Is solar the cheapest form of electricity for British businesses?
Commercial properties and agricultural buildings require a significant amount of electricity to operate, which can be a major overhead for any business and affect profitability. These buildings and properties provide large, uncomplicated roof space which is ideal for a rooftop solar PV system and today, businesses are able to significantly reduce their energy bills with Solar PV. This is despite the FiT cuts in 2016.
We compare a high spec commercial solar panel install using European branded REC panels with a 25 year warranty and inverters with a 10 year warranty, by Mypower, from 2012 to 2017, based on 65% of the generated electricity being used on site by the business. This shows that businesses can buy low cost electricity and make excellent financial returns from solar: it’s just as good today as it was during the boom years of 2012-2016…
|Number of panels||200 x REC
|200 x REC
|192 x REC
|Electricity produced: Year 1||48,000 units
|Supply & installation costs||£66,000||£60,000||£43,000|
|Income and savings: Year 1||£10,620||£9,979||£6,702|
|Return on investment: Year 1||16.1%||16.6%||15.6%|
|Payback||6.2 years||6.0 years||6.4 years|
Average business electricity prices
– January 2017
Equivalent forward purchase price of
electricity for 25 years
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.
Ben Harrison MRICS who heads up solar installers Mypower, explains “since 2012, average commercial electricity prices have increased by more than 30%. It is expected that by May 2017 the UK’s big 6 energy suppliers will have advised their customers they will be applying at least a further 5-10% increase to their bills. In contrast, solar energy prices have fallen over time. Since 2012 the forward purchase price of electricity from solar has reduced by a massive 35%. This means with electricity prices rising and the reduction in installation costs, the achievable ROI in 2017 still surpasses 15%.
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! 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.
T Copas - 50kW solar PV install by Mypower
What does this mean for businesses looking to install solar?
Businesses 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) plus you get a subsidy on top. How many businesses 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 6-8 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 49.92kW solar PV system (192 panels) using 65% of the generation on site, can expect a projected first year income and savings of £6,700, giving a first year return on capital of 15.6% before indexation. Any unused energy can be sold back to the National grid.”
Walsh Mushrooms – 426kW solar PV install by Mypower
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 (192 panels) 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
Priory Farm - 100kW solar PV install by Mypower
Potato Store Cornwall - 125kW solar PV install by Mypower
Information accurate as of 12/06/2017