Discussing the Future of the UK Solar Industry: Part Two – Commercial

by Solar Selections on December 7, 2011

Future of the UK Solar Industry: CommercialWith two significant reductions in the feed-in tariffs for commercial systems taking place within the last twelve months, it’s understandable that the UK industry is taking stock of what has occurred. It’s obvious now that the government incentives introduced for commercial solar power were too generous to sustain. It’s also becoming increasingly evident that the Department of Energy and Climate Change will use it’s power to swiftly alter government incentives when they deem necessary. What needs to be contemplated forwards from this is that with an experienced and industry conscious awareness commercial solar power can still establish viability in the UK. This article will explain why.

There are a number of benefits and complexities to installing solar energy and each one must be considered in light of the current commercial industry. Utilising the economies of scale and potentially significant savings that companies and business owners can make on their energy usage, the commercial market holds a great deal of potential for investors. There are more nuances and complexities over residential projects that need to be considered however, and the handling of the feed-in tariff incentives by the UK Government has not added to the security of the prospect for many people. This does not mean that potential projects have become more risk than their worth, it simply means that project management must protect investments from the lessons of the past and use previously unexplored and underdeveloped methods of finance and return. Sound like a familiar set of circumstances for most kinds of investment? It is, so let’s analyse this in greater detail.

The Current State of Commercial Solar Incentives

Feed-in Tariffs

All information provided in this article is based on the proposed changes to the feed-in tariff, outlined on the DECC website.

There are two purely financial benefits that arise from the feed-in tariffs. The most significant of them, the Generation Tariff, is the one that is set to be reduced so dramatically.

1. The ‘Generation Tariff’ is paid for every kWh generated by an eligible system whether it is used on site or exported to the grid. The proposed new rates are:

  • Tariff for >4-10kW PV installs = 16.8p/kWh (in year one*)
  • Tariff for >10-50kW PV installs = 15.2p/kWh*
  • Tariff for >50kW – 150kW = 12.9p/kWh*
  • Tariff for >150kW – 250kW = 12.9p/kWh*
  • Tariff for >250kW – 5MW = 8.5p/kWh*

*This rate will only apply for the first year of the systems operation. It will then increase based on the Retail Price Index’s (RPI) inflation over it’s 25 year lifespan. This increase is dependent on the RPI’s movement, but sensible estimates project a steady 3-5% increase each year for this over the next 25 years.

2. The second aspect is the ‘Export tariff’, and this remains unchanged from the DECC proposals. It is a flat rate of 3 pence per kWh generated from an eligible system, unused on site and sent onto the grid. Again, this is linked to the RPI and will increase at the same percentage as the Generation Tariff.

Energy Savings

The third benefit that comes directly from generating solar energy from a system concerns the energy usage and bills on site. Earnings can be significant, and are established when property owners compare the new tariff rates with the current bills. When taking into consideration the rates at which these prices have been rising and are expected to continue rising, every day passed not considering the serious business advantages of generating renewable energy on site counts as lost revenue.

The ‘Energy Bill Savings’ are calculations on what the cost would have been to buy a kWh from the grid when it is instead generated from the solar power system and used on site. More complicated to calculate because it relies upon an analysis of the tariff times and rates of the properties energy bills, a Solar Selections Commercial Broker is trained to assist customers with establishing these figures. Please contact us for a helpful overview of your commercial properties energy rates and expected increases.

There are also a number of environmental, corporate image and sustainability benefits that are associated. We consider such aspects ‘value adds’ to an economically sound commercial project, so whilst they won’t be covered in great detail here we believe it’s important to consider such aspects in the context of you, the client. Now though, let’s focus more on what other incentives and benefits can be further developed in the UK industry to promote commercial solar system establishment.

Primary Areas of Development and Potential

Finance

With European markets in states of turmoil and banks in crisis mode, the viability of sourcing finance at reasonable rates and with security from many common sources has reduced significantly. However, the reality of an investment opportunity is that it is often capitalised upon during unexpected times, and so long as the commodity in question is deemed to be increasing in value and rarity and possessive of stability, intelligent money will find it and help it grow. When considering these three factors applied to a large scale solar power system, what we are looking at is an investment in renewable energy. All three aspects are most definitely upheld by the prospect of renewable energy, a widely supported and regarded sector of growth. Feed-in tariffs do not affect the fact that energy is rising in value or that solar systems are stable sources of renewable energy.

For these reasons, private investment is expected to come into focus for the commercial market here moving into 2012. Through conglomerates and syndicates lines of capital are being opened up across the UK for these projects, through firms such as ours and others. This is an area that needs to be fostered healthily and as soon as the appropriate figures regarding returns on investment are established they will be vital in promoting keen opportunism for the sector. So how do we establish such rates of return with the new tariff rates and prices for solar power still not establishing grid parity? I’m glad you asked.

Suggestions

First of all, the price per watt of solar components needs to continue to be driven down. In the UK we have excellent prices considering our almost complete lack of onshore manufacturing and assembly plants, but more can be done. There is an overly sensitive focus towards brand name products especially on panels. UK customers have an unfounded view that a TV or sound system manufacturer has an advantage over the largest panel and cell manufacturers in the world and this needs to be rectified. The reality is that the more popular brands in the UK simply cannot compete on price, experience or distribution with the major players in the panel industry. The quality of these brands is on par or better than known branded panels, despite the irrelevant shouts from sales and marketing teams over this year. Distributors and importers alike need to develop more robust relationships with the largest manufacturers in the world such as Suntech, Trina, JA Solar, Yingli and First Solar and educate their customers on the technical differences and advantages on these modules. Moreover, the public need to be educated on the differences between panel brands in a more objective manner.

Secondly, finance when sourced for large scale solar installations needs to become more comprehensively advantageous to business. Zero upfront capital outlay, tax benefits, staggered repayment schemes, energy re-sale to highest bidders via power purchase agreements, perpetually positive cash flow positions and eventual transfer of ownership methodologies would provide unique opportunities for companies to capitalise on the solar market. Interestingly, Solar Selections is in the process of introducing an exclusive package for our clients that addresses all of those points, and encourage interested parties to contact our commercial management team here for further information. This package is in operation overseas, and will be groundbreaking when established here in the UK.

Finally, there are the more generalised energy efficiency and sustainability overhaul approaches to commercial properties that are to be more widely and professionally used. This involves considering a complete energy efficiency upgrade plan for a property with solar energy merely one aspect  among a wide range of implementations to be considered. By way of example this may include installing energy efficient/motion activated lighting and monitors, wall and roof insulation upgrades, HVAC gas-fired infrared heaters replacing forced air-heaters or more simple measures such as anti-draft stoppers under doors, window covers or power point energy savers. Considering the DECC’s proposals regarding implementation of Environmental Performance Certificates (EPC) into eligibility for the solar feed-in tariffs, such practices may indeed become necessary for solar projects with the coming of 2012.

EPC’s are essentially a summary of a property’s energy efficiency and carbon dioxide emissions. They are used as ratings for all properties bought, sold or rented in the UK. The DECC’s suggestions have centered around only allowing properties with certain minimum EPC ratings to be eligible for solar FiT’s, effectively closing off the tariffs to properties judged too inefficient that install solar panels on or after the 1st of April 2012. This presents a significant hurdle for a great proportion of properties considering solar installations in 2012.

Once again, Solar Selections will be at the forefront of this approach offering options from our network of installation companies to our clients that comprehensively address energy efficiency and emission standards.

Conclusion

A midst the controversy and decisive nature of the UK government’s cuts to the solar feed-in tariffs this year, the truth of the matter is that it has been the most successful 12 months in the solar industry’s history. More power is generated from solar energy systems now in the UK than ever before and even the arrival of winter won’t falter for long the incredible savings they are making to their owners for years to come. The Commercial solar industry has experienced only a glimpse of it’s true potential, and whilst it is hard for some installers and potential investors to see right now, the sector has it’s best years ahead of it. By developing and utilising proven approaches to aspects such as finance, energy use reduction and energy efficiency, feasibility will be re-established and become accessible to many thousands of business owners and investors. The international examples are there for all to see, and with the exciting development of prospects such as our Operational Lease arrangement, Solar Selections will be at the helm of the budding commercial solar industry of 2012 and beyond.

Written by Jarrah Harburn

jarrah@solarselections.co.uk

T: 020 7205 2267

© 2011 Solar Selections Ltd

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