The PPA-vs-purchase decision is the most important commercial choice in any warehouse solar project. Each route has fundamentally different commercial and tax treatment. The right choice depends on your lease term (or owner-occupier status), balance sheet preferences, tax position, and customer audit pack requirements.
Capital purchase + 100% AIA
Best for: owner-occupiers, tenants on long leases (10+ years remaining), profitable companies with capex availability. Year-1 economics: full project value (up to £1m) expensed under 100% AIA — £225k tax shield on £900k install at 25% corporation tax. Above £1m, residual capex falls into 50% First Year Allowance. 25-year IRR typically 22-30%. Net cash payback 3-4 years for typical warehouse install.
PPA — third-party owned
Best for: tenants on shorter leases (under 7 years remaining), loss-making or AIA-constrained entities, off-balance-sheet preference, multi-customer landlord requiring third-party. Zero upfront capex. PPA tariff typically 30-50% below grid retail at signing, escalates at CPI capped (typically capped at 3% annual). Tariff differential to grid retail provides immediate cash benefit from day one. PPA provider claims tax allowances; you retain carbon abatement and customer audit benefit.
Decision matrix
Owner-occupier or 10+ year lease + profitable + capex available → Capital purchase + 100% AIA. 5-10 year lease + want to own asset → Asset finance over 5-10 years (mid-route between purchase and PPA). Under 7 year lease + zero capex preference + 500 kW+ system → PPA. Loss-making or AIA-constrained → PPA. Off-balance-sheet preference → PPA. Multi-customer landlord requirement → PPA.
Worked example — 1 MW DC at Daventry
Capital purchase: capex £750k, year-1 tax shield £225k, net cash cost £525k, year-1 cash benefit £182k, 25-year cumulative net cash £4.6m, 25-year IRR 25%. PPA: zero capex, year-1 cash benefit £73k (tariff differential), 25-year cumulative net cash £3.2m. Capital purchase delivers 40% higher 25-year economic outcome IF you can absorb the AIA tax shield and the lease term supports recovery.
Common questions about ppa vs purchase
Which is right for our warehouse?
Owner-occupier or long-lease tenants with profitability: capital purchase. Short-lease tenants or AIA-constrained: PPA. Medium-lease tenants who want to own: asset finance. We model all three routes in every desk feasibility.
How does the PPA tariff escalate?
Typically CPI-linked with annual cap (3% common). Index-linked escalation rises slower than grid retail (4-8% annually expected through 2030), so PPA tariff increasingly diverges below grid retail over the 25-year contract.
Can we mix routes across a portfolio?
Yes. Many large rollouts combine: cash for first £1m of capex (AIA-optimal), asset finance for next £2m, PPA for any roof additional capacity. We structure the optimal mix in proposal.