Comparison

PPA vs Operating Lease

Solar PPA vs operating lease — accounting treatment under IFRS 16, monthly cost, exit flexibility. Which suits your business?

Side-by-side comparison

	Solar PPA	Operating lease
Payment structure	Per-kWh generated	Fixed monthly amount
Performance risk	Provider	You (lease pays whether system works or not)
IFRS 16 treatment	Typically off-balance-sheet (service contract)	On-balance-sheet right-of-use asset
Term	15-25 years	5-15 years typical
Exit	Buy-out at FMV	Return to financier or buy at residual
Tax	Operating expense; deductible	Lease accounting
Tariff (per-kWh equivalent)	11-16 p/kWh	13-20 p/kWh

One pays for output, the other pays regardless

This comparison lives and dies on a single distinction. Under a PPA you pay per kilowatt-hour actually generated — a cloudy year or a faulty inverter costs the provider, not you. An operating lease charges a fixed monthly sum whether the panels perform or not; if generation disappoints, you still owe the same amount. That is why a lease keeps you in control of the asset but hands you the downside.

How the two land on your balance sheet

Since IFRS 16, an operating lease typically appears as a right-of-use asset with a matching liability. A well-structured PPA is usually treated as a service contract and stays off balance sheet, with the per-kWh charge running through the P&L as a deductible operating cost. Finance directors chasing off-balance-sheet treatment often prefer the PPA route for exactly this reason — though the accounting has to be tested against the specific contract, not assumed.

Cost, term and exit

On a per-kWh-equivalent basis PPAs tend to sit around 11–16p versus roughly 13–20p for a lease, and PPA terms run longer (15–25 years against a typical 5–15). Exit differs too: a PPA usually offers a fair-market-value buy-out, while a lease ends with a return to the financier or a residual-value purchase.

Reading the trade-off

If you back the technology and want the asset on your books, a lease can make sense. If you'd rather the provider carry generation risk and maintenance, the PPA is the cleaner deal. Line them up in the side-by-side comparison, see how a PPA is structured, and pressure-test the numbers in the cost model.

FAQs

Comparison FAQs

Which option should I pick?

PPA shifts performance risk to the provider; operating lease keeps you in control of the asset but exposes you to under-performance. Run your specific numbers in our PPA calculator before deciding.

Can the two be combined?

Sometimes. SEG income always layers on top of either route. Capital allowances combine only with cash or self-finance — and note solar is a special-rate asset, so it does NOT qualify for full expensing; the correct 100% route is the Annual Investment Allowance (up to £1m/year). PPA + grant rarely stack — most grants exclude PPA structures.

Where can I read more about the underlying mechanics?

Our mechanics hub covers 10 deep-dives on PPA structure, pricing, escalators, term, end-of-contract, off-taker covenant, EPC, O&M and M&V.