Late 2011 and the first half of 2012 has seen global investment in renewable energy reach new, unprecedented heights. Solar power has now surpassed wind power as the most popular renewable technology for investment and here in the UK our solar market emerged onto the international photovoltaic (PV) scene thanks to the tried and tested method of Feed-in Tariff (FiT) reduction. Despite being mismanaged by the government, the UK FiT’s have generated the spark required to move commercial solar investment into the realm of reality. This article will take a look at the current state of commercial solar investment in the UK, what kinds of projects are being considered and by whom.

Investment and funding of commercial solar power projects in the UK has never been a more diverse market. Knowing who has the control of this funding, what kind of projects they are interested in and how to produce viable, attractive proposals for the market of private equity and public investment is becoming an increasingly important and lucrative skill.

Here at Solar Selections Commercial we are competent with the understanding and sourcing of highly suitable clients and interested lenders and would be happy to assist anyone with commercial projects in need of funding to move their projects forwards.

Firstly let’s look at how this market has established itself and where it currently stands.

Large Scale Solar Power in the UK

The first standalone MegaWatt (MW) solar power installations in the UK involved forward thinking blue chip utilities such as Thames Water, major renewable energy manufacturers such as Canadian Solar and offshore equity investment groups like Isolux Corsan. The risk assessments and returns were scrupulously appraised by all involved and this is testament to their eventual success. This has in turn opened up the market for other projects to get off the ground.

What we are seeing now and through 2012 has been more farmers, private conglomerates, property owners and investors becoming involved in the MW scale of solar PV investment. Of importance to all of this local councils, energy utilities and infrastructure services have also adapted their once somewhat prohibitive policies to make solar a more straightforward investment opportunity. Renewable Obligation Certificates (ROC’s) are present and despite an upcoming review in early 2013, are providing some stability on Return On Investment (ROI) figures.

Establishing Viability

As with all investment some opportunities are more attractive than others. We can separate ground and roof mounted solar power systems because the criteria differ slightly for each. It is important to note that whether the funding be private equity based or public, these factors hold equal importance.

Ground Mounted Solar Installation

The more of these considerations a potential site adheres to positively, the better chance that investors are going to be interested and the better returns are going to be involved. Note that this is not a comprehensive list, but a starting point.

• The history of the land – especially including previous production capacity such as for agriculture or industry.
• The size and location of the land.
• Presence of rocks/debris.
• Proximity of the area from major roads, communal areas and foot traffic.
• Proximity of the land from protected regions of natural beauty.
• Status of the land as ‘Derelict’.
• The rating and age of the connection to the grid – energy capacity and phases present are of special interest.
• Proximity to a suitably sized energy substation.
• Potential of a potential Power Purchase Agreement (PPA) client.
• Energy usage on site.

How does one know whether the energy usage or substation status of any one potential site is considered positive or not? Best to consult a professional such as Solar Selections; in short, it differs.

Roof Mounted Solar Installation

Roof mounts are similar in most respects. Factors that can affect viability include:

• The roof space available for panel installation.
• Location of the site.
• Orientation and pitch of the roof.
• Visibility of proposed panel location to highways and major thoroughfares.
• The number of energy meters on-site (triple phased especially).
• The status of the site as protected or heritage listed.
• The rating and age of the connection to the grid.
• The proximity to a power station or substation.
• Presence of a potential PPA client.
• Energy usage on site.

Types and Sources of Investment

Sites that can tick the boxes on the above considerations are in amazing demand at present. Private equity sources running through brokerages or consultancy firms are especially interested in outright purchases of such leads. Depending on the company rates for commissions to purchase the entire opportunity, finance the required capital or pay as a rental amount differ. For a better idea on what is available for your potential site, contact Solar Selections on 0844 567 9835.

Depending upon the clients profile and security there are many ways funding can be found. Let’s start at the top and work our way down through the various parties and possibilities involved.

‘Low Risk’

Client: For a freeholder or client to be considered low risk, they would need to be substantial, well established and profitable businesses. We are talking about organisations from HM Government to Tesco’s and British Gas to McDonald’s. To give an idea, Tesco’s had a turnover of £62.5 billion in 2010.

Fund: Large, international asset finance groups and commercial fund managers not specifically interested in renewable energy technologies. They would provide excellent rates of interest and usually no upper limit on funding available with a minimum spend of £150,000 being the norm.

An example of this would be Commercial Asset Finance Group Australease (CAFGA) who have an Operational Lease Funding arrangement openly available in the UK. The client needs to be suitable as outlined above and also the freeholder of the site. As well as this they would need to consume the majority of energy from a proposed PV installation on-site. For more details, contact Solar Selections on 0844 567 9835 or go to www.solarselections.co.uk/commercial/commercial-solar-finance-package

Approach: A plethora of options from competitive out and out finance provision to tax-break inclusive operational lease arrangements and roof/site rental agreements with eventual transfer of ownership.

‘Medium Risk’

Client: Established business with healthy balance sheets and turnover in the general range of £1,000,000 to £50,000,000 or public sector clients such as councils. Turnover could differ significantly for private clients on this scale, and comprehensive vetting process would take place to verify assets and suitability.

Fund: Far more open than low risk opportunities, the specifics of site viability come into play more than before. These firms will usually possess some kind of interest in renewable energy above more mainstream investment markets like shares or bonds. Incredibly suitable sites owned by businesses with relatively weak security assurances would still be considered and possible. It’s as much about who you know as what you know in the finance market so best to consult with a professional for further advice.

Approach: More likely to involve partial generation benefit for the client with a view towards eventual ownership after a fixed term or perhaps a site rental arrangement. Usually the tariffs and earnings would be allocated towards the fund temporarily. Still a very attractive prospect for the client considering the lack of Cap Ex required.

‘High Risk’

Client: A renewable energy enthusiast with some land or property looking to how they could generate income from an installation. Generally this would be anyone from a farmer, freeholder of land to estate managers and smaller scale building developers that cannot provide large private or business turnovers or security assets. Realistically capital outlays over £20,000 are beyond this kind of client depending on site characteristics of course.

Fund: Generally smaller, less prohibitive and capital heavy private equity lenders specifically interested in renewable energy. They can also take the form of PV installation companies and their direct partners.

Approach: The Rent-A-Roof scheme is an example of this at a domestic level, as is the more recent cash-flow positive domestic finance. Essentially the client would receive the installation for no or nominal cost but receive limited benefits for the first 10 years or so.

Summary

It’s a complex and often fruitless task marrying up sites, clients and funding in the one project. Each party has it’s own variables and opinions on how best to go about installing a MW or large scale commercial PV installations. On top of this, solar installers differ massively in their capacity to provide experienced, timely and professional installation services. The success or failure of a project can come down to the meeting of deadlines and information provisions  as well as the ability of a fund or installer to provide their services as proposed, so vetting is of incredible importance within a potential project.

Solar Selections work with some of the most prominent, experienced utility and large scale solar installers in the world. We also have a network of funding partners such as the aforementioned CAFGA with which we can provide funding solutions for installers with their own clients or direct to clients looking for a complete management service. For specific assistance or advice on commercial solar project viability, funding or installation contact Solar Selections 0844 567 9835 and one of our commercial team will get in touch with you today.

Written by Jarrah Harburn

jarrah@solarselections.co.uk

0844 567 9835

© 2012 Solar Selections Ltd

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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

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 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.

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 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

Finance

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.

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. 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.

Conclusion

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

jarrah@solarselections.co.uk

T: 0844 567 9835