Landlord–Tenant PPA & Private Wire

A landlord–tenant power purchase agreement is the cleanest way through the split incentive on a let building: the landlord owns the array, the tenant buys the electricity it generates at a unit price set below the grid rate, and both parties come out ahead. The landlord earns a return on capital deployed on its own asset; the tenant pays less per kilowatt-hour than its supplier charges; and the building’s EPC improves for whoever holds the reversion. This guide sets out how the mechanism actually works — the metering, the private-wire physics, the licence-exemption position, and the one structural problem (a lease shorter than the PPA term) that sinks more of these deals than any other.

This is the supply-contract route. If you are weighing it against selling the roof outright or granting a licence, read roof lease vs PPA vs licence first to confirm the PPA is the right structure for your asset before you get into the detail below.

How a landlord–tenant PPA works

In a landlord–tenant PPA the landlord is the generator and the tenant is the customer. The landlord funds, owns and maintains the rooftop array. The electricity it produces is sold to the occupying tenant under a long-term contract at an agreed unit rate. The tenant keeps its existing grid supply for everything the solar cannot cover — at night, in winter, during peak demand — and tops up from the panels whenever the sun is producing.

The economics only work because of one rule: the PPA unit rate is set below the grid unit rate. If a tenant on a small commercial tariff is paying around 28.6p/kWh (the 2026 ex-VAT/CCL small-business rate), a PPA might price solar at, say, 18–22p/kWh. The tenant saves on every kilowatt-hour it draws from the roof; the landlord earns far more than the SEG export rate of roughly 12–16p it would otherwise get for selling that same unit to the grid. The gap between “what the tenant would have paid the grid” and “what the landlord would have earned exporting” is the value created — and the PPA price sits inside that gap so both sides win.

Three things follow from that:

• The tenant always draws solar first. Because on-site solar is the cheapest unit available to the meter, it is consumed before any grid import. Self-consumption is the whole game — a single daytime-shift commercial occupier typically self-consumes 50–70% of generation, rising to 60–80% with a battery. The more the tenant consumes on site, the better the deal for both parties.
• The landlord is monetising its own asset. Unlike a roof lease, where a developer owns the kit, here the landlord retains ownership, the capital allowances and the residual value. (Note the tax position: solar bought to generate income the landlord sells on is a let asset, so the 100% first-year relief comes from the Annual Investment Allowance plus the 6% writing-down allowance, not full expensing — see capital allowances and funding for owners.)
• The tenant takes no capital risk. No upfront cost, no maintenance liability, no equipment on its balance sheet — it simply buys cheaper electricity. That is what makes a PPA the standard answer to the split incentive on a let building.

Behind-the-meter and private wire

A landlord–tenant PPA is almost always a “behind-the-meter” arrangement: the solar connects on the tenant’s side of the supply meter, so the electricity never touches the public distribution network. This is the single most important technical point in the whole structure, because it determines the price you can offer.

When electricity flows across the public grid, it carries a stack of non-commodity charges — distribution use-of-system, transmission, balancing, policy costs and the supplier’s standing charge — that together make up roughly half of a commercial unit rate. Generation sold over a private wire, directly from the rooftop array to the tenant’s own incoming supply, bypasses that stack entirely. There is no grid transit, so there are no grid transit charges. That is precisely why the landlord can price below the grid rate and still earn a healthy margin over export: the private-wire route strips out costs the grid route cannot avoid.

In practice “private wire” usually means a dedicated cable run from the inverters to the tenant’s main distribution board within the same building or curtilage. Nothing leaves the site. Surplus the tenant cannot use is either exported to the grid (earning SEG), stored in a battery, or curtailed — but the primary flow is roof to tenant, behind the meter.

The supply-licence point

Selling electricity to a third party normally requires a supply licence under the Electricity Act 1989. A landlord supplying its own tenant does not need to become a licensed supplier, because the activity falls within the licence-exemption regime (the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, made under the 1989 Act). On-site private-wire supply to a limited number of customers sits comfortably inside the class exemptions, which is what makes the landlord–tenant PPA legally workable without the machinery of a full supply business. Where a site has many separately-metered occupiers, take advice on which exemption applies and on the consumer-protection obligations that travel with it — but for a single tenant or a handful of tenants the position is well established.

The lease-term problem — and the sleeved PPA

Here is where most landlord–tenant PPAs run into trouble. A PPA needs a long horizon to repay the array — providers and funders typically want a term of 15 years or more — but commercial leases are frequently shorter, or carry break clauses that could end the occupation long before the panels are paid off.

If the tenant leaves in year six of a fifteen-year PPA, who buys the power for the remaining nine years? An empty unit consumes almost nothing. The landlord is then left exporting at SEG rates, or trying to assign the PPA to an incoming tenant who never agreed to it. Funders price that risk heavily, and many will simply decline a PPA where the underlying lease (less any break) is materially shorter than the contract term.

There are three ways to bridge the gap:

What a sleeved PPA does

A sleeved PPA introduces a licensed electricity supplier as an intermediary. The generation is “sleeved” through the supplier’s licence and balanced against the tenant’s demand, so the contractual relationship no longer depends purely on a physical private wire and a single occupier sitting still for fifteen years. If the tenant changes, or consumption dips during a void, the supplier balances the position and the generation still finds a market rather than being dumped to the grid at the export rate. It costs a little more — the supplier takes a margin for the sleeving service — but it converts a brittle one-tenant arrangement into something a funder will lend against.

The trade-off is straightforward: a direct private-wire PPA gives the keenest price but assumes a long, secure lease; a sleeved PPA costs slightly more per unit but survives tenant churn and break clauses. On a multi-let building, or any asset where you cannot guarantee a single occupier for the full term, sleeving is usually the more realistic structure.

The green-lease wrap

Whichever PPA structure you choose, it needs to be anchored in the lease — and the cleanest way to do that is a green-lease addendum. Two things have to be secured contractually before any meter is installed.

First, consent for the roof works and the cable run. Installing an array and a private wire is an alteration to the building. The lease must permit the landlord (or the tenant, depending on demise) to carry out the works, run the cable to the tenant’s board, and access the roof for maintenance over the life of the asset. On a fully repairing and insuring lease the demise and the alterations clauses need checking carefully — you do not want a dilapidations argument at the end of term over kit the tenant never wanted to own.

Second, the framing of the supply. The addendum sets out that the tenant will take its on-site electricity under the PPA, at the agreed price, for the agreed term, and clarifies how the arrangement interacts with rent review (the solar should sit within a landlord-improvement disregard so it does not inflate the rent the landlord then charges itself against). The Better Buildings Partnership Green Lease Toolkit provides model clauses for exactly this. Done well, the green lease and the PPA become one coherent package rather than two contracts that contradict each other — the full mechanics are in green leases and solar.

Metering and pricing logic

The supply has to be measured to be billed, which means a dedicated, MID-approved (Measuring Instruments Directive) meter on the private-wire feed recording exactly how many kilowatt-hours pass from the array to the tenant. That meter reading, multiplied by the PPA unit rate, is the invoice. On a multi-let building each occupier on the array needs its own sub-meter so generation can be apportioned fairly — get this wrong and the billing is unenforceable.

Pricing usually takes one of two forms:

• Fixed unit rate, often with an annual indexation (typically RPI/CPI-linked or a fixed escalator). Simple, predictable, and easy for a tenant’s finance team to model — but it must always sit below the prevailing grid rate to retain its appeal.
• Discount-to-grid, where the PPA price is set as a percentage discount (say 10–20%) to the tenant’s actual import tariff. This guarantees the tenant always saves regardless of where wholesale prices go, and shares some commodity-price upside with the landlord — but it is harder to underwrite because the landlord’s revenue floats with the grid.

Most single-tenant deals settle on a fixed-with-indexation rate; portfolio landlords running a programme across several buildings sometimes prefer discount-to-grid for the guaranteed-saving message it gives every tenant.

Risks to underwrite before you sign

A landlord–tenant PPA is a long contract on a physical asset, so the diligence matters:

• Tenant covenant. The PPA revenue is only as good as the tenant paying for it. A weak covenant on a fifteen-year contract is a real credit risk — funders will price it, and so should you.
• Void exposure. “No tenant, no buyer.” Model what happens if the unit empties — SEG export, a sleeved fallback, or generation feeding common-parts load. Solar on a void unit at least keeps the EPC up and cuts re-letting friction (see let investment property).
• Lease/PPA term mismatch. Covered above — confirm the secure term (post-break) supports the PPA horizon, or sleeve it.
• Consents. Lender/mortgagee consent and insurer notification are needed because the array and any private wire affect the building. A roof-loading survey to BS EN 1991 confirms the structure can carry the load.
• Roof lifecycle. If the membrane has under fifteen years left, re-roof and install in one project — you do not want to lift a paid-for array to replace a roof in year eight.
• Self-consumption assumptions. The whole return depends on the tenant actually using the power on site. Underwrite a realistic self-consumption figure for that occupier’s load profile, not a best case.

None of these is a reason not to do a PPA. They are the things a serious owner checks before committing, and they are exactly the layer generalist installers skip.

Frequently asked questions

Does a landlord need a supply licence to sell solar to its tenant?

No, not in the typical single-site case. Supplying electricity normally requires a licence under the Electricity Act 1989, but on-site private-wire supply to a tenant falls within the class exemptions made under that Act (the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001). A landlord selling its own rooftop generation to its own tenant behind the meter does not have to become a licensed supplier. Where a building has many separately-metered occupiers, take advice on which exemption applies and the consumer-protection duties attached, but a single tenant or a small handful sits comfortably inside the regime.

What happens to the PPA if the tenant leaves before the contract ends?

That is the central risk, and the answer depends on how you structured the deal. On a direct private-wire PPA with no protection, an empty unit means no buyer, and the landlord falls back to exporting at the SEG rate of roughly 12–16p/kWh — well below the PPA price. The fixes are a sleeved PPA (a licensed supplier balances the position and sells the generation on regardless of who occupies), a tenant-replacement or step-in clause binding the next occupier, or routing surplus into common-parts load. This is why funders insist the secure lease term, net of any break, broadly matches the PPA term.

Why can the landlord sell solar cheaper than the grid and still make money?

Because a behind-the-meter private wire avoids the non-commodity charges baked into a grid unit rate. Distribution, transmission, balancing, policy costs and the supplier standing charge together make up roughly half of a commercial tariff, and none of them apply to electricity that travels from the rooftop straight to the tenant’s board without crossing the public network. So the landlord can price below the grid rate the tenant would otherwise pay, while still earning far more than the SEG export rate. The saving for the tenant and the margin for the landlord both come out of the charges the private wire strips away.

Is a behind-the-meter PPA better than just selling the roof to a developer?

It depends on how much you want to own. A landlord–tenant PPA keeps the array, the capital allowances and the residual value on your side of the table and earns the full margin between the PPA price and the export rate — but you fund the kit and carry the tenant and void risk. Selling the roof on a lease hands the capital cost and the operational risk to a developer in exchange for rent and a tenant discount, but you give up most of the upside. The right answer turns on your capital position, your appetite for the supply risk, and the secure lease term — the full comparison is in roof lease vs PPA vs licence. To model the numbers for your specific building, request a quote.