PPA mechanics for warehouse operators
A PPA for a warehouse works as follows: (1) Feasibility and proposal: funder reviews meter data, roof suitability, and lease status; (2) Term sheet: indicative PPA rate (typically 12-15p/kWh in 2026), term (10-25 years), escalator (0.5-2% per year, or fixed), metering arrangements; (3) Legal: energy supply agreement, roof licence, step-in rights, termination provisions; (4) G99 and installation: funder manages DNO application and appoints installer; (5) Energisation and billing: electricity invoiced at PPA rate from first generation. PPA rate is typically set 35-50% below current grid retail rate, and the discount may increase over time if the escalator is below grid tariff inflation. The funder claims capital allowances, takes maintenance risk, and guarantees minimum output (typically P90 yield). You have no balance sheet asset, no maintenance obligation, and lower electricity bills.
Asset finance for warehouse businesses
Solar asset finance works as a hire purchase or loan arrangement: (1) You select the system and installer; (2) Funder pays the installer; (3) You repay the funder over 5-10 years via fixed monthly payments; (4) You own the system — claiming AIA and all energy savings — from day one. Critical underwriting factors for warehouse asset finance: building ownership or long lease (typically 10+ years remaining from energisation); business financial history (2+ years profitable trading); electricity bill size (typically minimum £50,000/year to justify system economics); roof survey and structural report. Interest rates: typically 5-8% APR for well-established businesses; 8-12% for businesses with shorter trading history. Lenders typically require no personal guarantee for limited companies with clean credit history and systems under £2m.
Which route suits which warehouse type?
PPA is best suited to: logistics tenants with 10+ years remaining on lease who cannot put solar on the balance sheet; businesses with limited corporation tax liability (making AIA less valuable); businesses where the landlord will consent to a third-party system but not a tenant-owned system; warehouses with complex ownership structures or planning restrictions. Asset finance suits: owner-occupiers with positive corporation tax liability (maximise AIA); businesses that prefer asset ownership; situations where the PPA funder terms are less attractive than a direct finance deal. Outright purchase suits: businesses with strong liquidity who want lowest lifetime cost and maximum AIA benefit in year one.
PPA contract terms: what to negotiate
Key PPA contract terms to review carefully: (1) PPA rate and escalator — fixed vs index-linked; ensure the escalator is below expected grid tariff inflation; (2) Term and exit provisions — most PPAs run 15-25 years; check early termination rights and penalties; (3) Performance guarantee — funder typically guarantees P90 output; understand what happens when output falls short; (4) Maintenance obligations — funder usually takes all maintenance risk; confirm scope; (5) Landlord/step-in rights — if your business fails, who does the funder deal with?; (6) Transfer on property sale — can the PPA be novated to a new tenant or buyer?; (7) SEG revenue — who receives export income?; (8) Change of use — what happens if you vacate before the PPA term ends?. We recommend independent legal review of all PPA terms before signing.
Common pitfalls in capital-free warehouse solar
The most common errors in capital-free warehouse solar deals: (1) Not modelling all three routes (PPA, asset finance, outright purchase) — the cheapest route varies by business profile and is not always obvious; (2) Signing a PPA with an above-inflation escalator — locking in high rates as grid tariffs fall in the long run; (3) Ignoring AIA benefit — businesses with significant corporation tax liability often find outright purchase or asset finance better than PPA even without upfront cash; (4) Not checking lease length — most PPA funders require 10+ years remaining lease or freehold; (5) Missing G99 DNO timeline — capital-free deals still require G99 application and DNO connection; the funder manages this, but it takes 6-12 months; (6) Not reading termination clauses — a PPA tied to a specific building can be expensive to exit if business plans change.
Common questions
What PPA rate can UK warehouses expect in 2026?
PPA rates in 2026 typically range from 12-15p/kWh for UK commercial warehouses, versus grid retail rates of 22-28p/kWh — a saving of 33-46%. PPA rates vary by system size, term, funder, and creditworthiness. Larger systems (1 MW+) and longer-tenured businesses typically secure the lowest rates.
Can warehouse tenants access capital-free solar without landlord approval?
A PPA technically requires landlord consent for a third party to install panels on the roof. However, most modern commercial leases include provisions for energy efficiency improvements, and many landlords will consent to a well-structured PPA where the funder has appropriate insurance and removal obligations. Green Leases increasingly include standard PPA consent clauses.
Is asset finance or PPA better for a warehouse owner-occupier?
For owner-occupiers with corporation tax liability: outright purchase (maximise AIA) or asset finance (own the system, claim AIA, cash-flow positive from month one) are typically better than PPA over 25 years. PPA is best for owner-occupiers with limited tax liability or who want zero balance sheet exposure.
How long does a capital-free PPA take from decision to first generation?
Typical PPA timeline: term sheet 1-2 weeks → legal agreement 4-8 weeks → G99 application and connection 6-10 months → installation 6-10 weeks → energisation. Total: 10-14 months from PPA decision to first electricity generated. Longer than outright purchase but the same G99 timeline applies to all routes.