My Customer Wants Solar, But Doesn’t Have the Budget – What Are the Options?
Industrial, commercial, and public sector clients are increasingly turning to behind-the-meter solar solutions to reduce their reliance on grid electricity.
However, often a client may not have the funds to purchase a solar array outright or wants to prioritise capital for their core operations.
If this is the case, a Power Purchase Agreement (PPA) may be the answer.
The difference between CAPEX and PPA
When a business buys a solar system outright, it acquires a capital asset. The upfront cost sits on the balance sheet, the system is owned by the business, and all future performance risk – degradation, equipment failure, maintenance – sits there too. The long-term financial risk and return belong entirely to the business.
When a business takes a PPA, it buys a service. UrbanVolt funds, installs, owns, and maintains the system. The business pays a fixed tariff for the electricity the system generates – 30 to 40% below the grid rate – from day one. There is no asset on the balance sheet and no performance risk to carry. The first cost the client sees is the first electricity bill.
The financial comparison
A business typically makes decisions on the economics of ownership versus a service contract. But the comparison is rarely that straightforward in practice, for three reasons.
Firstly, the upfront cost. A commercial rooftop system is a significant investment that has an opportunity cost – it is not available for other uses, and it needs to earn a return that justifies the investment relative to alternatives. For many businesses, that capital is better deployed elsewhere.
Second, the payback period. A solar system purchased outright typically has a payback that depends on the grid tariff, self-consumption rate, and system performance. During those years, the business is carrying the full maintenance and performance risk. If the system underperforms or requires significant repairs, payback extends.
Third, the accounting treatment. A purchased system is a capital asset. It sits on the balance sheet, is subject to depreciation, and affects capital ratios. A PPA is an operating expense – it sits on the P&L and has no balance sheet impact. For businesses with balance sheet constraints or a preference for keeping capital ratios clean, this is important.
When a PPA makes sense
A PPA makes the strongest commercial case when:
- Capital is better deployed in the core business, or is simply not available for energy infrastructure
- The finance team needs an operating expense rather than a capital line
- The business is on a lease, making long-term capital investment in a building it does not own commercially difficult to justify
- The business wants the financial benefit of solar without carrying maintenance and performance risk for 25 years
For most commercial businesses, particularly those with capital deployed in growth, a PPA is the more practical route. It delivers immediate, guaranteed savings with no downside risk and no management overhead.
The right question to ask
The difference is what goes on the balance sheet and who carries the risk for the next 25 years. Capital committed to a solar asset is capital that cannot be deployed elsewhere. Maintenance costs, equipment failures, and performance shortfalls over 25 years are unpredictable in a way that a fixed PPA tariff is not.
The CAPEX vs PPA debate tends to frame solar as an either/or decision. In practice, the more relevant question is not “which is better?” but “where do I want to deploy capital?”
Interested in exploring commercial solar with your customers?
UrbanVolt is an ECA Associate Partner, supporting energy consultants and brokers who want to introduce commercial solar and Solar-as-a-Service to their customers.
Find out more about UrbanVolt, how the partnership works and the support available to ECA members.
