People are often deterred from pursuing PV installations because of the perception that the support available is not sufficient to warrant the hassle, or because they have reached obstacles in the process that they feel are insurmountable. This document outlines the current market situation and explains why 2014/15 will be strong years for commercial and industrial solar PV installations.
The UK PV market can broadly be split into three areas:
- Ground-mounted, utility scale PV (these are generally on the megawatt scale)
- Domestic PV installations (likely to be 4kW or smaller)
- Commercial/industrial PV (usually in the 30kW to 1MW range)
Ground mounted Solar Farms have been very successful over the past couple of years but are now encountering serious opposition in the planning phase across the UK. Coupled with concerns about rural land use and changes to their support mechanism that make for a more competitive regulatory environment, they appear to have an uncertain future. Grid connections are also becoming increasingly problematic.
As part of the Department for Energy and Climate Change’s “New Solar Strategy”, in the vast majority of cases planning permission will not be required in order to install PV on commercial property. In addition to this generally there is demand for electricity on the premises, which greatly improves the return on investment. If the building in question already has a relatively high demand for electricity this also means that the local grid connection and transformers are likely to be capable of coping with a PV generator without the need for infrastructure upgrades.
It is now possible to have PV systems installed without the need to invest capital. With electricity prices set to continue rising for the foreseeable future, the certainty of having a fixed price for a proportion of your electricity offers a valuable advantage.
The Feed-in Tariff scheme was designed to improve the supply chain for solar PV components into the UK and ultimately to reduce the cost of installing PV systems to the point where they can compete with conventional power sources. Periodic degression in the Feed-in Tariff is designed to ensure that the level of support available remains consistent with the cost of installing solar PV.
When the scheme was first introduced, few were prepared for such a positive reaction. Installation rates were far higher than expected, which meant that the cost of installing came down much faster than anticipated. This in turn led to a situation where the financial returns on offer became far more lucrative than the planned 5-8% annually. The response to this situation was a relatively large and hastily-implemented cut to the scheme, with subsequent legal challenges giving rise to national coverage in the media.
N.B. Feed-in Tariffs are also payable for some other technologies, including: hydroelectric, wind, micro-CHP and anaerobic digestion. Despite this solar PV continues to dominate, accounting for 86% of total installed capacity from 1st April 2010 to 30th June 2014. In the South East this figure rises to 95%.
All of the attention that this process received left many with the impression that FITs were a thing of the past and that the opportunity to receive an income from solar PV had been missed. The reality is that since the initial cut took place, FIT rates have stabilised, and the cost of installing has continued to fall.
In fact the High Court also ruled that the Government had acted unlawfully in attempting to apply retrospective cuts to FIT rates prior to the end of the consultation period. This set a new precedent and reinforced how reliable FIT income is once a generator has been registered.
Now that the degression mechanism of the scheme has settled, the nature of FIT payments means that returns from PV are assigned as a low-risk, long-term asset class – some investors place the tariff income in the same risk class as UK Gilts – providing a stable and steady income over a long period. This stability is hugely important to investors, ensuring that reliable rates of return can be achieved.
The domestic market has received the most media coverage up to this point; sadly much of it has been unfavourable. In the early stages of the FIT scheme the financial returns available were often misrepresented and in many cases poor-quality PV systems were being installed hastily by incompetent people. This early activity has cast a fairly long shadow, in terms of credibility, across the PV installation industry, despite the fact that the vast majority of these companies have since ceased trading.
Despite this, solar PV still remains the most popular renewable technology by far, enjoying widespread public support and approval ratings consistently over 80 per cent. As PV panels become a more common sight people are keen to find out how they work and investigate whether they might be able to make use of them.
The domestic market looks set to continue to grow mostly because of affordability (PV systems are no longer prohibitively expensive for many householders).
Early 2013 saw a major boom in large ground-mounted arrays. The Renewables Obligation Certificate (ROC) scheme, whereby certificates are issued depending on the amount of electricity generated and these are then traded on the open market, was reduced for PV in May 2013 – meaning there was a race to install as much as possible prior to the deadline.
More recently, the decision taken in 2014 to move from a ROC system to a CFD (Contract for Difference) regime has created further uncertainty in the utility scale market, with prospective PV projects now being forced to compete with other renewable technologies for a proportion of limited funds. There looks set to be another ‘boom’ in deployment leading up to the ROC deadline in 2015, but how utility-scale systems on the ground fare beyond this point remains to be seen.
Reproduced from Ofgem e-serve’s Feed-in Tariff Update, September 2014
In the chart above, the convergence between the height of the “Total Installations” bars and the “Total Installed Capacity” line represents a shift from a large number of small (mostly domestic) installations from early 2011 to 2012 towards the installation of a smaller number of much larger systems more recently.
Grid connections have now become a key issue, with rural infrastructure often unsuitable for large amounts of PV generation being connected. Numerous projects have also been rejected in the planning phase, with some high profile interventions from celebrities, such as Griff Rhys Jones, and even MPs, notably Sarah Woolaston.
Commercial and industrial
Roof-mounted PV on Commercial Property has become the next major expansion area. Huge opportunities exist in this arena for landlords and tenants to make substantial savings on their energy expenditure at the same time as securing a long-term income stream.
This type of property is being brought into particular focus at the moment, with DECC having released the “New Solar Strategy” at the start of April 2014. This action is with a view to it enacting a “further step change in deployment” of industrial and commercial roof-mounted installations.
The Department has already stated that they aim for commercial and industrial roofs to support around a third of the UK’s future solar mix, and the new solar strategy includes an initiative to “work with developers, commercial property owners, planning authorities, and the solar industry to cut red tape and sweep away barriers to making use of empty industrial spaces to provide the electricity we rely on every day.”
The Secretary of State for Energy and Climate Change has said:
“The people I talk to, whether they’re in financial institutions or research labs, are showing very clearly that solar costs are going to come down and down, so it will be the cheapest form of electricity, I’m absolutely convinced about that.”
– Ed Davey, Secretary of State for Energy and Climate Change
- Commercial and industrial roof spaces present a massive opportunity to gain a further income from existing building stock, with huge areas available.
- Substantial income generation and cost savings can be achieved by installing a reliable, proven power source.
- Cash flows resulting from installing PV increase property values without affecting liquidity.
- The nature of the buildings means that electricity demand is often on-site, making maximum impact on business costs and giving the best ROI.
- Solar PV improves EPC rating of a building, soon to be a key factor when leasing it to tenants under the Energy Act 2011.
- A PV array provides a visible demonstration of a company’s commitment to sustainability principles and environmental responsibility.
- Installations on commercial and industrial property are politically neutral since the buildings are already functional in nature and are generally situated away from sensitive areas.
- Crucially, it is anticipated that no planning permission is required for projects below a megawatt from 2015 onwards.
- DECC’S “New Solar Strategy” has given a clear indication that this sector is the key focus of Government support to renewable technologies.
NWT is a well resourced, established brand whose success and growth follows significant investment in PV technology development and knowledge generation. The UK team, based in Mid Sussex, includes specialists in every aspect of implementing solar energy generation systems on a commercial scale and we will invest in PV systems anywhere in the UK. Our policy is to be transparent and accountable in every aspect of our performance.
Supporting our technical teams are planning experts, specialist legal and financial advisors, and a knowledgeable customer support team based in our offices in the UK.
NWT Energy advises and invests in energy generation and energy saving projects that reduce emissions and overhead for our clients, who are commercial, industrial, institutional, agricultural and government property occupiers and owners.
NWT Europe has been established for 20 years and operates within Europe, the Middle East, India and Australia. Our growth over recent years has allowed us to increase our offerings and create new employment opportunities within the countries in which we operate.
Peace of mind
The fact that we also have a UK solar installation company as part of the group puts us in a strong position because it enables us to identify potential sites, provide consultative advice on and deliver large scale commercial PV systems within a single client relationship.
Having the same group in charge of contracts, financial investment, project design, installation delivery, operation and maintenance means NWT are extremely well placed to help you take advantage of a lucrative opportunity without negotiating the risk of losing track of accountability.
Our financial backing is substantial and secure and we are ready to invest 100% in commercially viable opportunities. And because we retain a key interest in the operation of the system we only use the highest quality components and perform regular maintenance checks to ensure that everything is working as it should be.
Contact NWT now on 0333 005 0015 for a consultation.
Author: Hugo Logan, Programme Manager, NWT Energy