Electricity prices in Australia continue to rise, and for businesses spending hundreds of thousands or even millions on energy each year, how you pay for solar is just as important as the system itself. Whether you choose to pay upfront, finance the installation, or enter a Power Purchase Agreement (PPA), each option will impact your business's costs, cash flow and long-term savings differently.
This guide explores three ways to pay for commercial solar in Australia: purchasing a system outright (CapEx), financing the installation, or entering a Power Purchase Agreement (PPA). It's designed to help business owners, CFOs, finance teams and other decision-makers understand the costs, benefits and considerations of each option, beyond just the potential savings.
Smart Commercial Energy works with Australian businesses across all three options, bringing practical experience and insights from real commercial solar projects.
A CapEx purchase means your business buys the solar or battery storage system outright. You own the asset from day one, and all energy savings flow directly to your bottom line with no third-party obligations.
This model is common among manufacturers, logistics operators, and asset-heavy businesses that plan to remain on site long term. Ownership gives you full control over system design, future expansion, and performance optimisation.
The trade-off is capital allocation. A commercial solar installation can require a significant outlay, and that capital is no longer available for product development, equipment upgrades, or other growth initiatives. For businesses with strong cash reserves and low borrowing needs, CapEx often delivers the fastest payback and highest total return.
A Power Purchase Agreement is a financing arrangement where a third party (in this case, Smart) funds, installs, and owns the solar and/or battery system on your premises. Your business purchases the energy the system generates at an agreed rate, typically below your current grid tariff.
The PPA provider carries all the upfront cost and takes responsibility for system performance, maintenance, and monitoring throughout the contract term. Your energy spend remains an operating expense, keeping the asset off your balance sheet entirely.
PPAs are widely used by businesses that lease their premises, operate across multiple sites, or want to preserve capital for core operations. Contract terms typically range from 10 to 25 years, with options for buyout or system transfer at the end of the agreement.
Financing your system allows your business to own the solar or battery equipment while spreading the cost across a loan term, typically three to seven years. The system becomes a depreciable asset on your balance sheet, and you retain access to all energy savings from day one.
Several structures are available in the Australian market. Chattel mortgages and equipment finance loans secured against the solar asset are the most common. The Clean Energy Finance Corporation (CEFC) also backs discounted energy-efficiency loans through major Australian banks, which can offer more competitive rates than standard business lending.
Financing suits businesses that want ownership benefits but prefer to preserve working capital. Monthly repayments are often offset by energy savings, creating a cash-flow-positive position within the first year. The key consideration is that both the asset and the borrowing appear on your balance sheet, which may affect your capacity to raise additional debt.
Each financing model affects your business differently across five key dimensions: ownership, cash flow impact, balance sheet treatment, risk allocation, and flexibility. Understanding where each model sits on these dimensions is the fastest way to narrow your decision.
| Evaluation Criteria | CapEx Purchase | Finance | PPA |
|---|---|---|---|
| Upfront Cost | Full system price | Deposit or none | Zero |
| Asset Ownership | Immediate | From settlement | Provider-owned |
| Balance Sheet Impact | Asset only | Asset and liability | Off balance sheet |
| Ongoing Maintenance | Your responsibility | Your responsibility | Provider responsibility |
| Contract Term | None | 3 to 7 years | 10 to 25 years |
| Best Suited For | Capital-rich businesses | Ownership with cash flow flexibility | CapEx-constrained or leased premises |
This comparison provides a starting point. The right model for your business will depend on site-specific factors and your organisation's approach to energy risk.
For CFOs managing debt covenants or preparing for capital raises, balance sheet treatment is a critical consideration.
A CapEx purchase adds the system as a fixed asset. If funded from cash reserves, there is no corresponding liability. This can improve your asset position without affecting debt ratios. If funded through a combination of cash and short-term facilities, the impact depends on how the draw-down is classified.
Finance adds both an asset and a liability to your balance sheet. This increases total assets but also increases total liabilities, which may tighten borrowing ratios. Lenders will assess the solar asset as part of your overall collateral position, but the additional debt may reduce headroom for future borrowing.
A PPA keeps the solar system off your balance sheet. The energy payments are recorded as operating expenditure, similar to a standard electricity bill. For businesses with tight gearing ratios or upcoming capital events, this can be a significant advantage.
Cash flow is where the three models diverge most sharply in the first few years of a project.
A CapEx purchase requires a large upfront outflow, followed by immediate and ongoing savings from reduced grid consumption. Payback periods for commercial solar in Australia typically range from three to six years depending on system size, consumption profile, and tariff structure. After payback, all energy produced is essentially free.
Finance converts that upfront outflow into manageable monthly repayments. In many cases, the monthly energy savings exceed the loan repayment, creating a cash-flow-positive position from day one. Smart Commercial Energy works with businesses to model these projections against actual site data so you can see the numbers before you commit.
A PPA delivers savings from installation without any initial outflow. You pay a per-kilowatt-hour rate for the energy generated, and that rate is agreed upfront. The savings come from the gap between your PPA rate and the grid tariff. Over time, as grid prices rise, the value of that locked-in rate typically increases.
Battery storage is increasingly included in commercial solar projects, and the financing model you choose applies to the combined system, not just the panels.
Adding battery storage to a commercial solar installation changes the financial profile of the project. Batteries allow your business to store excess solar generation for use during peak tariff periods, reduce demand charges by discharging during high-load events, and provide backup power during outages.
These additional revenue streams and cost savings can improve the return on investment for all three financing models. Under a PPA, the provider may include battery storage in the agreement, allowing you to access these benefits without additional capital. Under CapEx or finance, the battery is an additional asset that adds to the project cost but also adds to the savings and depreciation pool.
Smart Commercial Energy, recognised as Australia's number one commercial battery installer in the 2025 SunWiz awards, designs integrated solar and battery systems that maximise the financial return across whichever funding structure you choose.
Risk allocation is one of the most overlooked factors in solar financing decisions. Each model distributes risk differently between your business and third parties.
With a CapEx purchase, your business carries all the performance risk. If the system underperforms, generates less energy than projected, or requires unexpected maintenance, those costs sit with you. The upside is that you also capture all the gains when the system outperforms expectations.
Finance carries the same performance risk profile as CapEx, with the addition of interest rate risk if your loan is on a variable rate. The performance of the solar asset needs to cover both the energy savings and the loan repayments for the investment to deliver its projected return.
Under a PPA, the provider takes on the performance risk. If the system underperforms, you pay less because you only pay for the energy actually delivered. Maintenance, repairs, and system monitoring are the provider's responsibility. Your primary risk is the long-term commitment to the PPA rate and the contract terms, including escalation clauses and exit provisions.
Australian businesses can access several energy rebates and incentives that improve the economics of commercial solar, and the financing model you choose determines how those incentives flow.
Small-scale Technology Certificates (STCs) provide a point-of-sale discount on eligible solar installations. Under CapEx or finance, the STC value typically reduces the purchase price directly. Under a PPA, the provider claims the STCs and factors their value into the PPA rate offered to you.
State-based incentive programs, such as the NSW Peak Demand Reduction Scheme (PDRS), offer additional financial benefits for systems that reduce peak grid demand. Battery storage systems are particularly well positioned to capture these incentives. The program you qualify for and how the benefit is allocated depends on your financing structure and your state of operation.
The financing model is only one part of the equation. The design, installation quality, performance monitoring, and ongoing asset management all influence whether your solar investment delivers the returns projected in the business case.
Smart Commercial Energy manages the process end-to-end, from site analysis and system design to grid approvals, installation, and post-install support. We work with businesses including IKEA, Bunnings, and hundreds of commercial operations across every state and territory in Australia.
That track record matters because financing decisions are inseparable from technical execution. A poorly designed system will underperform regardless of how it is financed, and a well-designed system financed through the wrong model can still create balance sheet or cash flow problems. Working with a partner who understands both sides of the equation means you get advice that is commercially grounded, not just technically sound.
There is no single financing model that suits every Australian business. CapEx delivers the strongest total return for capital-rich organisations. Finance offers ownership with cash flow flexibility. A PPA removes upfront cost and keeps your balance sheet clean.
The right choice depends on your capital position, your tenancy arrangements, your risk appetite, and your long-term energy strategy. What matters most is that you evaluate each option against your actual site data and business priorities, not against industry averages or generic projections.
Talk to us today. Book a conversation with Smart to model the three financing pathways against your specific requirements and find the approach that makes the strongest commercial case for your organisation.
A PPA charges you a per-kilowatt-hour rate for the energy generated by the system. A lease charges a fixed monthly fee for the use of the equipment itself, regardless of how much energy it produces. Smart Commercial Energy structures PPAs with competitive rates that deliver savings from installation.
Yes. A PPA is particularly well suited to leased premises because the PPA provider owns the system and the agreement can be aligned with your lease term. Smart Commercial Energy regularly delivers solar installations for businesses operating on leased sites across Australia.
Contract terms typically range from 10 to 25 years. The term affects the PPA rate offered, with longer commitments generally providing lower per-kilowatt-hour pricing. End-of-term options usually include system purchase, contract renewal, or system removal.
At contract expiry, you can typically purchase the system at fair market value, extend the agreement, or have the system removed. Smart Commercial Energy helps you negotiate clear end-of-term provisions before the agreement is signed, so there are no surprises.
Both can work, depending on your circumstances. Finance often creates a cash-flow-positive position when savings exceed repayments. A PPA requires zero upfront cost and no borrowing. The right option depends on your gearing ratios, borrowing capacity, and capital allocation priorities.
Yes, though the incentive flows differently depending on the model. Under CapEx and finance, your business claims incentives like STCs directly. Under a PPA, the provider typically claims the incentives and reflects their value in the rate offered to you.