michelmores renewables seminar

Woodwater House, Exeter

Solar PV for businessesThe money-making overhead

Introduction

Ian HolyoakHead of Energy & Renewables

Seminar Programme

• 6.10pm: Financial Considerations» Andrew Killick, Francis Clark

• 6.30pm: Legal Considerations» Philip Wolfgang & Mark Howard, Michelmores

• 6.50pm: Forward planning for lasting returns» Gabriel Wondrausch & Matthew Lauri, SunGift Solar

• 7.10pm: Why we chose solar PV» James Dart, Darts Farm

• 7.20pm: Questions • 7.30pm: Networking & Refreshments

www.francisclark.co.uk 4

Andrew KillickCorporate Finance Partner

Financial considerations for PV installations


Contents

• An overview of the economics of solar generation

• The potential effect on the valuation of a business

• Factors to consider for investment appraisal

• Fundraising

• An brief overview of related tax matters


Electricity price forecast - Wholesale


Electricity price forecast


The inevitability of Solar - price


Electricity market

• Electricity today – where is it coming from?

Coal - 39% Gas - 28% Nuclear - 19% Renewables - 11% Other – 3%

• Heavily distorted market

• Decarbonisation/reduction in generating capacity/electrification

• Price freeze 2015 - 2017?

• Market uncertainty

• The US experience

Supply/Demand ≠ Price


The inevitability of Solar

• Increased concerns over security of traditional supply

• Increasing costs (whatever happens in 2015)

• Significant benefits of self-generation

• A reliable and cost-effective alternative technology?

Solar PV


Impact on business valuation

Valuation = Maintainable earnings X Multiplier

Maintainable earnings:

• Lower cost base

• More profitable

• Diversification

• Index linking

Multiplier:

• Differentiation

• Security over energy supply

• Diversification

• CSR


Investment appraisal

• Appropriate installation

• Irradiation

• Planning/construction costs

• Grid connection?

• Operation and maintenance/warranties

• Tax

• FIT administration


Financial summary - example

Installation of 500m2 (approx size of 2 tennis courts):

Installed capacity

Capital spend

Estimated output

Annual income

Annual savings (assuming 50% used)

Total income and savings

Simple pay-back (pre tax)

- 49.9kW

- £45K - £60K (net of VAT)

- 45,000kWh

- £6,700

- £2,250 (£0.10 per kWh)

- £8,950

- 5.0 – 6.7 years


Fundraising

• High Street Banks will look for existing business security

• Standalone finance emerging

• Some specialised financing companies available

• Present your proposal fully/projections

• Who owns it? Lease/Rental? No funding required?!


Related tax matters

• Capital allowances – kit AND directly attributable costs Carry back?

• AIA of £250K until 31 Dec 2014

• Corporation tax - separate trade?

• CGT – considered as F&F

• Inheritance tax – 100% BPR?

• VAT


Summary

• Uncertainty in the supply and pricing of traditional power

• Enhancement to profits and value

• Short term payback

• Maximise the tax allowance treatment

Timing important – leaving it until later may result in lower returns

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Disclaimer & copyright

Solar PV for BusinessesLegal Considerations

Philip Wolfgang

Preliminary considerations

• Is an option necessary?• Is a crane licence necessary?

Lease Terms

• Are there pre-existing occupiers?• What do the “premises” comprise?• Dilapidations

– Should there be a schedule of condition?

• Warranties for roof structure?• Lift and shift provisions?• Who owns the panels?

• Landlord & Tenant Act 1954• Direct agreement with funder• Multiple sites and formalities

Solar PV for BusinessesPlanning Law

Mark Howard

Topics for the day

• Planning - core concepts• Planning - Permitted Development• Government policy

Planning – core concepts

• planning permission required for the development of land

• ‘development’ is either:– operations affecting land; or– changes of use of land


• The main exceptions are:– use for agriculture or forestry– change of use within the same class e.g. from a

butcher’s shop to a baker’s shop– interior of the building only– external appearance is unaltered


Types of consent•outline planning consent•reserved matters•full planning consent•listed building consent•S106 Agreements

Planning – Permitted Development

• Certain ‘development’ does not require planning permission

• Permitted Development

Permitted Development

• General Permitted Development Order 1995 – permission is deemed granted

• Permission granted by SoS subject to conditions

• Stray beyond the description of permitted development then the whole development needs consent, or it is unlawful


Take care:•Article 4 (GPDO 1995) – permitted development rights can be removed•Permitted development rights attaching to a particular use of land are only available if that use is lawful•Permitted development rights attaching to buildings are only available if that building has been constructed lawfully


Take care:•You cannot stray beyond the description in the GPDO•Over 40 different classes of PD rights in the Order•Most PD rights are subject to restrictions:

– Size– Location– Noise levels– Visual impact


The key Order for non-domestic renewables:•Town and Country Planning (General Permitted Development) (Amendment) (England) Order 2012 – non-domestic micro-generation

Roof mounted solar

Conditions:•Minimise effect on external appearance•Remove as soon as not neededLimits:•Panels protrude no more than 200mm•No more than 1 metre above highest part of a flat roof

Roof mounted solar- limits

• Not within 1 metre of the edge of the roof• Not visible from a highway in a conservation

area• Not on a listed building

• Building Regs- check your roof loading

Free standing solar

Conditions:•Minimise effect on amenity of the area (glare, landscape)•Remove as soon as not neededLimits:•No more than four metres high•At least five metres from the boundary

Free standing solar- limits

• No more than 9 square metres• No nearer to the highway than the building (in

a conservation area)• Not within the boundary of a listed building

Summary of Planning

Consider permitted development•Have the rights been removed?•Can you meet the requirements of the GPDO?Planning permission•consult•address issues•address current policy

Government Policy

Key themes of localism and reducing red tape•planning policy – National Planning Policy Framework•sustainable development – a golden thread running through both plan-making and decision-taking•five principles

– live within planet’s limits– strong, healthy and just society– sustainable economy– good governance– use sound science responsibly

Government Policy – Localism• May 2010 – the ideological basis for localism and the big society• The NPPF – process begins December 2010, finalised March 2012• Community involvement• Planning Minister – Bob Neill MP

• September 2012 – the economy bites back and realisation dawns• George Osborne – relax the rules on greenbelt development• David Cameron – build more houses• Reshuffle. Planning Minister – Nick Boles MP• And so it continues…

Government Policy - Localism

Localism•version 1 – people power•version 2 – consultation•version 3 – a move back to people power?

PD Policy

• Re-use of redundant agricultural buildings• Change of use: redundant offices to residential

• Note – change of use is PD, works are not

• Time limited policy – 3 years and then review

Renewables Policy

Planning Practice Guidance for Renewables and Low Carbon Energy (not PPS 22)

•Onshore wind farms•Large solar PV schemes

Renewables Policy

• More weight to local concerns• Cumulative impact requires attention• The need for renewable energy no longer a

trump card

SunGift Solar

Forward Planning for Lasting Returns

Matthew LauriCommercial Project Development

Contents

Gathering the correct information at site survey The design and installation process System commissioning, handover, aftercare

support and application for Feed-In Tariffs.

How It Works

How It Works

DC

ACMeterAppliances/Machinery

Grid

Are two solar installations the same?

Are all 2ltr cars the same?

2ltr Comparison

Solar PV variables

Efficiency Appearance Performance Warranty Life expectancy Price

Solar PV comparison

Cost Capacity Aesthetics ROI and Payback Profit BUT are they really the same?

Installation example

String layout

Show how important the string layout is.

The wrong string layout

String layout

Show how important the string layout is.

The right string layout

The wrong panel layout

Panel layout

The right panel layout

Panel layout

The preferred installation

Financial comparison

System Panels close to parapet wall with poor string layout

Close to parapet wall with improved string layout

Panels repositioned further from parapet

wall Cost per watt installation £1.05 £1.05 £1.05

System Cost excluding 20% VAT £52,500.00 £52,500.00 £52,500.00

Annual Energy Generation (kWh) - as PV Sol simulation 46,979 47,116 47,632

FIT Rate (p/kWh) 12.57 12.57 12.57

Payback Period (Yrs) 4.59 4.58 4.51

Annual Return on Investment 21.8% 21.8% 22.2%

IRR % 21.4% 21.4% 21.8%

20yr Profit £235,513.73 £236,353.64 £240,680.18Carbon Savings per year (tonnes) 24.85 24.92 25.20

Less is more

Shading impact

Preferred method

Financial comparison

System 65.25kWp System 92.5kWp System

Cost per watt installation £1.05 £1.05

System Cost excluding 20% VAT £68,512.50 £97,125.00

Annual Energy Generation (kWh) - as PV Sol simulation 63,856 85,049

FIT Rate (p/kWh) 11.10 11.10

Payback Period (Yrs) 4.70 5.04

Annual Return on Investment 21.3% 19.8%

IRR % 20.7% 18.9%

20yr Profit £298,054.29 £385,389.52 Carbon Savings per year (tonnes) 33.78 44.99

Current system costs

System 50kWp System 150kWp System 250kWp System

System Cost excluding 20% VAT £52,265.68 £151,077.41 £245,092.96

Annual Energy Generation (kWh) 47,889 134,955 219,318

FIT Rate (p/kWh) 12.57 11.10 10.62

Payback Period (Yrs)

Annual Return on Investment 21.6% 19.7% 19.4%

IRR % 21.1% 18.7% 18.3%

20yr Profit

Carbon Savings per year (tonnes) 25.33 71.39 116.02

4.64 5.07 5.154.64 5.07 5.15

£231,158.39 £594,978.88 £944,750.86£231,158.39 £594,978.88 £944,750.86

PPA options

Power Purchase Agreement (PPA) Zero cost Reduced electricity rate Index linked Protected from rising costs Green credentials Carbon savings

Invested installations

£1,912Savings

Yr1£76,979Total Yr

20

System commissioning

MCS certificate EPC certificate System handover and training Servicing and maintenance FiT application form

70kWp PV roof array (30 & 40kWp)Estimated payback less than 6 yearsEstimated return higher than 16%

Exeter CouncilCivic Centre:

Met Office, Exeter: 250kWp PV array Estimated payback 7.3 years Estimated return 13.5%

Numatic Int Ltd: 250kWp PV arrayEstimated payback 4.6 yearsEstimated return 21.6%

SunGift test array

Customer Portfolio

SunGift Solar

Darts FarmSolar

ProjectIn partnership with

SunGift Solar

BENEFITS OF BUYING LOCAL

• Money spent with local farmers and producers all stays close to home and is reinvested with businesses and services in your community.

• Local foods promote a safer food supply, the further you are from the source of your food, the greater the chance of contamination.

ECO-FRIENDLY DARTS FARM

• Cardboard baling and recycling• Plastic baling and recycling• Glass recycling• Water sourced from on site bore hole• Wetlands project• Solar panels

DARTS FARM PV SCHEME

• Conceived April 2011• Installed end July 2011• Eligible for the higher feed in tariff

rate of 32.9p• Proposed performance of around

70,000kwh• Aim to reduce our carbon footprint

and utility bills


• Estimated 67,347 kwh • Feed in tariff 32.9p per kwh• Estimated annual earnings EDF £22,157 • Annual savings from electricity bill £4,714 (50%)• Total system cost £171,606• Estimated payback 6.15 years• Income generated over 25 years £697,025• Total profit over 25 years £525,418• Carbon emissions offset 43.5t per

annum• Equivalent rate of return 16.25%


• Estimated 7,410 kwh • Feed in tariff 32.9p per kwh• Estimated annual earnings EDF £2,438• Annual savings from electricity bill £518 (50%)• Total system cost £29,500• Estimated payback 9.6 years• Income generated over 25 years £76,693• Total profit over 25 years £47,165• Carbon emissions offset 4.8t per

annum• Equivalent rate of return 10.4%


Actual income received period from June 2012 – June 2013

• Total projected income FIT £24,595• Actual income received EDF £25,818• Assumed electricity usage 50%• Actual electricity usage 100%• New projected payback approx

6 years

FUTURE DARTS FARM PV SCHEME

FUTURE DARTS FARM PV SCHEME

• Estimated 65,000 kwh • Feed in tariff 10.62p per kwh• Estimated annual earnings EDF £6,920• Annual savings from electricity bill £5,213• Total system cost £75,500• Estimated payback 5.55 years• Income generated over 20 years £187,600• Total profit over 20 years £ 262,600• Carbon emissions offset 34.5t per

annum• Equivalent rate of return 18%

DARTS FARM CARBON OFFSET

• According to Forestry Commission data we save 27,865 trees a years.

• An average of 76 trees per day.

Thank you for

listening.

Question & Answers

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