On-Site Solar PPA for Data Centres: Structure, Rates and When It Beats Capex

An on-site PPA (power purchase agreement) lets a data centre host a rooftop or ground-mounted solar array on its own site with zero upfront capital: a third-party funder owns the system, and the operator simply buys the electricity it generates at a fixed, discounted p/kWh rate under a long-term contract. It is the behind-the-meter financing route — distinct from an off-site corporate PPA, where the generation sits at a remote wind or solar farm and is delivered across the grid. This article goes deep on the on-site instrument itself: how it is structured, who owns the asset, what the rates and escalators look like, and the specific circumstances in which it beats a straight capex purchase.

If you want the strategic on-site-vs-off-site decision rather than the mechanics of the on-site contract, read our companion piece, on-site solar vs corporate PPA for UK data centres. This article assumes you have already decided on-site generation is part of the plan and are choosing how to fund it.

What an on-site PPA actually is

An on-site PPA — sometimes called a behind-the-meter PPA, a private wire PPA, or a rooftop PPA — is a tri-party arrangement in commercial substance, though contractually it is usually two agreements:

1. A lease or licence granting the funder the right to install and operate solar equipment on your roof or land for the contract term (typically a 25-year roof lease at peppercorn or nominal rent).
2. The PPA itself, under which you agree to buy all the electricity the system generates, metered behind your supply point, at an agreed price per kWh.

The electricity never touches the public grid. It flows directly from the inverters into your distribution boards and is consumed by your IT load, cooling plant and ancillaries. Because a data centre runs a flat 24/7 baseload, on-site solar is self-consumed at close to 100% — there is no export, no spill, and no need for the funder to secure an export route. That makes the data centre roof one of the most fundable solar sites in the UK, which in turn drives the keenest PPA rates.

Who owns the asset, and why that matters

Under an on-site PPA the funder owns the system for the full term. This is the defining feature and the source of every downstream consequence:

• The funder bears the capital cost — typically £700–£1,100 per kWp installed for a commercial rooftop system at data-centre scale, all of which sits off your balance sheet at outset.
• The funder carries performance risk. If a string underperforms or an inverter fails, that is the funder’s revenue at stake. You pay only for kWh actually delivered.
• The funder claims the capital allowances. Crucially, because the funder owns the asset, they capture the Full Expensing and capital allowance reliefs, not you. This is the central trade-off versus a capex buy, where the data centre operator claims 100% first-year relief itself.
• You hold an operating commitment, not an asset. You have contracted to buy power, much as you would from a licensed supplier.

This ownership split is what makes the PPA attractive to operators who are capital-constrained, who cannot use the tax reliefs (loss-making, or REIT/charitable structures), or who simply will not divert capex away from compute, cooling and connectivity into a roof.

Typical rates, term and escalators

On-site PPA economics are expressed as a fixed starting rate in pence per kWh, an annual escalator, and a term. For a UK data centre roof commissioned in 2026, representative terms look like this:

Parameter	Typical range (on-site DC rooftop)	Notes
Starting rate	7–11 p/kWh	Set at a deliberate discount to your grid import rate
Discount to grid	30–55% below HH-metered I&C retail	Your grid rate is typically 18–32 p/kWh
Annual escalator	0% (fixed) to RPI/CPI-linked, capped ~3%	Fixed-rate deals are increasingly available at DC scale
Contract term	15–25 years	25 matches panel design life and lease
Volume commitment	100% of generation	”Take-or-pay” on what the array produces
End-of-term	Transfer at nil/nominal, extend, or remove	Negotiate at outset, not at year 24

The starting rate is the headline, but the escalator is where deals diverge sharply. A fully fixed 9 p/kWh for 25 years and a 7 p/kWh opening rate escalating at RPI can cross over within a decade if inflation runs hot. For a data centre — where the comparison is not against a fixed grid price but against a volatile, generally rising grid import cost — even an inflation-linked PPA usually stays well below grid for the life of the contract. The structural reason is covered below.

The discount-to-grid logic

The reason an on-site PPA can offer 7–11 p/kWh when you are paying 18–32 p/kWh from the grid is not a subsidy. It reflects genuine cost structure:

• No transmission or distribution charges. On-site generation is consumed metres from where it is made. The TNUoS, DUoS and BSUoS network charges that load a third or more onto your delivered grid price simply do not apply to behind-the-meter kWh.
• No supplier margin or balancing cost on the solar volume.
• Lowest-risk solar in the UK. Because the array is fully self-consumed against a 24/7 baseload, the funder faces no export-price risk and no battery-cycling penalty — so they price the kWh at a thin, debt-like return rather than a merchant-risk return.

This is why we describe data-centre rooftop solar as the lowest-LCOE rooftop MWh in the country: on-site LCOE typically lands at 3–5 p/kWh, and the PPA rate sits modestly above that to give the funder its return. The gap between that PPA rate and your grid price is the operator’s saving, every kWh, for 25 years.

Accounting: is an on-site PPA off-balance-sheet?

This is the question most finance teams ask first, and the honest answer is it depends on how the contract is drafted. Under IFRS 16, the test is whether the arrangement contains a lease — specifically, whether you have the right to control the use of an identified asset (the solar system) for a period in exchange for consideration.

The two ends of the spectrum:

• Pure energy supply (off-balance-sheet). If you pay solely for metered kWh, the funder controls how and for what purpose the asset operates, the funder takes performance risk, and you have no decision-making rights over the system, the contract is generally a supply of electricity — an executory contract — and does not create a right-of-use asset or lease liability. It stays off-balance-sheet, recognised simply as an energy cost.
• Lease-like (on-balance-sheet). If the contract gives you control — for example, a fixed capacity payment regardless of output, the right to direct the asset’s use, or an effective bargain purchase — IFRS 16 may require you to recognise a right-of-use asset and a corresponding lease liability, grossing up the balance sheet.

Well-structured on-site solar PPAs are deliberately drafted to fall on the supply side of that line: variable payment tied to actual generation, funder control of operation and dispatch, and an arms-length (not bargain) end-of-term transfer option. That keeps the commitment off-balance-sheet and preserves your gearing ratios — a frequent driver for operators with debt covenants. This is a judgement for your auditors on the specific contract, not a guarantee; the IFRS 16 assessment should be done before signing, not after.

There is also the IAS 1 / going-concern angle for very long take-or-pay commitments, and ESG reporting nuance: the REGOs from on-site generation accrue to whoever is named in the contract, so confirm you — not the funder — retain the certificates to underpin your market-based Scope 2 and sustainability claims.

When the on-site PPA beats a capex buy

A capex purchase will almost always win on raw lifetime IRR, because you keep the full grid-avoidance saving and the Full Expensing tax relief, and you stop paying anything once the system is paid off. So the PPA is not the cheapest route in absolute terms — it is the right route under specific conditions:

Choose the on-site PPA when:

• Capital is better deployed elsewhere. Every £1m of roof capex is £1m not spent on GPU racks, battery storage, cooling upgrades or grid-connection capacity that earns far more than avoided electricity. For a growth-stage AI data centre, capital rationing alone justifies the PPA.
• You cannot use the tax reliefs. Loss-making operators, REITs, or entities outside UK corporation tax cannot monetise Full Expensing — so the funder capturing it (and pricing some of it back into your rate) is a net gain, not a loss.
• You want the commitment off-balance-sheet. If protecting gearing for covenant or credit-rating reasons matters, a well-drafted supply PPA does that; a capex buy cannot.
• You want zero performance risk and bundled O&M. The funder is contractually motivated to keep the array producing, because they only get paid for delivered kWh. Monitoring, maintenance and inverter replacement are their problem.
• Speed and simplicity. No capex approval cycle, no internal cost-of-capital hurdle, no asset to manage.

Choose capex when:

• You have the capital and a cost of capital below the PPA’s implied funding rate.
• You can fully use Full Expensing and AIA in the year of spend (see grants and funding for the relevant reliefs and allowances).
• You want the maximum lifetime return and will keep the asset long after payback.
• You are comfortable owning, insuring and maintaining the system for 25 years.

A useful rule of thumb: if your internal cost of capital exceeds the PPA’s implied funding rate (the discount baked into the funder’s return), the PPA is creating value for you; if it is lower, you are paying a premium for off-balance-sheet treatment and risk transfer. Many operators run a hybrid — capex-fund the first array to capture the reliefs, then PPA-fund subsequent buildings or campus expansions where capital is tighter.

End-of-term: the clause to negotiate first

The single most overlooked term is what happens at year 25. Three standard options, all of which must be agreed at signing rather than left open:

1. Transfer. The system passes to you at nil or nominal value, after which you enjoy near-free generation for the panels’ remaining life (modern Tier 1 modules retain ~85% output at 25 years). This is the most common and most valuable outcome.
2. Extension. Roll the PPA forward at a renegotiated, typically lower, rate.
3. Removal. The funder de-installs and makes good the roof at their cost.

Insist that transfer terms and any bargain-purchase characterisation are settled up front, because — as noted above — a contractual bargain-purchase option is one of the triggers that can pull the arrangement onto your balance sheet under IFRS 16. Good structuring keeps the option arms-length while still landing the asset with you.

How on-site differs from off-site, in one line

An on-site PPA prices a physical array on your roof at a network-charge-free rate and is self-consumed at ~100% against your baseload; an off-site (sleeved or corporate) PPA contracts generation from a remote farm delivered over the grid, exposing you to network charges, shaping and balancing, and basis risk. They solve different problems and are often used together — the on-site array for the cheapest, highest-confidence MWh, and an off-site wind PPA to cover the overnight and winter hours solar cannot. For the full side-by-side, see our on-site solar vs corporate PPA comparison.

Next steps

Whether an on-site PPA or a capex buy serves your facility better comes down to three numbers: your delivered grid import rate, your internal cost of capital, and your ability to use the tax reliefs. We model all three as part of a free 14-day desk feasibility, including an indicative PPA rate from our funding partners and a side-by-side capex comparison for the same array. Request a feasibility study and we will return a structured options paper for your facility.