Category: Pricing

What Happens to a PPA Tariff When Energy Prices Fall?

A PPA tariff does not fall when the market does. What that means for your saving, why a delivered grid price is stickier than wholesale, and how to protect a long deal.

The question arrives in almost every PPA negotiation now that the 2022 price spike has passed: if grid electricity keeps getting cheaper, does a long-term PPA turn into a bad deal? The short answer is that the tariff will not follow the market down — and that this matters less than most buyers fear, for reasons that sit inside the structure of a delivered grid price.

The tariff does not move with the market

A solar PPA tariff is fixed, or moves by a formula agreed on day one — a set escalator, or an inflation index. It does not re-price when wholesale electricity falls, and it does not re-price when it rises. That is the whole point of the contract: the provider has financed an asset against a known income, and you have bought certainty about the cost of the units it produces. How that tariff is built, and what else the contract can charge, is set out in our guide to the PPA tariff.

What moves is the gap between the tariff and what you would otherwise pay. And grid prices do fall: the average non-domestic electricity price in DESNZ's statistics fell 6.2% between the first quarters of 2025 and 2026, to 24.14 p/kWh including the Climate Change Levy.

Source: DESNZ Quarterly Energy Prices, table 3.4.2 (non-domestic, including CCL, excluding VAT), Q1 2026, last updated 30 June 2026. Verified 26 Sep 2026.

Why a delivered grid price is stickier than wholesale

A business's delivered unit price is a stack: wholesale energy, distribution and transmission charges, balancing costs, policy levies, the Climate Change Levy and supplier margin. Only the first layer tracks the wholesale market directly. The rest are set by regulators, system operators and HMRC, and several do not fall with volume at all — since April 2023 most of the transmission demand charge has been a fixed daily charge per site, and the Climate Change Levy on electricity rises from £0.00801 to £0.00827 per kWh in April 2027.

That is why an on-site PPA holds up better than the headlines suggest. Solar used behind your meter displaces the whole delivered unit, not just its wholesale layer, so a fall in wholesale prices narrows the gap by less than the wholesale fall itself. An off-site deal is more exposed, because it only ever displaced the wholesale layer — its saving should always be measured against that layer.

Sources: NESO — Transmission Demand Residual guidance; HMRC — Climate Change Levy rates. Verified 26 Sep 2026.

A modelled example

Take a 13 p/kWh on-site tariff against a 24.1 p/kWh delivered grid price: a gap of 11.1 p on every unit used on site. If the grid price fell 20% to 19.28 p, the gap would narrow to 6.28 p — smaller, but still a saving on every self-consumed unit. Add a 2.5% escalator and by year 10 the tariff has reached 16.24 p; against the lower grid price the gap would then be 3.04 p. These are modelled numbers, not a forecast, but they show where the real risk sits: not in a single bad year, but in an escalator compounding against a grid price that stays low for a decade.

Three ways to protect a long deal

• Choose the escalator deliberately. A fixed tariff, or a modest fixed escalator, removes the compounding risk above; an index-linked tariff leaves it with you. Compare them over the whole term, not year one.
• Negotiate a collar. A cap on indexation limits how far the tariff can run ahead of a falling market.
• Keep your exit terms sensible. A clear buy-out formula and a term that matches your tenure matter more in a falling market than a fraction of a penny on the headline tariff.

The fastest way to see how exposed a specific offer is: put its tariff and escalator into our solar PPA calculator, then run it again with the grid price falling a few per cent a year.