December 19, 2023
4 mins

Funding Commercial Solar Panels: Cash vs Hire Purchase

Key take away points:

From cutting electricity costs and minimising the impact of future energy price increases to meeting environmental responsibilities, there is no real debate as to whether businesses should install solar panels or not…

For more and more businesses, the real question is: “What is the most cost-effective way to fund the project?”

Here we outline two scenarios to explain why financing solar panels can be a cost-effective solution for both cash-rich businesses and those with budgetary constraints

Case study 1: A cost-saving solution for Beamish Golf Club

Located in Stanley, County Durham, Beamish Golf Club is set in the grounds of a former deer park. The club celebrated its centenary in 2006 and has approximately 650 members including men, women, and juniors.

The problem

At the end of 2022 their fixed electricity tariff with British Gas came to an end – they were facing an increase from 14p per unit to 70p per unit.

Annually this would have meant energy bills would have increased from £12,000 to £70,000. National energy prices had increased so quickly that the club had not budgeted for those costs. The club decided to investigate financing solar panels to reduce their energy costs.

Bluestone’s solution

“What we found when we looked into financing solar panels was that lots of funders do not view them as valuable assets and the process was not always straightforward, so some finance companies would not assist us. But when we found Bluestone, it was clear that they understood the process, so we were able to go ahead without a problem. It was very smooth – the finance was secured within 4 days and was released on time without a hiccup – and the administration back-up was second to none.

“In January, February and March of 2023 the club’s monthly electricity bills were approximately £5,500 per month. After negotiating a better tariff with British Gas and installing the solar panels, our monthly electricity bills, and the finance repayment combined cost us just £2,000 per month.” Phillip Dobson, Treasurer of Beamish Golf Club

Case study 2: Company X had the cash to pay upfront, but still chose to finance

Company X was installing solar panels on its warehouse roof to reduce electricity costs. The cost of buying the solar panels and getting them installed was £76,950.

While Company X had the cash available to fund the project, after consulting with Bluestone and their solar supplier, they decided to spread the cost over time through hire purchase.

The following illustration* outlines the financial advantages of doing so.

Over the likely 25-year lifespan of a solar installation there is marginal difference between paying with capital or using finance in terms of cash generation for the business, but by paying with cash the business is unlikely to see any ROI until year 3-4, depending on the output and cost of the installation, leaving them in a cash negative position for at least the first couple of years.

Paying for the solar panels via a hire purchase means that the company will pay a fixed rate of interest. On the surface this may appear the more expensive option, but by spreading the cost over time – paying £1,683 per month for 5 years – Company X not only retains capital for stability and investment in growth, but also unlocks greater tax savings. For more profitable companies paying corporation tax at the higher rate of 25%, there would be even more to save.

What’s more, the reduced electricity costs resulting from the solar panels more than offset the finance repayments, leaving them in a cash-positive position from year 1.

By the time the finance is paid in full in year 5, the company will be in a stronger cash position than it would have been had it paid using cash.

If you are planning to install solar panels on your commercial premises and are interested in financing the project, click here to request a no-obligation finance quote.

*The above illustration is based on the following assumptions and forecasts:
Total cost of solar panels and installation: £76,984
Customer’s current electricity cost: £0.31 per kWh
Forecast annual energy generation: 84,155 kWh
System performance degradation per annum: 0.06%
Annual electricity price inflation: 8%
Corporation tax rate: 19%
Electricity savings estimated and subject to seasonal daylight/sunshine hours.
Tax benefits assume 100% of AIA is available to use.
Repayments are in no way linked to savings and the above model is purely an indicator of the cash position the business could experience as a result of installing solar on finance.
All prices exclude VAT at 20%. Finance repayments are indicative and subject to credit checks.

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