UK Solar PPA Glossary — 78 key terms
Definitions for 78 commercial solar PPA terms grouped by category — structures, pricing, off-taker, term, build, DNO connection, M&V, compliance, finance, legal and generation. Used by PPA providers, off-takers and procurement teams.
Build (8 terms)
Commissioning
The formal handover process when the system is energised, tested and accepted by the off-taker.
EPC contractor
The Engineering, Procurement and Construction firm that designs, sources components for, and installs the PV system.
MCS certification
Microgeneration Certification Scheme — mandatory for SEG eligibility and most commercial solar schemes.
Module degradation
Annual loss of PV output capacity as modules age — typically 0.4-0.6% per year for modern panels.
O&M (Operations & Maintenance)
The contracted operation and maintenance of the solar system, typically covered by the PPA provider for the contract duration.
Performance ratio (PR)
The ratio of actual to theoretical maximum energy output of a PV system. Target 78-82% for modern UK commercial systems.
Performance ratio guarantee
A contractual undertaking by the provider that the system will achieve at least a specified PR; failure triggers make-good payments.
Soiling
Reduction in PV output due to dirt, dust, leaves, snow or other surface contamination. Typically <3% in UK; rarely needs active cleaning.
Compliance (7 terms)
ESOS Phase 4
The Energy Savings Opportunity Scheme — mandatory energy audits for large UK businesses; Phase 4 reports due December 2027.
MEES (Minimum Energy Efficiency Standards)
UK rules setting minimum EPC ratings for let property. Tightening to B by 2030 for non-domestic let property.
REGO
Renewable Energy Guarantees of Origin — Ofgem-issued certificate proving 1 MWh of renewable electricity generation. Tradeable separately from energy.
SBTi
Science Based Targets initiative — validates corporate net-zero targets against 1.5°C climate science.
Scope 2 emissions
Indirect emissions from purchased electricity. Renewable PPAs (with REGO) reduce Scope 2 under market-based accounting.
Smart Export Guarantee (SEG)
Ofgem-licensed scheme requiring suppliers to pay generators for electricity exported to the grid. UK floor 3p/kWh; market 3-15p.
TCFD
Task Force on Climate-related Financial Disclosures — mandatory for LSE-listed and large private UK companies since 2022.
Connection (5 terms)
DNO
Distribution Network Operator — the regional electricity network operator. UK DNOs include UK Power Networks, Northern Powergrid, SP Energy Networks, etc.
G100
Export limitation methodology — restricts export to grid below the generator's potential to manage DNO capacity.
G98
Grid code for connecting micro-generators ≤16A per phase. Less common in commercial.
G99
The grid code for connecting generators >16A per phase (typically >11kW). Required for most commercial solar.
Grid connection offer
The DNO's formal connection terms including timing, cost and any required network upgrades.
Finance (6 terms)
Annual Investment Allowance (AIA)
UK tax relief allowing 100% deduction of plant and machinery capex up to £1m/year. Not available on PPA (no asset ownership).
Cost of capital
The blended cost of debt and equity used to fund a PPA SPV. Drives the minimum tariff the provider can offer.
Full Expensing
100% First-Year Allowance for limited companies on main-pool plant and machinery. Solar PV does NOT qualify — it is a special-rate asset, so it is excluded from full expensing and from the 40% first-year allowance. The correct 100% route for solar is the Annual Investment Allowance (up to £1m/year); above that, the special-rate balance attracts the 50% first-year allowance. Either way it applies only to owned systems, not to a PPA.
IFRS 16
The accounting standard governing lease accounting. Solar PPAs structured as service contracts typically avoid IFRS 16 treatment.
IRR (Internal Rate of Return)
The discount rate at which NPV equals zero. Solar PPA providers typically target 7-9% IRR post-debt.
Off-balance-sheet
Accounting treatment where a PPA stays out of the off-taker's balance sheet — typically applies to service-style PPA contracts.
Generation (6 terms)
Capacity factor
Annual generation divided by nameplate × hours in year. UK solar averages 10-12%.
Inverter
Device that converts DC from panels to AC for use. Typical lifetime 12-15 years; replacement is part of O&M scope.
MWp
Megawatt-peak — 1000 kWp. Utility-scale solar typically 1-50 MWp.
String
A connected series of solar panels feeding a single inverter input. Shading on one panel reduces the whole string's output.
kWh
Kilowatt-hour — the unit of energy. UK commercial solar yields ~950 kWh per kWp/year.
kWp
Kilowatt-peak — the system's nameplate rated output in optimal conditions. UK commercial solar typically 50-2000 kWp.
Legal (6 terms)
Change-in-law
A clause governing what happens if UK policy changes mid-contract — typically allocates the cost between off-taker and provider.
Force majeure
A clause excusing performance due to extraordinary events — applied to weather disasters above design wind load or pandemic-style disruption.
Indemnity
Contractual undertakings to compensate the other party for specified losses — heavily negotiated in PPA contracts.
Liquidated damages
Pre-agreed damages payable on breach of specific contract terms — caps the financial exposure of either party.
Make-good payment
Compensation paid by the provider if performance ratio falls below the contractual guarantee.
Right of first refusal (ROFR)
The off-taker's right to be offered the chance to buy the system before the provider can sell it to a third party.
M&V (6 terms)
Generation meter
The meter that records every kWh produced by the system — the basis for PPA invoicing.
Half-hourly metering
Settlement-grade metering recording electricity flow in 30-minute intervals — required for systems above certain capacity.
IPMVP Option B
International Performance Measurement and Verification Protocol — the gold standard for measuring solar PPA delivery.
M&V (Measurement & Verification)
Protocols for measuring and verifying actual system performance against expected, used to settle PPA invoices and performance disputes.
P50 yield
The median expected annual generation — there's a 50% probability of meeting or beating P50.
P90 yield
The 90% confidence lower bound on annual generation — there's a 90% probability of meeting or beating P90. Used by lenders.
Off-taker (7 terms)
Default clause
Contractual provisions defining what constitutes off-taker default and the remedies available to the generator.
Investment-grade
Credit rating BBB- or higher (S&P) / Baa3 or higher (Moody's). Strongest covenant tier for PPAs.
Letter of credit (LC)
A bank-issued guarantee that the off-taker will meet PPA payments — typically 3-6 months of expected payments held in standby.
Off-taker
The business or organisation that buys the electricity under a PPA. The off-taker's credit (covenant) drives the available tariff.
Off-taker covenant
The credit quality of the off-taker. Investment-grade off-takers get the best tariffs; weak covenants require guarantees or shorter terms.
Parent guarantee
A binding undertaking from a stronger parent company to honour the off-taker's PPA payments. Common when the operating entity has a weaker covenant.
Step-in rights
The lender's right to replace the operator if the generator SPV fails. Important to understand for the off-taker.
Pricing (10 terms)
CPI (Consumer Price Index)
ONS's preferred inflation measure; often used as an alternative to RPI in PPA escalators.
Escalator
The annual percentage uplift applied to the PPA tariff. Can be fixed, RPI-linked, CPI-linked or zero.
Escalator cap
A negotiated upper limit on annual tariff uplift (e.g., RPI-capped-at-3%) to protect off-takers against runaway inflation.
Escalator floor
A minimum annual tariff uplift, typically 0% — protects the off-taker if RPI/CPI goes negative.
Floor price
Under a virtual PPA, the minimum price the generator receives regardless of market — protects the asset's debt service.
Levelised Cost of Energy (LCOE)
The lifetime cost of generating electricity from a system, divided by lifetime kWh — used to compare PPA vs cash purchase.
PPA tariff
The price per kilowatt-hour the off-taker pays under the PPA contract. UK 2026 commercial PPA tariffs range 8-22 p/kWh year 1 (indicative).
RPI (Retail Price Index)
UK inflation measure used as a basis for many PPA escalator clauses. Currently averaging ~3% pa.
Strike price
Under a virtual PPA, the reference price against which the financial difference is settled.
Take-or-pay
A clause obligating the off-taker to pay for generated kWh whether or not consumed. Most UK solar PPAs include take-or-pay.
Structures (10 terms)
Aggregator PPA
A PPA structure where multiple small off-takers pool demand to access better generator pricing.
Behind-the-meter PPA
An on-site PPA variant where the system connects to a private wire and the kWh never touch the public distribution network.
Corporate PPA (CPPA)
A direct bilateral agreement between a generator and a corporate off-taker, bypassing the traditional utility supplier.
In-front-of-meter PPA
An on-site PPA where the system exports to the grid and the off-taker buys the energy back via their public-supply import meter.
On-site PPA
A PPA where the generator builds and owns solar PV on the off-taker's roof or land; the off-taker buys the kilowatt-hours generated directly.
Power Purchase Agreement (PPA)
A long-term contract between an electricity generator and a buyer (off-taker) for the sale of electricity. Solar PPAs typically run 15-25 years in the UK.
Sleeve agreement
The supplier-side contract that converts off-site generation into delivered kWh at the off-taker's meter; combines with a generator-side PPA.
Sleeved PPA
A PPA where generation sits at a different location and an electricity supplier 'sleeves' the renewable energy through to the off-taker's import meter.
Synthetic PPA
Alternative term for virtual PPA — a purely financial hedge between off-taker and generator.
Virtual PPA (vPPA)
A financial contract-for-difference referencing a wholesale electricity price; no physical delivery of electricity to the off-taker.
Term (7 terms)
Assignment-on-sale
A clause governing what happens to the PPA when the off-taker sells the building or business. Standard PPAs transfer to the buyer.
Buy-out option
The off-taker's option to purchase the system at fair market value at specific points during or at the end of the PPA term.
Change-of-control
A clause requiring generator consent if the off-taker is acquired or undergoes significant ownership change.
Extension option
The off-taker's option to extend the PPA beyond the initial term at a renegotiated tariff.
Fair market value (FMV)
Independent valuation of the solar asset based on remaining useful life and current market prices. Used in buy-out clauses.
PPA term
The contractual length of the PPA — typically 15-25 years for UK commercial solar.
Termination clause
Contractual provisions governing early termination — typically requiring payment of remaining contract value or fair market value buy-out.
Need a term defined that isn't here?
We're constantly adding to the glossary. Drop us a note and we'll cover it within 48 hours.
Send a termThe three drafting routes — pass-through, equal share and bear-and-indemnify — are set out in our guide to change-in-law provisions explained in full.
For how these certificates are issued by Ofgem, transferred under a PPA and retired against your own consumption, see the full REGO mechanics guide.
ESOS is the mandatory four-yearly energy audit for large undertakings, and the current cycle adds an action plan you are expected to implement — see ESOS Phase 4 in practice.
SPV — the ring-fenced special purpose vehicle that owns the array and contracts with you; see the standard UK PPA structure for how it sits between funder, EPC contractor and off-taker.
Every term above belongs to one kind of contract, and the plain-English starting point is our overview of the solar PPA for UK businesses.
Most of these terms only make sense in context, so if you are new to the subject read what a power purchase agreement is and who signs one first.
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