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 its 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 reduce their energy bills significantly 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) 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. With grid electricity supplied prices rising and a fall in supply and installation costs, 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, explained: “The saving between grid and solar electricity, including operating and maintenance costs, is now more than 5 times what it was in 2012, which is why FiT subsidy is no longer required. The cost of a solar PV system is 50% less than it was in 2012, making it 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. This means that even if the wholesale electricity cost remains static, bills will increase by 33% in the next 5 years!
Ben also outlined: “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 around 70% less than grid electricity.
“For those who still measure everything in payback time, remember the panels are warranted for 25 years. That's payback of 2 years on equipment lasting 5 years with 3 years of “free” production, or solar with a payback of 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 that you will see an increase in taxes and charges and will pay more for delivering electricity to your premises via the network.
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). How many businesses would like to buy all their inputs like this?
Solar power is a cost-effective, low maintenance and reliable supply of energy which is protected against price rises and works alongside grid supplied electricity. Average payback length is 5-6 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 explained: “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 18% before indexation. Any unused energy can be sold back to the National grid.”
Monssi – 70kW solar PV system install by Mypower
There can be additional tax benefits. Solar systems are classed as plant and machinery, so 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 their next tax return. 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 28% with a 3-year pay back, and the cost of producing electricity significantly lower, at around 3p per unit.
In addition to 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, while 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 over 20 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 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.
Delaney Mackay Lewis Ltd - Commercial Landlord
Goodridge Business Park is home to a number of commercial units owned by Delaney Mackay Lewis Ltd. As a part of their refurbishment programme, Delaney Mackay Lewis were looking to make the site attractive to potential tenants. This included improving the site's environmental credentials with a 250kW Solar PV system.
Far Peak Eco Park - Gloucestershire
Far Peak Business Park is located near Northleach. Mypower designed and installed a 49.83kWp, making maximum use of the available roof space. Utilising the 30% grant available (saving £11K) in Gloucestershire, Far Peak will achieve an 22.8% ROI
Mypower are a highly experienced award winning team who consult, design, supply and install solar panels on farms and commercial solar panels. 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 each customer's electricity price with their suppliers as a free-of-charge service.
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