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Solar PV frequently asked questions and FAQ’s.
Solar Panels are installed on your roof at no cost to your business. The Funder pays the installation company for the solar installation including all other associated costs such as surveys, EPC assessment, and grid connection charges. The Funder also pays for all the ongoing costs such as maintenance, correction of any faults and system upgrades, as well as insurance and any business rates applicable to the solar system.
The Funder carries out a due diligence to ensure the panels and inverters are of good quality, that the installer is an approved provider, that the system will perform as per the offer to the customer, that there is a long term maintenance contract, and that the system is fully insured in both the construction as well as over the life of the solar installation’s life.
The business will benefit from a lower cost of energy where it uses electricity which is generated by the solar system. A system of 20.5kwp, on the assumption of the majority of the electricity being used internally, will provide a savings in electricity costs (positive cash flow) of £60,000 to £90,000 over 25 years. This is all at no cost or risk to your business. It is very much a cash benefit for doing nothing!
Typically the business will pay 4.9p per kwh for the electric generated and used by your business rather than the 14.1p it currently pays. This is a discount of over 60% against the current provider. However as the price paid for electric generated by the system increases only by RPI (currently less than 2.5% p.a.) as opposed to electricity prices which are generally increasing 5% or more, then the benefits (and savings) are increasing every year. Thus your business can protect itself from significant electricity price increases.
The solar system will improve your green credentials by reducing carbon emissions compared to using electricity from the grid which is generated by high carbon coal fuelled power stations. The Carbon reductions can be reported in your accounts, website, brochures, Carbon reporting (if CRC is required) and also to your customers which many require for their own reporting.
WHO ARE THE FUNDERS
The Funders are primarily large professional Private Equity groups who manage and invest funds on behalf of individuals. The firms usually have specialized Energy teams and departments. The private investors often receive tax incentives to invest their money with these firms as there are tax incentives and because these firms can provide them with long term returns. Often the ownership of solar installations are passed on to pension funds for long term benefits to pensioners. The funders enjoy a good stable return on the investment in solar.
SHOULDN’T I BUY THE SOLAR MYSELF IF THE RETURN IS SO GOOD?
Many businesses and funders do buy their own solar system as they can offer a very good rate of return for high energy users even up to 16% p.a. (IRR – internal rate of return) as the business receives directly the Government subsidies (FITs – feed in tariffs) as well as electricity from the system at no cost. However many commercial businesses, even very profitable ones, choose not to do so for several reasons:
(a) High cost of the system – A 20.5 kwp system including all grid connection costs and surveys will likely cost £23,000.
(b) Payback – systems typically take 6 years to pay back and recover the cost of the investment. The length of the payback depends on the performance of the system.
(c) The benefits of buying your own system over 25 years are typically only 60% more than the “free solar” proposal which requires no cash investment or risk. The “free solar” system provides positive cash flow from day 1 and it is 8 years before the cash flow of buying yourself (due to the initial investment) has caught up with the “free solar” proposal.
(d) Owning yourself means that you are responsible for maintaining and insuring the solar system and have all the risks as owner if something goes wrong.
(e) If the business has sufficient spare cash (£23,000) then a business usually prefers to invest the spare money to improve its own business (new machinery, increase sales distribution, improve customer service and so on) or even keep the cash for a “rainy day” rather than invest the money in solar.
(f) Buying solar means showing the investment in the accounts as “capital expenditure”. Most businesses are reluctant to do this as investors (especially if the business is “quoted”) may complain that the payback takes too many years and employees may feel that the money is a waste and should have been used to increase the number and quality of staff. Investing in solar which does not contribute directly to improving performance can be interpreted as the Directors are devoid of new ideas on how to expand the business.
(g) The business cannot obtain the tax incentives enjoyed by the Fund’s private investors. These tax incentives are one of the reasons that make the solar investment financially attractive to the fund and it’s investors.
SHOULD I BUY THE SYSTEM OVER SEVERAL YEARS
We can offer a purchase over time model (6, 8 or 10 years). The yearly charge for capital and interest is almost the same as the benefits to the business in the early years and after 3 or 4 years the long term financing results in positive cash flow. We can use a model that avoids the system being classified as “capital expenditure” by providing finance in the form of a “rental” with purchase at a peppercorn rate and the end of term (6,8 or 10 years).
The negative is that the business is paying interest and can only obtain financing after a credit check. Thus the business needs to have been profitable and in existence for over 3 years.
No credit checks are required for the “free solar” model so it’s a much easier process. Furthermore the same drawbacks of owning the site, as set out above, are the same as owning the site in full from day one.
HOW DO I GET THE BEST PERFORMANCE FROM THE SYSTEM ?
The benefits are maximized whether system is owned, rented, or is “free solar” by the system generating the highest quantity of electricity and then being used by the business. The amount of electricity used by the business is one of the most important aspects. Thus if you are using a large amount of electricity and have high electric bills then the benefits are much more. Location is also important with the amount of electricity produced being greater in the South than in the North and Midlands with the Pennines (Leeds to Manchester) producing less electric than for example coastal areas (Blackpool or Hull). A South facing roof is the ideal, however South-West to South-East also produce good results. An East or West roof is only economic if there is high own use of electricity generated by the system whereas a North facing roof is not workable.
HOW DO I OBTAIN FREE SOLAR
As there is no planning permission for solar installations on roofs the process is straight forward. We will provide you with an estimate of the benefits and agree terms formalised with a letter of intent. We will then carry out the detailed analysis, apply to the grid, formalize the financing with the Funder and so on. You will sign a Lease allowing the funder to install solar on your roof, as well as an electricity agreement which sets out the price you will pay for electric generated by the system. Thus we all do all the work and install the system at our and the funder’s own cost.
ARE THERE ANY DISRUPTIONS TO MY BUSINESS?
No the solar is installed on the roof with no disturbance to the business. We only enter the premises to connect the solar system to your electric board.
WHAT HAPPENS IF WE MOVE PREMISES?
The solar system remains with the premises thus the benefits will be transferred to the new occupier.
IS THE SYSTEM INSURED?
Yes. The system is fully insured thus there is no risk for the business.
ARE THERE ANY HIDDEN CLAUSES?
No. The legal documents whilst long ensure full clarity and transparency.
WHAT ARE WE EXPECTED TO DO?
Sign a Lease (allowing us to install the system on the roof) and an Electricity agreement which guarantees you the cheaper price electricity generated by the system.
WHAT ABOUT RPI & ENERGY INFLATION IN RELATION TO MY SYSTEM?
The electricity price you pay for electricity you use from the system rises with RPI (currently 2% to 3% p.a.) which is a big benefit compared to the current electricity providers who are increasing prices at 5% to 7% p.a