UK farms now finance solar in three distinct ways. The right choice depends less on your farm's size than on your cash position, your capital allowance headroom, and your appetite for asset ownership.
Option 1 — Capital purchase + 100% AIA
You pay the full cost up front (typically £60,000 for a 100kW system after FETF grant). You claim 100% of the residual cost under the Annual Investment Allowance in year one, writing it down against profits up to the £1m cap. You own the system outright and keep 100% of every kWh generated and every penny of SEG export income.
Best for: profitable limited companies with capital allowance room, partnerships and sole traders with strong year-end profits, farms wanting absolute lowest cost of energy.
Payback typically 1.6–2.4 years.
Option 2 — Asset finance (5–10 year term)
Zero deposit, fixed-rate finance against the system value. Repayments structured below your projected energy savings — typical 100kW system costs £700–£900/month over 7 years, against £1,800/month energy savings.
You own the asset from day one, claim capital allowances normally, and become cash-flow positive from month one. At the end of the term you've paid roughly 110–115% of the cash price but never had a single year of negative cash flow.
Best for: tenant farmers (with landlord consent), farms preserving capital for stock or land, projects where the saving covers the finance with margin to spare.
Option 3 — Power Purchase Agreement (PPA)
A third-party investor (often institutional capital) finances, installs and maintains the system on your roof or land. You pay only for the electricity it generates, at a fixed unit rate well below your current grid tariff — typically 10–16p/kWh vs grid retail of 25–32p/kWh.
Off-balance-sheet. Zero capital, zero finance, zero maintenance. Term is usually 15–25 years, with options to buy out the system mid-term or take ownership at the end.
Best for: farms with no capital to invest, tenant farmers, farms preserving borrowing capacity for other investments, large-scale (200kW+) ground-mount systems.
Side-by-side comparison (100kW system example)
| Capital | Asset finance | PPA | |
|---|---|---|---|
| Up-front cost | £60,000 | £0 | £0 |
| Monthly outflow | Nil | £750 | Variable (per kWh used) |
| Year 1 tax saving | £11,400 (AIA) | £1,200 (annual cap) | £0 |
| Annual energy saving | £21,500 | £21,500 – £9,000 = £12,500 net | ~£10,000 |
| Year 1 net benefit | £32,900 (saving + AIA – cost spread) | £12,500 net cash | £10,000 net cash |
| Lifetime savings | £500,000+ | £430,000 | £250,000 |
| Ownership | 100% yours | 100% yours | Investor for 15–25 yr |
Tax treatment of each finance route
Different finance routes are taxed differently — this materially affects the year-1 cash position on your books:
- Capital purchase: 100% Annual Investment Allowance year 1, capital allowance reducing balance on residual above £1m cap. Treated as plant and machinery (CAA 2001, Part 2).
- Asset finance (HP): AIA available on the full capital value at start of agreement. Interest portion of repayments allowable as trading expense.
- Asset finance (operating lease): Rentals fully allowable as trading expense over the term. No AIA. Off-balance-sheet under IFRS 16 unless lease exceeds 12 months.
- PPA: Unit prices fully allowable as trading expense. No capital allowance. Off-balance-sheet entirely.
- Private Wire PPA: Same treatment as PPA. Site licence income (where you receive a roof rental) is taxable as trading income.
Lifetime cost-of-energy comparison (25-year horizon)
For a 100kW farm system generating 88,000 kWh/year over 25 years (2.2 GWh total lifetime generation), here's the all-in cost-of-energy by route:
| Route | 25-yr total spend | Effective p/kWh | vs grid (30p) |
|---|---|---|---|
| Capital purchase | £45,000 (net) | 2.0p/kWh | 93% saving |
| Asset finance (7yr) | £63,000 | 2.9p/kWh | 90% saving |
| PPA (15p/kWh start, RPI) | £345,000 | 15.7p/kWh | 48% saving |
| Grid only (no solar) | £660,000 | 30p/kWh | baseline |
Figures assume 70% self-consumption, 30p/kWh grid with 3% RPI escalation, FETF 40% grant + 100% AIA on capital route, 7-year asset finance at 7% APR, 15p/kWh PPA Year 1 with 3% indexation. All numbers exclude inverter replacement at year 12 (£4-7k) and battery if specified.
Which finance route is right for which farm?
- ✓ Profitable limited company with strong year-end position → Capital purchase. AIA absorbs the residual; lifetime cost-of-energy lowest at ~2p/kWh.
- ✓ Tenant farmer or capital-light operator → Asset finance. Cash-positive from month one; you still own the asset and claim allowances.
- ✓ Sub-100kW system on a smaller mixed farm → Capital or asset finance. PPA isn't viable at this scale (developer minimum thresholds).
- ✓ 200kW+ ground-mount on land you'd otherwise lease to an external developer → PPA is the natural comparison.
- ✓ Estate with neighbouring commercial energy customer → Private Wire PPA. Capture higher unit prices than wholesale export.