Is Solar the cheapest form of electricity for British Farmers?
Dairy units, chicken sheds, refrigeration stores, farm diversification units and grain stores all require a significant amount of electricity to operate, which can be a major overhead for any farm business and affect profitability. Farm buildings provide large, uncomplicated roof space which is ideal for a rooftop solar PV system and today, farmers are able to significantly reduce their energy bills with Solar PV.
In the table below we compare solar PV systems installed by Mypower between 2012 and 2020. Each system is of a similar size (100 kW) producing around 91,500 units p.a, using panels with a 25 year warranty and inverters with a 10 year warranty. The figures are based on 60% of the solar generated electricity being used on site by the businesses. This shows that those within the agricultural industry can buy low cost electricity and make excellent financial returns from solar. With grid electricity supplied prices rising and a fall in supply and install costs it meant that ROI and payback are now better than 8 years ago.
NB These are year 1 figures, the FiT increases by RPI and the Savings by electricity inflation – currently around 7%, improving ROI in future years.
The reduction in the FiT subsidy to zero over the years is offset by the increased efficiency of the panels, reduced cost of the system and significantly increased grid electricity costs. Ben Harrison MRICS who heads up solar installers Mypower, explains “The saving between Grid and Solar electricity inc O&M is now 5 times more than it was in 2012, which is why FIT subsidy is no longer required and still gives best ever ROI. The cost of a solar PV system is 50% of what it was in 2012 making it more available to more businesses as an affordable investment.”
Will electricity prices continue to rise?
Energy experts have carried out extensive research on the future of non-commodity costs within an electricity bill and their workings show that these costs alone are set to increase over the next five years meaning that even if the wholesale electricity cost remains static, bills will increase by 33% in the next 5 years! Ben also outlines “With such dramatic electricity price increases, solar is no longer about payback or ROI it is about being able to be in control of your own supply of electricity at a price around 70% less than grid electricity.”
“For those who still measure everything in payback time, remember the panels are warranted for 25 years. Payback of 2 years on equipment lasting 5 years with 3 years of “free” production, or solar with a payback of say 7 years and 18 years of “free” production...”
The below graph depicts a projected rise in charges that you can expect to see on your business’ electricity bill:
Source Advantage Buying
What are non-commodity costs?
The unit rate on your electricity bill, whilst not usually broken down on the bill is divided into two main elements; the wholesale costs of electricity (the commodity) and non-commodity costs. The wholesale element makes up approximately 48% of your electricity unit rate while the remaining 52% consists of a number of different government levies, tariffs and third party charges which make up non-commodity costs. The below chart depicts average noncommodity costs for year 2016/2017 based on an annual wholesale cost of £52,000:
Source Advantage Buying
Why the increase?
As you may be aware, the UK’s electricity infrastructure is strained and the network (National Grid) is being pushed to capacity. This combined with a global push to reduce emissions and energy consumption in general means that you will see an increase in taxes and charges and will pay more for the cost of delivering the electricity to your premises via the network.
Sheppy’s Cider Somerset - 39kW solar PV install by Mypower
What does this mean for farmers looking to install solar?
In farming we all like predictability, especially when it comes to purchasing inputs. With solar you can forward buy a significant chunk of your next 25 years’ worth of input, at a fixed price of around a third of what you currently pay. It won’t go up, you have no storage costs, and if you ever decide you don’t need any of it, you get your money back (export to the grid.) How many farmers would like to buy all their inputs like this?
Solar power is a cheap, low maintenance and reliable supply of energy which is protected against price rises and works alongside grid supplied electricity. Average payback length is 5-7 years and a solar investment can be cash flow positive in as little as 2 years. With low interest rates and the additional tax benefits, solar is therefore viewed as a low risk investment.
Ben Harrison explains “Matching the daytime generation from the panels to the electricity demand from the building is the most efficient way to use solar. The energy produced on site is actually used at the premises meaning that the business needs to import less energy from the grid. Quality solar panels are guaranteed to deliver a 25 year linear power output which means businesses can accurately predict the cost they will pay for each unit of electricity for the next 25 years. The lifetime of solar panels are estimated to be much longer at around 40 years. A 50kW solar PV system using 70% of the generation on site, can expect a projected first year income and savings of £5,700, giving a first year return on capital of 15.2% before indexation. Any unused energy can be sold back to the National grid.”
Dairy farm Gloucestershire – 100kW solar PV install by Mypower
Annual Investment Allowance benefit
There can be additional tax benefits. Solar systems are classed as plant and machinery and can be eligible for capital allowances. i.e for the capital cost to be written off against profits in the first year. In such a case a farming partnership paying 40% tax can often claim back from HMRC 40% of the cost of the solar installation in the next tax returns. This can mean a £45,000 investment effectively costs the business just £27,000 making the first year return on capital significantly higher at around 24% with a 4 year pay back and the cost of production of the electricity significantly lower at around 2.5p / unit.
As well as all the financial benefits, a business can significantly reduce its carbon footprint. Some businesses have won major contracts assisted by the added “green credentials” gained after installing solar panels, others have reduced their carbon footprint to help maintain existing business relationships. A 50 kW solar PV system will help a business reduce its CO2 emissions by a massive 28 tonnes per annum. They can also promote their environmental saving contributions in marketing literature and a display screen on site.
Generating your own energy is the future. By 2025 the Government are planning to close all coal fire power stations. With solar power becoming the cheapest form of electricity combined with today’s low interest rates to finance an installation, now is the time for your business to invest in solar.
Mypower are a highly experienced award winning team who consult, design, supply and install Solar PV for agricultural and commercial solar panel clients. We work with companies to help them significantly reduce their electricity bills, secure their energy, future proof their electricity costs and reduce their carbon footprint. At the heart of our business is delivering quality work with the highest customer service. The solar PV panels we install are high yielding, very efficient and award winning so our customers achieve the maximum production and returns from their solar installation. In addition we work with consultants to renegotiate the customers’ electricity price from the suppliers as a free of charge service.
For more information and friendly, helpful advice, please contact us
Potato Store Cornwall - 125kW solar PV install by Mypower