In-House Ownership vs PPA — Which FE College Solar Model Wins?
Detailed comparison of capital purchase (Salix-funded), PPA, and lease structures for FE college solar projects. NPV, governance, and risk implications.
The default FE solar funding route in 2026 is Salix Decarbonisation Loan — interest-free capital, repaid from energy savings, asset owned by the corporation. But some corporations consider PPA (Power Purchase Agreement) or lease structures as alternatives. Which model wins depends on three things: governance preference, capital appetite, and risk tolerance.
The three models compared
| Dimension | Salix-funded in-house | PPA | Operating lease |
|---|---|---|---|
| Asset ownership | Corporation | Third party | Lessor |
| Capital outlay (corporation) | £0 (loan-funded) | £0 | £0 |
| Operational cost | Annual Salix repayment | Per-kWh purchase from PPA provider | Annual lease payment |
| Year-25 outcome | Corporation owns asset; 100% savings to bottom line | PPA contract usually ends; option to buy out or extend | Lease ends; corporation may need to buy out or renew |
| Year-1 net position | Cash-flow positive ~£15-50k/year | Cash-flow positive ~£3-10k/year | Cash-flow positive ~£2-8k/year |
| 25-year NPV | Strong (£1.1m-£1.6m for typical 200kW) | Moderate (£300k-£600k) | Weak (£200k-£400k) |
| Capital risk to corporation | Low (Salix repays from savings) | None (third party carries) | None |
| Operational complexity | Low (asset under corporation control) | Moderate (PPA provider on site) | Moderate |
| AoC Climate Action Plan reporting | Strong (owned asset) | Moderate (purchased renewable) | Moderate |
| Board governance preference | High | Medium | Medium-low |
When in-house Salix-funded wins (most cases)
In-house Salix-funded ownership wins for virtually all UK FE corporations, because:
- The November 2022 ONS reclassification opened Salix to every FE college. Before reclassification, PPA was sometimes preferred by FE corporations precisely because they couldn’t access Salix. That constraint has gone.
- Capital risk is genuinely low. Salix energy savings calculation is conservative; repayment is from realised savings. Year-one net position is consistently positive across hundreds of FE deployments.
- 25-year NPV is 2-4x stronger than PPA or lease alternatives. The corporation captures full asset upside.
- Asset is under corporation control. Operational decisions (maintenance, upgrade, expansion) are made by the corporation, not negotiated with a PPA provider.
- Climate Action Plan reporting is cleaner. Owned asset, owned tCO2e reduction, owned data — no debate about scope-2 accounting treatment of purchased renewables.
The straight answer for most FE Sustainability Leads: don’t consider PPA unless you have specific governance or capital constraints that rule out Salix.
When PPA might still be the right model
Three scenarios where PPA could win over Salix:
1. Corporation board explicitly rejects any borrowing
Some corporation boards (typically smaller corporations with debt-averse trustees, or corporations recovering from financial distress) explicitly refuse to take on Salix borrowing even though it’s interest-free and repaid from savings. In that case PPA delivers solar with literally zero corporation balance sheet impact.
2. Complex multi-tenant or shared-estate situations
Where the campus is shared with another organisation (local authority, NHS, university partner), PPA can simplify the legal structure — the PPA provider sells output to whichever entity has the energy account, regardless of which entity owns the building. Salix typically requires clearer single-entity ownership.
3. Very short remaining lease horizon
If the corporation leases the building from a third party with less than 10 years remaining on the lease, Salix may not be viable (the corporation can’t commit to 8-year asset operation on a 6-year lease). PPA can work with shorter-term contract structures.
The PPA market for FE
PPAs in the FE sector are typically structured as:
- Length: 15-25 years (longer than the Salix 8-year repayment)
- Per-kWh rate: 7-12p/kWh in 2026 (compared to ~25p/kWh grid imports)
- Annual escalation: Usually CPI-linked
- Buy-out clause: Optional buy-out at predetermined years (typically 7, 15, 25)
- Maintenance: Included; PPA provider runs all O&M
- Performance guarantee: Sometimes; provider may guarantee minimum annual generation
Several specialist PPA providers operate in the UK education sector. Per-kWh PPA rates compete with grid imports (25-30p/kWh), so the corporation saves the difference (typically 13-18p/kWh on self-consumed PV).
The lease structure variant
Operating lease structures are less common in FE solar than PPA but occasionally seen. The corporation pays an annual lease fee for the asset (typically 10-15% of capital cost annually); the lessor owns the asset; the corporation gets all generation benefit at no per-kWh cost.
Lease structures fit corporations with strong year-on-year energy savings appetite but limited willingness to engage with the PPA market. Less common in 2026 than PPA, but a viable third option.
What we recommend
For 90%+ of UK FE corporations, the recommendation is:
- Salix Decarbonisation Loan for the foundational project. Captures full asset upside; cash-flow positive year one; clean Climate Action Plan reporting.
- PSDS Phase 4 capital grant on top where the bid pairs solar with heat decarbonisation. 100% grant for the bundled element; further improves NPV.
- PPA only as fallback if corporation board governance precludes Salix borrowing.
- Lease only as third fallback if PPA is also unworkable for governance reasons.
The mental model: Salix-funded ownership is the optimal route for the vast majority of corporations; PPA is the fallback for governance edge cases.