12-20% returns are the potential for commercial solar
If you’re looking to power your company with solar, or put some idle roof space to work, the first question you probably have is: when will I get paid back? The quick answer is you’ll likely get your cash back in years 4-6, with nearly pure profit after that (minus thin maintenance & cleaning costs). You can get 12-20% a year return over the panels’ lifetime, which is potentially index-beating. That doesn’t factor in energy inflation, which is highly likely to continue.
Let’s take a look at the full payback schedule.
- Simple payback is usually four to six years. High daytime users on high tariffs land nearer four; low daytime users who export most of their generation drift towards eight.
- Self-consumption is the biggest lever. A unit you use on-site saves 22 to 30p. The same unit exported earns 3 to 15p. Sizing the system to your daytime load matters more than buying the cheapest panels.
- The Annual Investment Allowance is the real incentive. It writes off 100% of the cost against taxable profit in year one, up to £1m. At 25% corporation tax that cuts the effective net cost by a quarter and pulls payback in by roughly a year.
- Solar doesn’t qualify for full expensing. HMRC classes it as a special-rate asset, so the correct routes are the AIA and the 50% first-year allowance, not the 100% full expensing many pages claim.
- Commercial solar is standard-rated at 20% VAT, not the 0% domestic rate. VAT-registered businesses reclaim it, but compare quotes on the ex-VAT figure.
- Business rates on eligible on-site solar are exempt across Great Britain until 31 March 2035, and self-generated power also escapes the Climate Change Levy.
Payback, ROI and IRR are not the same
Four metrics get used loosely in solar sales, and they answer different questions. It’s worth being precise, because a proposal that leads with the flattering one is a small warning sign.
- Payback period
- The time for cumulative savings and export income to equal the net cost of the system. Simple to grasp, but it ignores everything that happens after the break-even point, so it understates the case for solar.
- Return on investment (ROI)
- Total lifetime profit as a percentage of the cost, or expressed per year. A 25-year benefit of £400,000 on an £80,000 system is a 400% lifetime ROI, or roughly 16% a year on a simple average.
- Internal rate of return (IRR)
- The annual rate of return that accounts for the timing of cash flows. This is the figure a finance director compares against other uses of the same capital. UK commercial solar commonly models at 12 to 20% IRR, higher on the best self-consumption sites.
- Net present value (NPV)
- The lifetime benefit restated in today’s money at your chosen discount rate. A positive NPV means the project beats leaving the cash where it is.
Payback is the metric most owners are interested in. But when you put the business case to a board, IRR and NPV are the things that gets a signature.
What a commercial system costs in 2026
Installed cost is quoted per kilowatt-peak (kWp) of panel capacity, which normalises for system size and lets you compare quotes fairly. Prices fell steeply over the last decade and have now levelled off. In 2026 the ex-VAT installed rate runs from around £1,300 per kWp for the smallest commercial systems to under £700 for the largest, because the fixed costs of design, scaffolding, grid application and mobilisation get spread across more panels. Our costs guide on commercial solar panel costs sets out the expected investment.
| System size | Cost per kWp | Total installed | Typical fit |
|---|---|---|---|
| 10-50 kWp | £900-£1,300 | £12k-£55k | Small SME, retail unit |
| 50-250 kWp | £750-£1,000 | £40k-£230k | Warehouse, office, factory |
| 250-500 kWp | £700-£850 | £175k-£420k | Distribution, large industrial |
| 500 kWp-1 MW+ | £650-£750 | £340k-£850k+ | Campus, data centre, logistics |
The sweet spot for most UK businesses is the 50 to 250 kWp band. It captures strong economies of scale while staying inside a straightforward grid connection and, for a profitable company, comfortably inside the £1m Annual Investment Allowance. Ground-mounted arrays cost roughly 10 to 20% more than rooftop but can be angled for higher yield. If your roof is within about ten years of replacement, budget for that first, because removing and refitting an array later is expensive. The same sizing logic applies whether you’re looking at solar panels for warehouses or solar for offices.
A useful rule of thumb for output: a UK commercial rooftop generates around 850 to 950 kWh per kWp per year, more on unshaded south-facing pitches in the south, less in Scotland and on east-west or flat roofs. A 100 kWp system therefore produces roughly 85,000 to 95,000 kWh a year.
The four levers that set your payback
A distribution depot running forklifts and chillers from 7am has a very different return to a warehouse that’s dark by mid-afternoon. Four variables explain almost all of the gap.
1. Self-consumption rate
This is the share of generation you use on-site rather than export, and it’s the single most important number in the whole calculation. Every unit you consume yourself saves the full retail rate you’d otherwise pay, currently 22 to 30p for most businesses. Every unit you export earns only the Smart Export Guarantee rate, currently 3 to 15p depending on the supplier and whether you buy your import power from them too. Unit for unit, self-consumption is worth two to three times more than export, so a site that consumes 80% of what it generates has a far shorter payback than one exporting half of it, even with the same hardware.
2. Your electricity unit rate
The higher your electricity cost per unit, the more each self-consumed unit saves. A micro-business paying 30p benefits more per kWh than a half-hourly industrial site on 18p. Business electricity averaged 24.5p per kWh in the second quarter of 2026, roughly two-thirds above the start of 2021, which is precisely why the payback maths looks so different now to a decade ago.
3. System size versus daytime load
Bigger isn’t automatically better. Oversize the array beyond your daytime demand and the surplus spills to export at the lower rate, dragging the return down. The best financial outcome usually comes from matching capacity to the daytime baseload, not filling every square metre of roof. This is the counter-intuitive part: the cheapest-per-kWp mega-system can have a worse return than a right-sized one.
4. How you fund it
Paying cash and claiming the tax relief yourself produces the strongest return. Asset finance spreads the cost but adds interest. A power purchase agreement removes the upfront cost entirely but hands the tax relief, the export income and the rates exemption to the funder.
Tax relief, and the full-expensing myth
This is where commercial solar returns are won or lost, and where a lot of published advice is simply wrong. Get the tax treatment right and you shorten payback by roughly a year.
The main relief is the Annual Investment Allowance (AIA). It lets a business deduct 100% of qualifying plant and machinery from taxable profit in the year the cost is incurred, up to £1m per year. Solar PV qualifies. For a company paying the 25% main rate of corporation tax, a £100,000 system reduces the tax bill by £25,000 in year one, and the £1m ceiling covers the overwhelming majority of commercial installs outright. Our detailed breakdown of capital allowances on commercial solar works through the claim mechanics.
Solar panels do not qualify for 100% full expensing. Full expensing applies only to main-rate assets, and HMRC has designated solar panels as special-rate expenditure in their own right since April 2012. Plenty of installer pages and even some accountants claim otherwise. The correct routes are the AIA and the 50% first-year allowance; claiming full expensing on solar is an error that could trigger an enquiry.
What happens above the £1m AIA cap? A limited company can then use the 50% first-year allowance on the excess special-rate spend, deducting half the remaining cost in year one, with the balance added to the special-rate pool and written down at 6% a year thereafter. That relief was made permanent by the Finance Act 2024, so it’s a stable planning tool for large projects.
One point of confusion worth clearing up: the Autumn Budget 2025 introduced a new 40% first-year allowance from January 2026 and cut the main-pool writing-down allowance from 18% to 14% from April 2026. Both target the main pool. Because solar is special-rate, neither changes how most businesses fund an array. The AIA is still the main route.
Companies with profits under £50,000 pay the 19% small profits rate, so the same relief is worth less to them, but still significant. Sole traders and partnerships claim through the AIA too, but the cash value is set by your income tax band rather than corporation tax, and the company-only reliefs, including the 50% first-year allowance, don’t apply to unincorporated businesses. Standard residential landlords generally can’t claim capital allowances on panels in a let dwelling because of the dwelling-house exclusion. Always confirm your position with an accountant.
VAT, business rates and the Climate Change Levy
Three tax points get overlooked in ROI write-ups, and each moves the number.
VAT is 20%, not 0%
Domestic solar (and solar on buildings used solely for charitable purposes) carries 0% VAT until 31 March 2027. Commercial solar doesn’t: it’s standard-rated at 20%. That sounds like a penalty, but a VAT-registered business normally recovers the VAT in full, then claims capital allowances on the net-of-VAT cost, so the VAT is a cash-flow item rather than a permanent cost. Compare quotes on an ex-VAT basis. There are specialist VAT loan companies who will front you the cash until you claim it back from HMRC, if that’s an issue.
Business rates exemption to 2035
Installing eligible on-site solar and storage doesn’t raise your property’s rateable value. The exemption, announced at Autumn Budget 2021, runs until 31 March 2035 in England (since April 2022), Scotland (since April 2023) and Wales (since April 2024). It’s a real saving over the system’s life. Two caveats: it applies to systems serving the building, so export-only arrays and separately rated ground-mount can fall outside it, and under a power purchase agreement the funder owns the asset, so the host site doesn’t meet the ownership test.
You also dodge the Climate Change Levy
Every unit you self-generate is a unit you don’t buy, so you also avoid the Climate Change Levy on it, currently 0.801p per kWh. It’s a small figure per unit but it stacks up across hundreds of thousands of kilowatt-hours a year, and most ROI models leave it out entirely.
Export income, and why it’s the junior partner
Surplus power you don’t use is exported to the grid and paid for under the Smart Export Guarantee. Rates vary sharply by supplier, and the headline rates usually require you to buy your import power from the same supplier.
| Supplier / tariff | Rate (p/kWh) | Note |
|---|---|---|
| Regulatory floor | >0p | Ofgem only requires a rate above zero; the open-to-anyone tariffs from British Gas, EDF, Utilita and Octopus pay 3 to 4p |
| British Gas Business, systems over 15 kW | 8p | Cut from 15.1p on 6 July 2026; import customers only |
| E.ON Next Export Business | 8.5p | 12-month fix, up to 5 MW, no import contract needed |
| Scottish Power SmartGen Premium / Octopus Panel Power | 12p | Import customers only; Octopus caps at 150 kWp per site |
| EDF Export 12M Small Business | 15p | Best flat rate, but only up to 50 kW and only for EDF SME customers |
| Wholesale-linked export / PPA | Dynamic | Tracks half-hourly prices; pays best with a battery that shifts export into the evening peak |
For a system designed around high self-consumption, export income is a useful top-up rather than the main event, often £500 to £5,000 a year for a 100 kWp array. The British Gas cut from 15.1p to 8p for systems over 15 kW is a reminder that export tariffs aren’t guaranteed for a long time like the feed-in tariff was. If your connection caps how much you can send back, our note on export limitation explains how that works.
Three worked examples
The figures below use 2026 installed pricing, an output of 950 kWh per kWp per year (the top of the typical range), and a blended saved value that mixes high on-site self-consumption with a little lower-value export. They assume a profitable company claiming the AIA at the 25% corporation tax rate. Treat them as illustrative starting points, not quotes. Lower self-consumption or a lower yield pushes every payback out towards the six-to-eight-year end.
Notice the gap between simple and effective payback. Simple payback divides the sticker price by the annual saving. Effective payback nets off the year-one tax relief first, which is the honest figure for a profitable company. Many proposals quote only the simple number and ignore the biggest incentive on the table.
Run those benefits forward and the lifetime picture is large. A 100 kWp system generating around 95,000 kWh a year, with modest electricity price inflation and panels still delivering 80 to 85% of output at year 25, typically returns a cumulative benefit of several hundred thousand pounds against a net cost under £70,000. That’s where the 400 to 900% lifetime ROI figures come from. They’re real, but they depend on holding the system and the assumptions for two decades.
Buy, borrow or PPA
How you fund the system changes the return more than most people expect, because ownership is what unlocks the tax relief, the export income and the rates exemption. Here’s how the three main routes compare.
- Upfront cost
- Full system cost
- Tax relief
- You claim AIA
- Export income
- Yours
- Rates exemption
- Yes
- Best for
- Profitable firms with capital
- Upfront cost
- Little or none
- Tax relief
- You still claim it
- Export income
- Yours
- Rates exemption
- Yes
- Best for
- Firms preserving cash
- Upfront cost
- Nothing
- Tax relief
- Funder keeps it
- Export income
- Funder keeps it
- Rates exemption
- Host fails test
- Best for
- Weak tax capacity, no capital
A cash purchase gives the strongest return because you keep every benefit. Asset finance, hire purchase or a finance lease over five to ten years, still lets you own the asset and claim the allowances while spreading the cash outlay, at the cost of interest. A power purchase agreement is the zero-upfront route: a third party funds, owns and maintains the array on your roof and sells you the power at a fixed rate, typically 9 to 14p per kWh on terms of 15 to 25 years, with a buyout usually only at year 10 or 15. That can beat grid import comfortably and removes the technical risk, but you forfeit the tax relief, the export income and the rates exemption, and the lifetime value gap versus ownership is substantial.
Direct cash grants for solar on private commercial buildings are scarce in 2026. The exceptions come and go: agricultural rooftops through the Improving Farm Productivity grant and public-sector bodies through the Public Sector Decarbonisation Scheme, though the latest rounds of both are closed and no new round has been announced. If you run a farm or a public building, our guides on solar for farms and solar for schools cover those routes.
What a battery does to the numbers
Adding storage lets you shift daytime surplus into the evening peak instead of exporting it cheaply, which raises self-consumption and, on the right tariff, opens up buying grid power when it’s cheap and using it when it’s dear. Storage is also plant and machinery for capital allowances, but unlike panels it isn’t automatically special-rate, so ask your accountant whether full expensing applies.
Batteries add cost, currently around £400 to £600 per usable kWh, and that lengthens the raw payback of the storage element. Whether it improves the whole-project return depends on how much power you’d otherwise export at a low rate and whether a flexible tariff is available. On a site with high daytime self-consumption already, a battery adds resilience more than return. On a site that exports heavily, it can be the piece that transforms the economics. Our guides to the best solar batteries and current battery costs go into the sizing detail.
What lengthens payback, honestly
Most of what pushes a four-year payback towards eight is already covered: low daytime load, an array oversized beyond it, a roof that needs replacing first. Two structural points also deserve a mention. Solar cuts your unit consumption, not your standing charges, and standing charges rose sharply from April 2026 as transmission network charges jumped, so a portion of your bill is untouched by any array. And a tight or expensive grid connection can add cost and time: anything above 3.68 kW per phase needs a G99 application rather than the simpler G98 notification, so start the DNO process early. Fit monitoring from day one, too, so underperformance is caught early rather than discovered at year-end.
Building the business case
You can sketch a defensible payback in an afternoon with a year of half-hourly meter data and two or three quotes. The steps below are the ones a finance team will expect to see.
Get 12 months of half-hourly data from your supplier. The share of load falling in daylight hours sets your realistic self-consumption ceiling, and that drives everything else.
Match array capacity to the power you actually use in the day, not to the roof area. This keeps self-consumption high and avoids dumping surplus to export at a low rate.
Use MCS-certified installers and compare the cost per kWp, not just the headline total. Confirm the quote covers design, grid application, scaffolding and commissioning, not just the modules.
Apply the AIA at your corporation tax rate to get the net cost, then compare cash, asset finance and PPA on effective payback and IRR. Have your accountant confirm the capital-allowance position.
Re-run the model with export income halved and electricity inflation at zero. If the payback still works, the case is solid. If it only works on optimistic inputs, revisit the sizing.
How long do commercial solar panels take to pay back in the UK?
Typically four to six years of simple payback for a business that uses most of its power during the day, and nearer three years on an effective basis once the year-one Annual Investment Allowance relief is netted off. Low daytime users who export most of their generation can see payback drift towards eight years.
What ROI does commercial solar deliver?
Well-designed systems commonly model at 12 to 20% internal rate of return over a 25-year life, and lifetime ROI often lands between 400 and 900% once the panels have run for two decades past payback.
Can businesses claim tax relief on solar panels?
Yes. The Annual Investment Allowance gives 100% first-year relief on the installed cost, up to £1m per year, which covers most commercial systems in full. Spend above the cap uses the 50% first-year allowance. Solar is a special-rate asset, so it doesn’t qualify for 100% full expensing.
Do commercial solar panels increase business rates?
No. Eligible on-site solar and storage is exempt from business rates across Great Britain until 31 March 2035 and doesn’t raise your rateable value. The exemption can fall away for export-only or separately rated ground-mount arrays, and under a PPA the host doesn’t meet the ownership test.
Is a PPA better than buying the system?
A PPA removes the upfront cost and the maintenance burden, which suits businesses without capital or tax capacity. But you give up the tax relief, the export income and the rates exemption, so a profitable business with access to credit almost always earns more over the system’s life by owning it outright or through asset finance.
Does commercial solar pay VAT?
Yes, at the standard 20% rate; the 0% rate to 31 March 2027 is for domestic and charitable buildings. A VAT-registered business normally recovers the VAT, then claims capital allowances on the net-of-VAT cost, so compare quotes on an ex-VAT basis.
Payback is a property of your building and business, not the panels
The hardware barely varies between good installers. What varies is your self-consumption rate, your unit tariff, how you size the system and how you fund it.
The two moves that shorten payback most are within your control: design the array around your daytime load rather than your roof, and claim the Annual Investment Allowance correctly so the effective net cost drops by a quarter in year one. Treat export income and electricity inflation as upside, not as the foundation of the case.
Start with 12 months of half-hourly meter data and three ex-VAT quotes from MCS-certified installers. If the payback holds when you halve the export income and zero out inflation, the business case is sound.
METHODOLOGY: Cost and tariff data cross-checked against UK commercial installers, supplier tariff pages and government sources in October 2026. Worked examples assume ~950 kWh/kWp/yr output, a blended saved value of 21 to 23p/kWh reflecting high on-site self-consumption plus some lower-value export, and a profitable company claiming the AIA at the 25% corporation tax rate.
DISCLAIMER: All figures are indicative and for general guidance only. They are not financial, tax or investment advice. Actual costs, savings, tax treatment and returns vary by site, consumption, tariff and company position. Confirm your capital-allowance position with a qualified accountant and obtain site-specific quotes before deciding. The Smart Export Guarantee is administered by Ofgem; export rates and business rates rules can change.
UPDATED: 23 October 2026. Reflects 2026 installed pricing, the £1m AIA, the 50% first-year allowance, 20% commercial VAT, the business rates exemption to 31 March 2035 and the July 2026 British Gas export tariff cut.
