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BY DAVID MCDONALD

MARKET DRIVERS – STRONGLY POSITIVE
Photovoltaics is the process of converting sunlight directly into electricity using solar cells. Today it is a rapidly growing and increasingly important renewable alternative to conventional  fossil fuel electricity generation. The UK has made important commitments to reducing carbon emissions across all sectors of the economy. Legislation requires companies to begin  reporting environmental performance measures as an integral part of their annual disclosures alongside traditional financial accounting. Streamlined Energy and Carbon Reporting (SECR)  legislation applies to around 12,000 UK organisations, many of which are large unquoted companies that haven’t previously reported on energy and carbon.

Unquoted organisations must comply with SECR if they meet two of the three qualifying conditions; at least 250 employees, an annual turnover greater than £36m and a balance sheet total  over £18m. However it is likely that these thresholds will continue to be lowered, so developing an understanding of environmental impact is increasingly important. In addition to the need  to reduce carbon emissions, the energy markets have witnessed extreme volatility in recent months, driven by the Russia/Ukraine conflict and the feared disruption to fossil energy supplies  into Europe. Although prices have softened over recent months, the conflict demonstrated how uncomfortably exposed many energy intensive industries are to these outside risk factors.

Many commentators consider it unlikely that prices will fall back to previous levels. Solar PV is considered a very effective physical hedge to protect organisations from the worst impacts of this volatile and unpredictable market.

 

 

AUDITEL PROCESS
Auditel is working on dozens of Solar PV projects across all sectors at the present time – ranging in size from 100kWp to over 1MWp. It is clear that many organisations have woken up to  the price exposure within their cost bases, and have prioritised investment in PV to protect their businesses. We begin with an initial site appraisal to determine the likely feasibility of Solar  PV. This will use the information gathered about daytime electricity demand at the site using a minimum of 12 months’ of Half Hourly Data. We assess available roof space and potentially  surrounding areas for ground mount solutions. We assess the likely level of insolation (sunshine) at the location, given the orientation and slope of the modules.

If Auditel is retained to lead PV procurement, we will develop and issue a request for proposals (“RFP”) to address preliminary design, planning implications and electrical connection considerations. The RFP will benchmark capital cost, operating cost and likely benefits from the investment, as well as confirming the qualifications and experience of the installers.

Once we receive all proposals, we produce an analysis report and recommend a preferred installation partner. Customers are not committed to complete the project at this stage. Once the  preferred partner is engaged, he will normally require a small commitment fee which allows him to develop a detailed design, secure any necessary planning consents and engage with the  Distribution Network Operator (“DNO”) to obtain a grid connection offer (typical response time 45 days).

A structural of buildings may also be necessary at this stage, as well as determining whether asbestos is present in the roof covering. In terms of planning, the development of ground  mounted solar arrays will require full planning application which may take up to six months for determination. However, the development of roof mounted solar arrays of under 1MWp is  normally carried out under permitted development rights but with several conditions:

  • Roof-mounted commercial solar panels should project no more than 200mm from the roof slope;
  • With pitched roof and flat roof installations, the panels need to be situated at least 1m from the external edges of the roof; This will be confirmed by submitting a Prior Approval Notice to the local authority planning department which typically responds within 8 weeks.

During this part of the process, Auditel will engage with a client to understand their tax and financial position in more detail and help determine the commercial impact of investing using suitable funding models. The investment business case can be tailored to illustrate the most common scenarios:

  • making the investment on-balance sheet;
  • on-balance sheet but with an element of borrowing;
  • off-balance sheet with Asset Finance partners;
  • off-balance sheet with third party investment alongside a

Power Purchase Agreement (PPA)
Output from this phase will be a detailed investment appraisal and business case, which will be presented for final investment decision (“FID”). Once FID is approved, the client would normally make a deposit payment to the preferred partner to fix the price of panels and balance of plant. Only at this point would they be committed to invest in the project.

INVESTMENT APPRAISAL
Recent projects have demonstrated strongly positive investment results, given the high economic value of reducing import electricity. With clients faced with up to 90p/kWh import  contracts, projects pay back rapidly. With our sophisticated investment modelling, we can demonstrate this in a compelling way to achieve investment approvals. The key to delivering excellent investment returns is to ensure that the energy generated by the array is used behind the meter to reduce the amount of energy imported at retail prices. There are a number of  ways in which daytime usage may be increased, depending on the type of operation and energy demand on the site.