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With 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(DECC) will use its 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.
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 nuances to consider 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 using the lessons of the past and innovations of the future to minimise risk and maximise gain. 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
All information provided in this article is based on the proposed changes to the feed-in tariff, outlined on the DECC website here.
There are two purely financial benefits that arise from the feed-in tariffs.
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.
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.
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 current bills. The rise of energy prices make this aspect of clear benefit, and just as importantly more effective the sooner the installation is carried out.
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 and their influence on rates of return.
There are also a number of environmental, corporate image and sustainability benefits that are associated. Solar Selections Commercial designs projects that take into account these goals and provides suggestions for how to maximise their impact on the installation. It’s case specific, and again best discussed with your project managing broker.
Primary Areas of Development and Potential
The reality of many investment opportunities is that they are often capitalised upon during unexpected times. So long as the commodity in question is deemed to be a) increasing in value, b) possessive of a rare quality and c) stable, investment will find it and want to share in the profits. Commercial solar power is an investment in renewable energy, and all three aspects are most definitely upheld by this commodity. Renewable energy is considered a viable investment in the world today, and this is upheld despite the tariff changes in the UK.
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 Solar Selections. These lines of capital will come into play as soon as the appropriate figures regarding returns on investment are established. So let’s look at some ideas on how this can happen.
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. One stigma that immediately needs to be overcome is the focus towards brand name solar products, especially on panels. 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 and perpetually positive cash flow positions are a small number of unique approaches as yet unexplored by the mainstream finance market; see our full article for further details. Solar Selections Commercial is in the process of introducing an exclusive package currently operating in our other countries for our clients that addresses these points and many more benefits. We encourage interested parties to contact our commercial management team for further information.
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, condensing CPU and modem hardware into micro-managed energy efficient hardware and software, advanced telecommunication and video link software to curb travel and conference logistic costs and simpler measures such as anti-draft stoppers under doors 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 centred 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.
Once again, Solar Selections will be at the forefront of this approach offering options from our network of energy management consultancy firms to our clients that comprehensively address energy efficiency and emission standards.
A midst the controversy and decisive nature of the UK government’s cuts to the solar feed-in tariffs last year, the truth of the matter is that it has been the most successful 12 months in the solar industry’s history. 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 its 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
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