michelmores renewables seminar
TRANSCRIPT
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
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Andrew KillickCorporate Finance Partner
Financial considerations for PV installations
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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
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Electricity price forecast - Wholesale
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Electricity price forecast
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Electricity price forecast
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The inevitability of Solar - price
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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
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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
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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
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Investment appraisal
• Appropriate installation
• Irradiation
• Planning/construction costs
• Grid connection?
• Operation and maintenance/warranties
• Tax
• FIT administration
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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
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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?!
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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
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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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(c) copyright Francis Clark LLP, 2013
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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
Planning – core concepts
• 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
Planning – core concepts
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
Permitted Development
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
Permitted Development
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
Permitted Development
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
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
DARTS FARM PV SCHEME
• 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%
DARTS FARM PV SCHEME
• 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%
DARTS FARM PV SCHEME
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
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