Shining Light on Solar PV Investment for Grange Door Systems Ltd : A Case Study

             

 

Introduction Since 2005, Grange Door Systems has been committed to improving its environmental performance with certification to ISO14001 and recertification to the Carbon Trust Standard (2011). From 2009, their carbon footprint has fallen by 25%, but they want to do more. Kevin Reilly, the Managing Director, says, “we realize that reducing carbon leads to financial benefits”. Once the low hanging fruit are picked, the challenge is for SME’s to reduce emissions further and still create a financial return to the business.

To progress further, Kevin wished to assess the business opportunity of installing a Solar Photovoltaic (PV) System at their manufacturing site near Edinburgh.

Implementing a small scale renewable energy system has four key phases: 1) Assessment of business proposition 2) Supplier assessment and selection 3) Installation, grid connection & commissioning 4) Monitoring system effectiveness

This case study focuses on phases 1 and 2.  

Grange Door Systems has established a reputation since the 1960s, for quality and innovative service in manufacturing steel products and structures and their installation, with special regard to safety and quality of appearance.

In recent years, Grange Door Systems has won contracts from blue chip companies where supplier environmental performance is moving up the procurement agenda. Call to SOS With changes to the Feed-in Tariffs (FITs) and some corporate tax allowances, Grange

Door Systems were keen to assess the business opportunity of installing Solar PV. They needed impartial guidance from experts in accountancy and energy with an understanding of renewable energy technology. This is a rare mix, but one the SOS team can provide to businesses.  How did SOS help? Installing renewable energy has a number of phases and SOS helped Grange Door Systems answer two key questions:

1) What is the financial benefit for a 25 year investment in a suitable Solar PV system?

2) What are the practical implications for selecting a solar PV installer?

To answer these questions, SOS reviewed the information obtained from a recent Energy Savings Trust (EST) audit and initial suppliers’ estimates, to critique the proposed systems and to provide robust analysis for a number of investment scenarios. These scenarios reflected:

1) rate of return1 based on industry average (10%), and interest (5% and 17%, depending on bank deposits used2);

2) 50kWp3 and 100kWp Solar PV systems with an estimated cost of £125k and £250k respectively.

The results of the SOS investment analysis were:

Until March 2012, a 50kWp system depending on the module yields, could generate between

£20,500-£30,500 over 25 years, more than the industry expected return, or between £54,000-£69,000 more than the bank interest lost from drawing on bank deposits. In other words, the system generates a net benefit, in today’s money, of between 2.5p/kWh and 8.3p/kWh for 25 years.

However, if the system size increases to 100kWp then the system loses £71,200 compared to the interest foregone. This is because the capital costs require

a higher cash outlay to supplement a small business loan.

Highlights: Act now while the sun shines!

Shining Light on Solar PV Investment for Grange Door Systems Ltd : A Case Study

             

 

Commissioning a 50kWp system after March 2012 raises questions about its

financial viability. The key reasons are:

1) In April 2012, FITs will fall from 32.9p/kWh to 30.1p/kWh for all electricity generated by the system.

2) From April 2102, Capital Allowances reduce from the current £100,000 to £25,0004, which causes a £14,000 decrease in the returns.

Having a system running before April means the company has a much larger financial cushion to deal with uncertainties in system yield, tax changes, etc. over the period.

The system will result in savings of 18 tCO2e 5per year - approximately 23% of the company’s current carbon

footprint, and representing an average £99 returned per tonne of carbon saved.

A Small Business Loan at 0% interest, provided by Energy Saving Scotland, helps the business

cashflow, with the repayments aiming to reflect energy savings over an 8 year period. Key Learnings from Installer Assessment n Robustly critique installer assumptions

for the percentage of electricity generated for your own use. EST recommends 50%, but some installers use 100%, doubling income. 100% is unrealistic as electricity is not always required when generated and additional grid supply may be required when system yields are low (winter).

n Benchmark energy yields with EST data

for location and seasonality- watch out for shading impacts too. Overestimated yields will lead to unrealistic income and artificially attractive investment.

n Only deal with MCS6 approved installers

and products to ensure that the system is eligible for FITs, otherwise the system will not be financially viable.

n Require installers to assess planning

requirements, as designing a system within permit planning rights can save time and money.

n Ask installers to complete the G59/2

application for grid connection because this can be complex and time consuming.

n Create an installer assessment matrix

detailing their financial security, competency, warranties, and customer feedback.

Summary A methodical installer assessment that links to the investment analysis and vice versa can shine light on the system’s real returns. However, with key financial incentives (FITs and tax allowances) for 50kWp systems changing from April 2012, SME’s must move quickly to capitalise on the benefits. This project highlights the need for support for SMEs to guide them through the business decision, because important decisions will benefit from expertise and resources. SOS helped Grange Door Systems through phase 1 & 2 and provided them with an impartial assessment to make an informed decision. We looking forward to sharing the next phase of the journey: Installation.

For further information please contact, Paul pauladderley@sos4business.uk.com                                                                                                                1  Adjusted  for  4%  Inflation  2  Weighted   average   of   0%   interest   small   business   loan   and   company  derived  interest  rate.    3    kWp  =  kilowatt-­‐peak  power  4  Capital  Allowances  refers  to  the  Annual  Investment  Allowance  (AIA)  for  which  Solar  PV  is  an  eligible  capital  investment.  5  tCO2e  =  tones  of  carbon  dioxide  equivalent    6  Microgeneration  Certification  Scheme    

 “GDS  is  committed  to  reducing  our  carbon  impact   and   being   profitable.   Investing   in  renewable  energy   is  a  good  opportunity  to  explore.   SOS   has   been   guiding   our   carbon  management   programme   for   3   years;   we  trust   their   expertise   and   impartial  approach  which  puts  our  business  first.      The   critical   analysis   of   the   options   by   the  SOS   team   gave   us   confidence   to   make   an  informed   decision   about   the   financial   and  practical  impacts  of  a  Solar  PV  system”  Kevin   Reilly:   Managing   Director   ,   Grange  Door  Systems  Limited.