Leasing, hire purchase and PPA for commercial solar.

Leasing and hire purchase pay for the system over time instead of all at once. You make regular payments while the array generates from day one, so the saving on your electricity bill helps to carry the cost of the finance and the system can sit close to cash-flow neutral from the start. Under hire purchase you take ownership at the end of the agreement, so you are buying the asset, just over time. A lease covers the use of the system over a fixed term, and what happens at the end depends on the type of lease and its terms. Either way the finance charge is a real cost that buying outright does not carry.

A power purchase agreement asks for no capital at all. A third-party funder pays for the array, installs it on your roof, owns and maintains it, and you sign a long-term contract to buy the units it generates, usually at a rate set below what you pay the grid. The import saving usually starts in year one and there is nothing on the bank balance. Because you do not own the asset, you do not claim the capital allowances on it, so the first-year Annual Investment Allowance relief that makes a bought system attractive sits with the funder rather than with you. The agreement runs for a long term, often well over a decade, and the rate, any annual price escalator, the service obligations and the end-of-term options are where a PPA is won or lost.

Under all three routes the value sits in the power you use on site, because an exported unit is paid far less than an imported one is worth. That is why a sound lease or PPA, like a sound capex design, is built around your own consumption. We model your roof in PV*SOL from an on-site drone survey so the figures you compare are calculated from the real building rather than a rule of thumb.

Finance directors ask this first, and the honest answer is that it depends on the agreement. Whether a leased, hire-purchase or PPA system sits on or off your balance sheet under IFRS 16 or FRS 102 turns on the specific terms, so we do not assert a single answer for any of the three routes. IFRS 16 brought most lessee arrangements on balance sheet as a right-of-use asset and a lease liability, with narrow exemptions, and FRS 102 has been revised along similar lines, so the older habit of treating a lease as automatically off balance sheet no longer holds.

A PPA is not automatically off balance sheet either. The test is what the contract actually gives you: whether the arrangement conveys the right to control the use of an identified asset for a period, whether the array is genuinely substitutable by the funder, how the pricing is structured and what the end-of-term options are. Two agreements that both call themselves a PPA can land on opposite sides of that test.

This is your auditor's call rather than ours, and we will say so rather than tell you what you would like to hear. What we can do is get the draft agreement in front of your accountant and auditor early, with the technical facts they need to apply the standard: what is being installed, who controls it, who maintains it, what happens at the end and what the metering arrangement is. Treat everything here as indicative and not financial or tax advice.

The engineering on a funder's system is the easy part. The agreement is where the value moves, and a PPA is typically the longest commitment on this page. Five things deserve close legal and financial review.

• The unit rate and the escalator. A rate below today's grid price is the headline. What decides whether it stays below grid price is the annual escalator and how it is indexed, over a term that may run well past a decade.
• The term and the end of it. What happens at expiry, whether there is a purchase option and how it is priced, who removes the array if you do not want it, and what condition the roof is left in.
• The roof licence and access. A third party will need access to your building for the life of the agreement. That interacts with your own works, your roof warranty and your future plans for the site.
• Insurance and indemnity. Who insures the array, who carries the business-interruption risk if it is down, and how that sits against your own policy. A third-party array fixed to your building still alters your building's risk and must be disclosed fairly to your own insurer.
• What happens if you sell or vacate. Whether the agreement binds a successor occupier, and what it does to a sale or a re-letting of the property.

None of this makes a PPA a bad route. It makes it a contract rather than a purchase, and contracts reward being read.

Alongside the three routes above there is a fourth arrangement worth naming, because it is pitched constantly and it is not the same thing as a power purchase agreement. Under a roof rental or roof lease a developer leases your roof space, installs and owns a system on it, and pays you a rent. They keep the generation and the income it earns, so you are the landlord of the roof rather than the buyer of the power. Under a PPA you buy the units you use, usually at a rate below grid price. Both are funder-owned, and in both the asset, the export income and the allowances sit with the funder rather than with you. "Free solar" is the marketing name for the PPA form, and the straight reading is that there is no capital outlay from you because the funder keeps the value the system produces.

Three terms decide whether a roof deal is worth taking, and they are the ones most often left until after signature. Who maintains the system for its whole life, and who carries the risk if the roof beneath it needs work or replacing. What happens to the array and the roof at the end of the term, including who removes it and in what condition the covering is left. And what the arrangement does to a sale or a refinance, because a funder's lease registered against the property is something a buyer, a lender or a superior landlord has to accept and work around. None of that makes a roof deal wrong. It makes it a contract on your building rather than a purchase, commonly running fifteen to twenty-five years, and contracts reward being read. We are engineers rather than a finance company, we set no rent and no unit rate and we take no cut of a funder's deal, so we will model owning the system, financing it and a funder's arrangement side by side on your own figures and tell you straight which one fits. On the figures it is usually ownership, which is why a roof deal is worth testing against a bought array before it is signed rather than after.

Leasing and hire purchase suit a business that wants the system generating now but would rather protect its capital for the core operation. You keep the asset and, subject to how the deal is structured, its tax position, and you accept a finance charge in exchange for spreading the payments. Where the capital is available, buying outright still gives the better return, because those finance charges are a cost the capex route does not carry and the first-year capital-allowances relief on a bought system is part of why it pays best. The trade is convenience and cash flow against total return, and it is a defensible trade for plenty of businesses.

A PPA suits a business that wants on-site solar with no capital outlay and no asset on its books, or one that would rather a funder carried the cost and the maintenance than tie up its own cash. The honest trade-off is plain: a PPA largely benefits the funder. They own the asset, they claim the capital allowances, and they take most of the long-term return in exchange for putting up the money. You get a lower unit rate and a clean balance-sheet position, but you give up the ownership and the relief that make capex the strongest route.

So capex is the better call wherever you have, or can borrow, the capital, because owning the system keeps nearly all of the saving and the tax relief in your business. Leasing or hire purchase sits in between, spreading the cost while you keep the asset and its tax position. A PPA is the route for a business that genuinely cannot go either way, and it is far better than an unused roof. Grants are not a fourth method for most sites: schemes such as PSDS and Salix, the IETF and UKSPF are aimed at eligible bodies, largely the public sector and specific programmes, and most private commercial sites do not qualify. We will tell you straight whether yours does. See grants if you are a public-sector or industrial buyer.

We are happy to set capex, leasing and a PPA side by side against your own modelled figures so you choose on the facts. Everything here is indicative and not financial or tax advice; confirm the accounting and the relief with a qualified adviser before you commit.