Financing solar panels, EV chargers and energy-saving kit

Energy is one of the few big business costs you can cut by spending money. Solar panels generate electricity you'd otherwise buy. LED lighting uses less of it. A heat pump can replace a gas or oil boiler, and an electric van can replace diesel with cheaper charging. The catch is the upfront cost, which can run into tens of thousands of pounds.

Finance turns that upfront cost into monthly payments. The question that matters is whether the savings will cover them, and what happens if they don't. This guide explains how green equipment is financed, how to check the sums, and the alternatives to buying.

What you can finance

Most energy-saving equipment can be funded with the same asset finance that pays for vehicles and machinery:

• Solar panels (PV) on your roof or on the ground.
• Batteries that store solar power, or cheaper off-peak electricity, for use later.
• Heat pumps to replace gas, oil or LPG heating.
• LED lighting upgrades, often with sensors and controls.
• EV chargers for your own fleet, staff or customers.
• Electric vans and cars. Vehicles are covered in our guide to van and HGV finance.

Some lenders and installers bundle several of these, such as solar with a battery and chargers, into one agreement.

How lenders view green equipment

A lender financing a van knows it can sell the van if you stop paying. Much green kit is harder to take back and resell. Solar panels are bolted to your roof, a heat pump is plumbed into your building, and a large share of the cost of any installation is labour, design and connection work that has no resale value.

So lenders lean more on your business than on the equipment. Expect them to look at:

• Your trading history and accounts. Established, profitable businesses find this kind of finance easiest to get.
• Your bank statements, to check you can afford the repayments without relying on the savings.
• Who owns the building. If you rent, you'll usually need your landlord's written consent to install, and the lender may want to see it. Check your lease too, because it may say who owns fixtures when you leave.
• The installer and the quote. Lenders prefer reputable, properly accredited installers and a clear specification.
• Personal guarantees. Directors of limited companies are often asked for one. Our guide to personal guarantees explains what that means.

If you're a sole trader or in a small partnership, finance of £25,000 or less is generally regulated by the FCA, which gives you extra protections but means fewer business lenders offer it.

Some lenders offer "green" finance with slightly better terms for energy-saving projects. Treat that as a bonus to compare, not a reason to skip comparing.

Leasing vs buying

The main ways to pay are much the same as for any equipment. Our guide to hire purchase vs leasing covers them in detail, but in short:

For a VAT-registered business, the VAT on equipment for business use is usually reclaimable, so paying it up front on HP is a timing issue rather than a cost. The reduced VAT rates for energy-saving materials are aimed at homes and some charity buildings, so don't assume they apply to business premises.

Tax allowances can make buying more attractive. Many businesses can deduct the full cost of qualifying plant and machinery from profits in the year they buy it, under the Annual Investment Allowance, and some energy-saving equipment may qualify for other allowances. The rules and limits change, so check GOV.UK and ask your accountant before relying on any of them.

Will the savings cover the repayments?

This is the most important sum, and the one most often oversold. The saving each month depends on:

• How much energy the kit saves or produces. For solar, that depends on roof size, direction, shading and the weather. Output is much higher in summer than in winter.
• How much of it you use on site. Solar power you use yourself saves you the full price you'd otherwise pay. Power you export is usually worth far less. Businesses that use most of their power during daylight hours, such as factories, cold stores and offices, tend to get the most from solar.
• What you pay for energy. The higher your unit rate, the more each kilowatt-hour saved is worth. Rates can fall as well as rise.
• Running costs. Maintenance, insurance and eventual replacement of parts, such as a solar inverter, all reduce the net saving.

Ask your installer for a written estimate, and check the assumptions behind it: the unit price used, how much power is assumed to be used on site, and whether energy prices are assumed to rise. An estimate built on rising prices will look better than one built on today's.

An illustration, not a quote or a forecast. Say a business installs solar panels costing £40,000, before VAT, and finances them over five years. If the total repayable were £47,000, the repayment would be about £783 a month.

Suppose the installer's estimate, checked against the business's bills, suggests an average saving of £550 a month. During the five years, the business pays around £233 a month more than it saves, and more in winter, when the panels produce less. Once the finance ends, the whole saving stays with the business for as long as the panels keep working.

Stretching the term to seven years, at a total repayable of, say, £50,000, would cut the repayment to about £595 a month, much closer to the saving, but it would cost around £3,000 more overall. Neither is right or wrong. It depends on whether the business can carry the gap, and how confident it is in the saving.

The safe approach is to make sure you could afford the repayments even if the savings came in lower than expected. Treat the saving as a bonus that reduces the net cost, not as the only way you'll pay. Our guide to business loan costs explains how to compare finance offers on total cost.

Power purchase agreements

A power purchase agreement (PPA) is an alternative to buying. A provider installs and owns solar panels on your roof or land, maintains them, and sells you the electricity they produce at an agreed price per unit, usually below what you'd pay your supplier.

What to weigh up:

• No upfront cost, and no loan to repay.
• You save less than an owner would, because the provider takes a margin on the power.
• Long contracts. PPAs often run for many years, sometimes 20 or more. Check what happens if you move, sell the building or want to end early.
• Your roof is tied up. The provider usually needs a lease or licence over the roof, which can complicate a future sale or refinance of the property.
• Size matters. PPAs tend to be offered for larger installations, so a small business may not qualify.

A PPA can suit a business with a big roof and high daytime use that doesn't want to own or manage the equipment. A business that can afford the finance usually keeps more of the saving by owning.

EV chargers and electric vans

Charge points are usually funded like other equipment, often alongside the vehicles that will use them. Costs vary a lot depending on the power of the charger and how much electrical work is needed to supply it. A site that needs a bigger grid connection can face a significant extra cost and delay, so get that checked early.

Electric vans are financed much like diesel ones, through hire purchase, finance leases or contract hire. Lenders look at the expected value of the van at the end of the agreement, and that can be less certain for electric vehicles than for diesel.

Grants and support

Governments in the UK have offered grants and tax incentives for some green equipment at various times, including for charge points and heat pumps. Schemes open, close and change often, and the rules differ between England, Scotland, Wales and Northern Ireland, so we don't quote names or amounts here. Check GOV.UK for what's open now.

Some points apply whatever the scheme:

• Check eligibility before you buy. Many grants won't pay for equipment ordered or installed before approval.
• Grants may be paid after installation, so you may need finance to cover the full cost first.
• Export payments are modest. Under the Smart Export Guarantee, larger electricity suppliers in Great Britain must offer a tariff for power you export, but they set their own rates. Don't build a plan around export income.

Common mistakes to avoid

• Trusting a saving you haven't checked. Compare the estimate with your actual bills and usage pattern.
• Assuming savings arrive evenly. Solar savings are concentrated in summer. Plan for winter months when repayments exceed savings.
• Forgetting the landlord. Installing on a rented building without consent can breach your lease.
• Finance longer than the kit's useful life. Match the term to how long the equipment will realistically keep saving you money.
• Ignoring running costs. Maintenance, insurance and replacement parts all come out of the saving.

Questions people ask

Can a business get finance for solar panels?

Yes. Many lenders offer hire purchase, leases or loans for commercial solar, often over several years. Because installed panels are hard to resell, lenders focus on your business's trading record and affordability as much as on the equipment.

Will solar panels pay for themselves during the finance term?

Sometimes, but not always. It depends on the system's cost and output, how much of the power you use on site, and what you pay for energy. Make sure you could afford the repayments even if the savings came in lower than expected.

Is it better to lease or buy energy-saving equipment?

Buying, including on hire purchase, usually means you keep the full saving once the finance is paid and can often claim capital allowances. Leasing spreads VAT and may suit kit you'll upgrade. Your accountant can tell you which works better for your tax position.

What is a solar power purchase agreement?

It's an arrangement where a provider installs and owns solar panels on your property and sells you the electricity at an agreed price. You pay nothing up front, but you save less than an owner would, and contracts often last many years.

Are there grants for business EV chargers or heat pumps?

There have been, but schemes change often and differ across the UK. Check GOV.UK for what's open now, and confirm eligibility before you order, because many grants won't cover kit bought before approval.