Category: Legal

How to Get Out of a Solar PPA Early (UK)

Leaving a solar PPA early is possible but never free. The four exit routes, what drives the exit price, and the clauses to agree before you sign.

The question usually arrives for a practical reason: the business is moving, the building is being sold, the roof needs replacing, or a new owner wants to run its own energy strategy. A solar power purchase agreement runs for 15 to 25 years, and a lot can change in that time. Leaving early is possible — but never free, because the provider financed the system against your payments over the whole term.

Why a PPA is hard to leave

Under a solar power purchase agreement the provider pays for the array up front and recovers that investment, plus its return, from the tariff you pay for each unit. If you leave early, the provider is left with an asset on your roof and an unrecovered investment. Every exit route in a well-drafted contract is a way of settling that gap — by selling you the asset, finding someone else to pay the tariff, or paying the provider directly.

The four ways out

1. Buy the system. Most contracts give you a buy-out right, priced by a formula tied to the provider's outstanding investment. Because that investment is recovered over time, the price falls as the term runs down. Once you own the system the contract ends, the generation is yours, and so is the maintenance.
2. Pass the contract on. If you sell or vacate the building, an assignment clause lets the contract transfer to the buyer or incoming tenant. The provider will want to approve the new occupier's credit, so the clause should say that consent cannot be unreasonably withheld.
3. Pay to terminate. Where neither works, an early-termination payment ends the contract. It usually reflects the income the provider loses, and the provider may remove the system — so it is normally the most expensive route.
4. Wait for the end of the term. At expiry the usual choices are to extend at a new tariff, buy the system at fair market value, or have it removed. The options are compared in what happens at the end of a PPA.

What drives the price of leaving

Three things set the cost of an early exit: how much of the provider's investment is still outstanding, how many years of tariff remain, and how the contract values them. A buy-out schedule annexed to the contract, showing the price for each year of the term, removes most of the uncertainty; a formula that refers to "fair market value" without saying how it is measured leaves it to negotiation at the worst possible moment.

The clauses to agree before you sign

• A buy-out schedule, year by year, annexed to the contract.
• Assignment on sale, with consent that cannot be unreasonably withheld and a clear credit test for the incoming occupier.
• Relocation and roof works: who pays to remove and refit the panels if the roof needs work, and whether the term extends to compensate.
• Change of control: what happens if your business is sold, or if the provider sells the asset.
• Deemed generation: what you pay if you cannot take the output — the clause that decides the cost of a temporary shutdown.

Special cases

Selling the building is the commonest exit, and the smoothest when the contract anticipates it: a buyer who wants cheaper on-site power may be willing to take the PPA on, which can make it part of the building's appeal. Roof replacement is a temporary exit rather than a permanent one — plan it before signing, because re-covering a roof under a live array is expensive. Closure of the business usually triggers the termination payment, which is why the provider checks your covenant before signing.

None of this is a reason to avoid a PPA — it is a reason to read the exit clauses as carefully as the tariff. If you are weighing up a deal now, start with the pros and cons of a solar PPA.