A Solar Power Purchase Agreement (PPA) lets you install large-scale solar PV on your warehouse roof with zero upfront capex. A third-party PPA provider funds, owns, and operates the system. You sign a 20-25 year offtake agreement to buy the kWh at a tariff typically 30-50% below grid retail at signing. Tariff escalates annually at a published index (CPI or RPI capped) — typically slower than grid retail. Result: immediate cash positive, off-balance-sheet, with all carbon abatement and customer audit benefit accruing to you as the offtaker.
How a warehouse solar PPA works
The structure has five key components: (1) the host (your warehouse) — you provide roof access for the install and maintain the building; (2) the offtaker (you, again — the energy consumer) — you sign the 25-year offtake agreement and pay the tariff per kWh; (3) the PPA provider — a third-party fund or utility that funds, owns, and operates the system; (4) the lease — typically a sub-lease of the roof from you (tenant) to the PPA provider, with landlord consent; (5) the install — standard MCS-certified solar PV exactly as if you owned it directly.
The PPA provider takes all capital risk, asset risk, technical risk, and operations risk. You take only the offtake risk (commitment to buy kWh for 25 years) — but the tariff is structured to remain below grid retail throughout, so the offtake commitment is cash-positive from day one.
When PPA is the right choice
PPA makes sense for warehouse operators in several specific situations:
Lease term under 7-10 years remaining
Capital purchase requires lease term sufficient to recover the capex. With under 7-10 years remaining, the recovery period is too short for capital purchase economics to work. PPA shifts the lease risk to the PPA provider — they take the lease event risk in exchange for the long-term offtake commitment. Standard PPAs include provisions for lease termination, including transfer of the offtake to a successor tenant.
Off-balance-sheet preference
For listed companies and public-sector tenants, off-balance-sheet treatment is sometimes strategically important. PPAs typically qualify as operating leases under IFRS 16 if structured carefully, keeping the asset off the balance sheet. We work with PPA funders who have established IFRS 16-compatible structures.
Loss-making or AIA-constrained entities
100% Annual Investment Allowance (AIA) is only valuable if the entity is profitable. Loss-making companies or companies with capex exceeding the £1m AIA cap may benefit more from PPA structure where the third-party owner absorbs the tax allowance.
Multi-customer landlord requiring third-party
Some institutional landlords (especially for multi-let properties or shorter leases) prefer or require a PPA structure rather than tenant-direct ownership of solar. The PPA provider becomes the asset owner and takes the institutional risk.
Cost example — 1 MW PPA on Daventry distribution centre
A 1 MW solar PV system on a Daventry distribution centre, structured as 25-year PPA. Indicative numbers:
- System size: 1.0 MW (1,840 panels)
- Annual generation: 920,000 kWh
- PPA tariff year 1: 12p/kWh (vs grid retail 22p/kWh — 45% discount)
- PPA tariff escalation: CPI capped at 3% per year
- Self-consumption: 80% (736,000 kWh)
- Grid retail saving year 1: 736,000 kWh × (22p - 12p) = £73,600
- SEG export: 184,000 kWh × 12p (PPA receives this) = no tenant benefit
- Net cash benefit year 1: £73,600
- 25-year cumulative cash benefit: ~£3.2m (assumes grid retail rises faster than CPI)
- Tenant capex: £0
- Carbon abatement: 155 tCO2e/year (location-based) — accrues to tenant
PPA vs capital purchase — when to choose which
The decision tree is straightforward:
- Capital purchase + 100% AIA — best for owner-occupiers, long-lease tenants, profitable companies with capex availability
- Asset finance over 5-10 years — best for medium-lease tenants who want to own the asset but spread capex
- PPA — best for short-lease tenants, loss-making entities, off-balance-sheet preference, AIA-constrained companies
We model both routes (capital purchase + asset finance + PPA) in every desk feasibility so you can choose with full information. The right route is highly company-specific.
Common PPA questions
What is a Solar PPA?
A Power Purchase Agreement (PPA) is a long-term contract where a third-party solar developer funds, owns, and operates a solar PV system on your warehouse roof. You sign a 20-25 year offtake agreement to buy the kWh generated at a fixed (or index-linked) tariff, typically 30-50% below grid retail. Zero upfront capex.
How does PPA pricing work?
PPA tariffs are typically structured as: fixed-£/kWh rate for years 1-25, with annual escalation linked to a published index (CPI or RPI capped). Initial year-1 tariff is typically 30-50% below grid retail. Over the 25-year contract, the tariff typically remains below grid retail because grid retail rises faster than the contractual escalation.
Who owns the system in a PPA?
The PPA provider (typically a specialist solar PPA fund or major utility PPA arm). They take all asset risk, operations, maintenance, and end-of-life responsibility. You own neither the system nor the land/roof rights — but you do retain all carbon abatement and customer audit benefit as the kWh offtaker.
When does PPA make sense vs capital purchase?
PPA makes sense when: (1) lease term is short (under 7-10 years remaining); (2) you want to avoid capex on balance sheet; (3) you cannot absorb the AIA tax shield (e.g. loss-making entity); (4) landlord requires off-balance-sheet structure. Capital purchase makes sense when: (1) you have long lease or owner-occupier; (2) you have the capex and can absorb AIA tax shield; (3) you want to retain residual value (50%+ of original capex at end of 25 years).
What's the minimum PPA size?
PPAs work best at scale (above 500 kW PV). Below 500 kW, the transaction cost of structuring the PPA (legal, due diligence, monitoring) outweighs the benefit. Most PPA funders have minimum size thresholds at 250-500 kW. For smaller installs, capital purchase or asset finance is the better economic outcome.
Who pays for maintenance and repairs?
PPA provider. They are responsible for all O&M, repairs, replacements (panel degradation, inverter replacement at 12-15 years), and end-of-life decommissioning. Your only obligations are: (1) provide roof access for maintenance visits; (2) maintain the PPA tariff payment; (3) maintain the building in standard condition.
How does the lease addendum work for PPA?
PPA installations require landlord consent for the third-party PPA provider to install and own the system. The BBP Green Lease Toolkit includes a standard addendum for PPA structures that institutional landlords (Prologis, Tritax, GLP, Blackstone, Segro) accept. We coordinate the lease consent process.
What happens at end of PPA?
Three standard options at end of 25-year PPA: (a) extend the offtake at prevailing market rates; (b) PPA provider transfers ownership to you (offtaker) at agreed value (typically £0 or nominal sum); (c) PPA provider removes the system at their expense. The options are specified in the original PPA contract.