Finance lease — the most common structure
Finance lease: lender buys the asset and leases it to you. Fixed monthly payments over agreed term (5-10 years). Tax treatment: lease payments are tax-deductible operating expenditure. AIA: the lessee can claim 100% AIA on most finance leases meeting HMRC criteria (the economic substance of ownership is with the lessee). This gives Year 1 tax deduction equal to the full system cost — the same as outright purchase. VAT: zero-rated on supply and installation (post-November 2023 HMRC update — permanently zero-rated for commercial installs on commercial buildings). Monthly payment size: £750,000 install on 7-year finance lease at 5.9% effective = £10,975/month = £131,700/year. Annual savings (1 MW at 81% self-consumption, 25p/kWh) = £202,500. Year 1 net cashflow: +£70,800.
Hire purchase — AIA maximised, balance sheet ownership
Hire purchase: you own the asset from Day 1. HP instalments are debt repayments (capital + interest). AIA claimed on full cost in Year 1 — regardless of when HP is actually repaid. Tax shield: 100% AIA on £750k = £187,500 (25% corporation tax rate). After-tax Year 1 cashflow: savings £202,500 + AIA tax refund/reduction £187,500 - HP instalments (year 1 capital portion approximately £90,000 of £131,700 total instalment) = net Year 1 benefit approximately £300,000. HP is best when: maximum Year 1 tax deduction is the priority; the business has credit strength; balance sheet is neutral.
PPA — zero capex for tenants and shorter-lease occupiers
Power Purchase Agreement: third-party (PPA provider) installs, owns, operates, and maintains the system. You pay per kWh consumed at a tariff below your grid retail rate (typically 15-25% below current grid retail). Zero capex. Zero maintenance obligation. Fully off-balance-sheet (operating lease treatment under IFRS 16 in most structures). Contract term: 10-25 years. At end of term: option to purchase at market value, extend at reduced tariff, or removal. PPA is best for: tenants with less than 7 years remaining on lease; businesses where capex approval for CAPEX spend is impossible; businesses wanting zero complexity. Leading UK PPA providers: Lightsource bp, Statkraft, Octopus Energy Generation, GRIDSERVE, British Solar Renewables.
Common questions
What interest rates are available for warehouse solar asset finance in 2026?
Finance lease and HP rates in 2026 (commercial solar specific): 5.5-7.5% effective rate depending on credit strength, term, and lender. Specialist solar lenders (Close Brothers, Time Finance, Hitachi Capital, Novuna, Grenke) offer rates at the lower end (5.5-6.5% for strong credit). High street bank term loans: 6-8%. Green bond finance (available for projects £2m+): sometimes below 5% from specialist green infrastructure lenders (SDCL, GLIDE).
Can a PPA be combined with asset finance?
Yes — hybrid structures exist. For example: PPA for systems above 250 kW (requiring G99, complex design) paired with asset finance for EV charging or battery storage on the same site. This structure keeps the solar off-balance-sheet while financing EV infrastructure ownership. We model all hybrid structures at feasibility.