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. This can be a major overhead for any farm business and will affect its 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 2021. Each system is of a similar size (100 kW) and produces 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 onsite by the businesses. This shows that those in the agricultural industry can buy low cost electricity and make excellent financial returns from solar. With grid electricity supplied prices rising while supply and install costs fall, it means that ROI and payback have improved.
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, including operating and maintenance, is now 5 times more than it was in 2012, which is why FiT subsidy is no longer required and it still gives best ever ROI. The cost of a solar PV system is more than 50% lower than it was in 2012, making it available to more businesses as an affordable investment.”
Dairy farm Gloucestershire - 100kW solar PV install by Mypower
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. This means 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's about being in control of your own supply of electricity at a price approximately 70% lower 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 graph below 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, while not usually broken down on the bill, is divided into two main elements - the wholesale costs of electricity (the commodity) and non-commodity costs. Although there are regular fluctuations in the electricity markets, the split between commodity and non-commodity costs is approximately 50:50. Non-commodity costs include governement levies, tarrifs and third party charges. The chart below provides an indicative illustration of the typical costs.
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 you will see an increase in taxes and charges so will pay more for delivering electricity to your premises via the network.
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 less than you currently pay. It won’t go up, you have no storage costs and, if you ever decide you don’t need it, you get your money back (by exporting 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 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 onsite 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 is estimated to be much longer at around 40 years. A 50kW solar PV system using 70% of the generation onsite, 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.”
Left: Sheppy’s Cider Somerset - 39kW solar PV install by Mypower
Annual Investment Allowance benefit
There can be additional tax benefits. Solar systems are classed as plant and machinery, so they can be eligible for capital allowances - i.e the capital cost can 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 via their next tax return. This can mean a £45,000 investment effectively costs the business just £27,000, making the first year's return on capital significantly higher at around 24% with a 4 year pay back, while the cost of electricity production is significantly lower at around 2.5p per unit.
In addition to the financial benefits, a business can significantly reduce its carbon footprint. Some businesses have won major contracts assisted by the added “green credentials” gained from 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 to 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 onsite.
Generating your own energy is the future. By 2025 the Government are planning to close all coal fired 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.
Opposite / below :Potato Store Cornwall - 125kW solar PV install by Mypower
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. Delivering quality work with the highest customer service is at the heart of our business. 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 with their suppliers as a free-of-charge service.
For more information and friendly, helpful advice