Discussing the Future of the UK Solar Industry: Part One – Residential

by Solar Selections on December 1, 2011

We stand presently in a state of transition. At the time of writing this article, the most lucrative residential solar power incentive ever to be offered in the United Kingdom is days from being cut in half. So what does this mean for those still considering purchasing a solar energy system for their home or property? Will the new rates kill off the residential market completely, or is there some tangible evidence of the investment remaining economically worthwhile? Let’s take a look..

Whilst the lobbying and protests continue as they should, the reality is that we are now looking at new feed-in tariff (FiT) rates for all solar installations in the UK. The rates have been announced and the primary one to focus on for all residential sized installations is:

  • 4kW and >4kW Installations: 21 pence per kWh via the Generation Tariff

This will add on to the other two incentives that come from saving energy otherwise bought from the grid and exporting surplus when over-producing. The Export Tariff rate remains at the negligibly effective 3 pence per kWh, but exporting simply isn’t going to happen in the vast majority of households and properties. Of more importance is the savings rate will continue to reflect the price you pay per kWh from your energy retailer. You can check this on your electricity bills, but it currently stands on average of 13 pence for residential properties. This rate will continue to increase of course making the savings more valuable over time.

So all in all, let’s conservatively say we are going to be generating solar kWh’s worth:

(21p Generation + 13p Savings) 24 Pence per kWh

Whilst this is a significant reduction in the previous tariff rates, if a few other factors come into play then solar installations will remain a worthy investment for many thousands of people. Let’s look at a few examples of how this could take place.

How the Residential Market will More than Survive the Deadline

Reduction in Upfront Capital Outlay

The first and most immediate change that we will see in the residential solar industry is a substantial reduction in upfront cost of purchasing a solar energy system. Installation companies are acutely aware that they need to tighten up their margins and source more cost-effective options for potential customers. This will involve not only less profit margins for their own businesses (which is not going to be the majority of the drop) but better rates at which they buy components, in-house adaptations for scaffolding and accounts to avoid external expenditure, streamlining sales and marketing and essentially running as efficiently as possible.

We expect this to account for anywhere between a 15% to 35% drop in prices by the time we arrive at late January 2012. 4kW installations previously costing around £12,500 are going to be coming under the £10,000 mark. The most price competitive are set to get as low as £8,500 or even better. This alone would catalyse returns on investment to reach back to their 8%-12% mark, bettering rates achievable with bank savings accounts or ISA’s. It remains to be seen by how much exactly prices will drop this stage, and this is something our team is monitoring closely and already updating for new enquiries across the UK. Request a Comparison now to further information.

Community Groups

The simple nature of what we call an economy of scale mean that buying more of something results in a better price per unit. Be this with cupcakes from your local bakery or vans to power your transport business, the same can be said for solar power installations. Community groups that are geographically localised have a significant advantage in that they can receive discounts by purchasing a solar energy system collectively. In addition, the DECC has indicated some interest in the introduction of a community tariff that could add further incentive to collective uptake across the UK.

So long as a reputable and knowledgeable organisational arm is employed to do this work, comparisons can be made across the local installers and the best possible deal brokered with access to all financial assistance. Solar Community Organisers here at Solar Selections are experts at organising and facilitating such an effort. Contact one of our team today for more information

Remote Power Opportunities

Whilst the majority of the population live in relative proximity to power plants and the main grid, properties that are on islands or over mountains usually pay much higher rates for their energy. In Australia, our parent company Solar Choice invented a unique approach to assisting communities in some of the more isolated regions of the land down under. Because they were paying more for their energy, their systems saved them more and the returns on investment improved. If you’re unsure about how much you’re paying for your energy, have a look at your bills or contact your energy provider.

So if you’re on the Isle of Man for instance, and your energy bills details that your paying much higher than an average of 13p per kWh, then all of sudden your solar energy system is saving you more each month and paying for itself much faster. By organising a Solar Community you could also reduce the travel or remote installation charges from installers down to a competitive level. All of a sudden your system is worth more, cost less and your return on investment is looking very attractive.

Finance

Whilst it may not appear timely to be talking about the borrowing of funds and payment back over time, the reality is that on a commercial level this is growing in momentum for solar installations. A solar power system is a very straightforward, low maintenance and low risk investment once installed, and bank and credit institutions across Europe are warming to this slowly. At this point in the UK there are several commercial opportunities for finance from groups such as Barclays, click here for more information. Over time, residential markets will present another opportunity for banks to lend money and charge interest so the market is expected to open up. So long as the savings you are making from the system account for your repayments and the interest, this will present a worthwhile short to mid term investment for any household. More information on this will become available as it comes out.

Conclusions

These suggestions and developments are merely a handful of methods that the residential solar industry will utilise to adapt to the tariff changes. By watching the pricing and ensuring potential customers investigate all of the best prices available, consider organising a community group and explore finance options, residential properties will find solar a worthwhile investment as soon as January 2012. For those in remote regions, the higher value placed on energy generation also allows for great deals of feasibility to be felt right away. For an up to date account of all the possibilities, contact Solar Selections today and speak to a dedicated member of staff.

Written by Jarrah Harburn

jarrah@solarselections.co.uk

T: 020 7205 2267

© 2011 Solar Selections Ltd

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