A solar Power Purchase Agreement (PPA) is a long-term contract where a third-party developer installs and owns a solar PV system on your roof or land, and you agree to buy the electricity it generates at a contracted rate, typically below grid prices, for a defined term, usually 20-25 years.
The site occupier pays nothing upfront. The developer (and behind them, an institutional funder) carries the capital cost, the operational risk, and the maintenance responsibility for the entire term. In exchange they earn a return on the electricity sold to you and any export revenue.
For most UK commercial sites, the PPA rate is a fixed start price (commonly 9-16 pence per kWh depending on system size) with a contractual indexation mechanism, usually a fixed annual escalator (e.g. 2-3.5%) or RPI/CPI-linked. Compared to grid electricity at ~28-32p/kWh and rising, that locks in a meaningful spread for the duration.
The economic case for a PPA is strongest when: you have a strong daytime electricity load profile (so most of the solar is consumed on-site rather than exported), you want predictable energy costs over decades, and you don't want to deploy capital into solar yourself.
The contract details that matter most: take-or-pay clauses (do you pay for unused generation?), buyout rights (can you purchase the asset early?), early termination fees, indexation method (Fixed, RPI, CPI), and what happens if you sell the site or change occupier.
For developers and funders, the credit quality of the off-taker is the single biggest determinant of acceptable IRR. A FTSE 250 covenant with 25 years of guaranteed offtake commands a tighter PPA rate than an SME on a short lease.