Paul Reeve considers the future of commercial PV, looking at expected PV tariffs and ways in which installers can help the user.
The last six months have been a rollercoaster ride for photovoltaic (PV) installers and customers. Even social networkers have struggled to keep up with the weekly twists and turns following the Department of Energy and Climate Change (DECC)’s October decision to rein in the runaway cost of Feed-in Tariffs (FITs)*. The big concern for the Government is that, ultimately, the cost of paying for FITs is borne by voters through increased energy bills (businesses also pay extra). DECC’s latest plans for FITs include a rolling series of reductions, following big reductions already set for April 2012 (see Table 1). The net result is that even the highest FITs are set to go below 10p/kWh during 2013.
The FITs scheme
The FITs scheme was introduced on 1 April 2010 under the Energy Act 2008. DECC announced plans for big reductions in October 2011, as part of a package of measures and proposals to control FIT payments from 2012 and beyond. At the time of writing, various proposals and changes are subject to a possible ruling by the Supreme Court (following January’s High Court decision against some of the plans) or under consultation. FITs will be reduced this spring and they are likely to go down again in July 2012 and once again in October, possibly by 35–40%. The tariff may then fall by a further 10% every six months, depending on the number of PV panels installed nationally.
Cuts may take place even earlier, if UK installation exceeds Government forecasts (DECC has a poor track record on microgeneration forecasting — it anticipated that 137MW of PV would be installed by April 2012 but by February 2012 well over 800MW was in place). DECC has also consulted on changing inflation-linking (set to be adjusted in line with the Retail Price Index from 1 April 2012) and on reducing tariff payments from 25 to 20 years.
Two factors affect customer demand for PV microgeneration. The first is the upfront cost. The second is uncertainty — whether it’s about how FITs work, financial returns, or a range of practical issues such as planning, grid connection and “will it work as advertised” (see Table 2). Unfortunately, the Government’s recent actions have given potential non-domestic customers plenty to think about. From April, DECC also aims to require at least a “D” rated energy performance certificate (EPC) before building owners can even get FITs. Against a backdrop of ongoing appeals and shifting rules, many potential clients are now mightily confused about commercial PV.
Yet DECC has put aside £460 million for new PV installations up to 2015, and while most of the cash will support domestic PV, FITs are available for commercial and public sector customers.
Generation tariff (p/kWh) April 2012 (to July 2012)
≤4kW (retrofitted or new buildings)
21.0 (eg formerly 43.3)
15.2 (eg formerly 32.9)
8.5 (as previously)
In addition to its visible green credentials, which should not be underestimated (unlike wind turbines, PV does not advertise when it is not working), there are still several financial reasons for the facilities manager (FM) to at least run the rule over PV.
PV installation costs, and notably PV panel prices, are falling (they fell by around 30% in 2011). Having set up lucrative PV businesses, installers now accept smaller margins to stay in the market. Non-domestic buyers may be well placed for keen quotes, particularly if there are economies of scale. Companies may claim CAPEX in the normal way (accountancy territory). Financial verdict: compelling.
Rising electricity prices. Grid prices rose around 10% in 2011 and although energy prices can bounce around in the short term, PV is not a short-term investment. Most commentators expect electricity costs to rise significantly, even in the medium term, which will shorten financial paybacks from PV installations. Financial verdict: compelling.
FITs. In view of the rolling cuts, this might be a surprise addition to the list, but the fact is that FITs are still here. Once a buyer has registered their new PV system, they should receive the agreed tariff (including an “export to the grid” tariff) for at least 20 years, irrespective of what happens to FITs from then on. Companies pay tax on profits from FITs, as with any other income. Financial verdict: can still make a difference, notably for fast movers.
A possible fourth driver, the much-heralded Green Deal, is aimed at both domestic and non-domestic owners. Access to the Green Deal could remove the up-front cost (CAPEX) of installing renewables in eligible non-domestic buildings. (PAS 2030 was published in February 2012. It is effectively the handbook for installing energy efficiency and microgeneration measures under the Green Deal and its scope includes PV.) Financial verdict: the jury is still sitting.
Of course, a PV CAPEX (likely to be well in excess of £10,000) must compete with a range of other energy performance measures, such as LEDs or better heating control, or entirely different spending priorities. FMs know that the best place to start is “low to no cost” energy saving measures, but PV may still fit in with a comprehensive building energy package, which may be needed to get a building up to EPC “D” anyway.
Get installers to help
Assessing the commercial and practical pros and cons of PV is now a complicated business. However, FMs can ask potential suppliers to do much of the spade work. Ask budding installers to make the business case for you, and pin them down on challenging questions about performance and return on investment. Get answers to these questions from various suppliers, before you start to compare quotes. The variables do not allow a generally applicable payback time, but the ballpark could be around 12–15 years (depending on unknowns such as future government announcements and electricity prices).
You should also find that installers who have “been around the commercial block” have ample experience of PV local planning rules and the sometimes thorny issue of grid connection, notably for systems over 4kWp. Even so, your accountant is probably best placed to advise you on the ins and outs of PV CAPEX and FIT taxation.
1kWp may require a sizable 6m2–8m2 of panels, sited (or secured) to prevent vandalism or theft.
Orientation, pitch and shade
Modules need to face within 45° of due south for maximum efficiency, while the optimum pitch is between 30° and 40°, with no over-shading of any of the array. Shading ruins PV performance.
PV panel performance degrades over time, but many will tell you that they expect panels to deliver around 90% of original performance after 25 years (but who really knows?). Naturally, the panels need to be clean.
Converts PV DC into AC for the National Grid (a grid connection is required for FITs). Lifetimes are typically 10–15 years, so budget for at least one new inverter over 25 years. Watch out for any installer who forgets to mention this.
To even qualify for FITs, you must use installers and equipment accredited under the Microgeneration Certification Scheme. In a company or partnership, FIT payments should be recorded in the accounts the same way as other income. This will increase taxable profits and increase income tax/corporation tax payable. The FIT is outside of the scope of VAT.
PV systems may need planning permission from the local authority. Most authorities are keen on PV. While there may be restrictions (notably on a listed building) the presumption is often to allow permission to install suitably designed and aesthetic PV. Your installer should be able to help you with this, particularly if they have done local non-domestic work.
Ask your local energy supplier — as early as possible — to explain what it will take to connect your planned system to the grid. Make sure they tell you about what they regard as “show stoppers”. Installers should be able to help with advice.
Last reviewed 13 March 2012