against 22 to 32p/kWh for grid retail, and owning the system outright captures the full spread. There is no finance margin, no PPA owner’s cut, and no interest. You take the fastest simple payback, from 4.5 to 7.5 years depending on baseload, tariff and self-consumption, and everything after that is pure saving for the remaining decades of system life.

Cash-funded sites also claim the capital allowances directly and keep any export income under the Smart Export Guarantee, where typical export tariffs sit in the region of 4 to 15p/kWh. For a manufacturing site the priority is self-consumption, so export is a secondary value stream, but it is yours to keep in full.

The trade-off

The obvious cost is opportunity cost. Committing £190,000 to £680,000 to the roof is capital that cannot go into a new line, a machine, or working capital, and it does not start returning until the payback point some years out. For a manufacturer where capital must compete on a hard IRR against production investment, that trade is often the reason the other two routes exist. Cash wins on lifetime return; it loses on flexibility and on the wait before the money comes back.

Layering grants and allowances on top of any route

Whichever route you choose, do not treat it in isolation from the support available. The Annual Investment Allowance applies to owned systems under both cash and asset finance. Larger projects in eligible manufacturing sectors may access the Industrial Energy Transformation Fund, which typically funds £100,000 to several million per project at a 30 to 50 percent intervention rate through periodic DESNZ competition windows. Energy-intensive sites already in a Climate Change Agreement improve their performance against target because on-site generation cuts metered grid consumption.

These schemes change with policy, so confirm the current position before you rely on any of them. Our grants and funding page maps the live combinations, and the cost page breaks down price per kW by system size so you can sanity-check any finance quote.

How to choose

The decision usually comes down to three questions. Can you spend the capital? If not, a PPA or asset finance is the only realistic route. Do you want to own the asset and keep the savings? If yes, cash or asset finance beats a PPA. How hard is your IRR test against competing production investment? The harder it is, the more attractive the off-capex routes become.

The right sizing decision comes first, because finance is only as good as the underlying model. Manufacturing PV should be sized to daytime baseload, not roof area, at 70 to 90 percent of peak daytime demand to maximise self-consumption. A high, flat baseload, common in food and beverage manufacturing where refrigeration and ovens run close to 24/7, produces strong self-consumption and short payback, which flatters every finance route. A more variable load profile needs a more careful model before you commit to any structure.

Whatever route fits, model it from your own half-hourly meter data rather than from estimates, and compare all three like for like against a cash baseline. When you are ready to see the numbers for your site, request a quote and we will model each option side by side so your finance team can plug in their own assumptions.