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UK PV Conference - Paul Lewis - 22 June 2010
1. The Energy Performance Guarantee - Overcoming the commercial obstaclesof PV implementation in the UK Paul Lewis, CEO 22nd June 2010 www.selfenergy.co.uk UK
2. Agenda UK 1. PV opportunity in the UK 2. European PV markets and FiTs 3. How attractive is the UK FiT to equity investors? 4. ESCOs and the Energy Performance Guarantee 5. The rooftop business model
17. Rooftop Business Model UK -Investor provides capital to install PV system - Benefits of generation and export revenue streams are shared between the land owner and the investor -Building owner receives rent for leasing roof space
18. Rooftop Business Model UK Example: 100kWp system in the UK System cost = £235k ESCO Investment = £59k (25% equity) Bank loan = £176k (7% interest,15 years) Rooftop rent = 50% of electricity saved Contract period = 25 years
19. Rooftop Business Model UK Example: 100kWp system in the UK Payback = 9.5 years IRR = 14.5% Accumulated cash position after 25 years = £585k
20. Rooftop Business Model Example: 100kWp system in the UK Accumulated cash position after 25 years = £67k
Company IntroductionAim to provide: energy savings reduce carbon emissions improve security of supply through decentralised generation and energy efficiency measures within an energy performance contract.
1. Overview of the PV potential in the UK.2. Brief description of how PV can be implemented.3. Opportunities from an investor’s point of view description of some of the outcomes of FiT schemes in Europe case study of Self Energy FiT project experience in Europe4. The services Self Energy provides as an ESCO; ESCOs’ roles as investors and their ability to offer an energy performance guarantee5. The rooftop business model - how such an investment may be structured; expected economic performance for both the investor and rooftop owner.
The UK has a slightly poorer solar resource than some other European countries, but there is still a lot of energy that can be utilised. The PV Manufacturer’s Association has estimated the UK’s total PV potential at 460TWh just from building mounted PV systems.Estimates of realistic PV potential range from 105TWh to 140TWh for only south-facing roofs.Putting PV systems on rooftops is a good option in the UK where land is at a premium. There are over 4000 km2 of roof space available in the UK.(from PVMA report “2020: a vision for UK PV” March 2009)There are also opportunities for landowners, especially in the southwest of the UK, to install PV in fields and gain a steady income from FiTs. A recent report was of one farmer consulting on the construction of a 15 acre PV farm. The investment would be around £4.5million with expected returns over 25 years of £13million.
The UK may be able to learn a lot from what has happened in Europe.FiTs introduced in countries throughout Europe have caused PV installations to increase significantly.Can see how the number of MW of PV added (top) increased after FiTs were introduced, and the average FiT (bottom) in each country.Many countries in Europe experienced growth of about 300% in the year after the FiT was introduced. The UK may see a five-fold increase in PV.As in Germany and France, the majority of PV systems in the UK are domestic, whereas in Spain and Italy there has been a trend towards large scale solar farms.Germany and Spain are reducing their tariffs as the markets are maturing, and now Italy is experiencing very fast growth. Some analysts expect the European market to continue growing despite tariff revisions at an average of 5GW each year until 2012 and reach a total of 101GW in 2025.System costs decreased in 2009 and 2010 from module oversupply, technology and manufacturing improvements, and economies of scale. Lower cost modules from Asian suppliers are increasing their market share in Europe.
Self Energy was commissioned to install 3MW of PV modules on the roofs of over 40 schools and public sector buildings on Gran Canaria.The barriers that needed to be overcome for the project to succeed were:The building management team had a requirement for an outside source of funding in order to deliver the projectThe building owner, due to lack of technology experience, did not want to take the operational or performance risk of the project, or have the experience to judge the optimal type of technologyThere was a lack of understanding from the end user regarding the feed-in mechanism and the regulatory process that had to be adhered to in order to utilise the benefits of the feed-in tariff.Self Energy was chosen for this project for its technical expertise and its ability to take on the funding requirements and performance risk.
Now is a great time to invest in PV. The market is mature after years of development in countries around the world. Costs are decreasing, and now with the FiT the UK, we can see similar growth in PV systems.The expected returns by some commentators are around 5-8%, which is a little less than in Germany.From Self Energ’sy experience, returns of approximately 11 to 15% irr can be achieved.
ESCOs are potential investors in the UK FiT scheme.They are able to find opportunities in conjunction with energy saving measures or stand-alone decentralised generation solutions.ESCOs have the experience to take on and manage energy projects that may be too risky for other parties.ESCOs have capital readily available to make investments at an agreed level.After the project is completed they will then operate and maintain the system whilst guaranteeing its performance.ESCOs may simply offer to supply energy through negotiating contracts on behalf of clients. The EPC guarantees a level of services. The ESCO is paid through energy savings so they are incentivised to maximise the savings.
The capital costs of PV installation can be prohibitive for some individuals or organisations.An EPC like that offered by Self Energy allows savings to be made without exposure to the full cost or risk of installing PV.
The rooftop business model is ideal for investment because of a sharing of benefits.The investor will provide some or all of the capital, and the rooftop owner does not need to make any investment at all but receives rent for leasing the roof and a share of the revenue streamsIncome from the FiT over the period of the contract will enable a good return on the investment to be made – typically 10 to 15% irr
As an example of how a rooftop contract may be structured, here is an overview of a project Self Energy is working on.The rooftop models previously applied by Self Energy in Europe are being successfully implemented in the UK.No two systems and contracts will be structured the same.
There are a number of assumptions with regards to taxes, maintenance, inflation and the annual electricity generated.A well designed system would produce returns like these in a similar location.
The client receives a steady stream of income over the contract with no need to make any investment, worry about maintenance, or deal with regulatory matters.
