Our customers are all in agreement – it makes commercial sense to generate your own energy. But how to fund commercial solar PV? We are currently working on some large-scale solar PV projects, and we thought it might be of interest to shares some of our findings in relation to the funding options we evaluated on behalf of our customer.
Our customer’s configuration is an 812 kWp array, over 1900 panels, and we looked at the difference in the 20-year total savings including any export tariff and cash income. The results proved very interesting!
In this case, our clients had 3 options:
1. Cash purchase
2. PPA (Power Purchase Agreement)
3. Loan (asset funding)
Cash
We estimated savings and cash income to be more than £8 million over our 20-year period. This included a conservative estimate of the kWh our customer could draw down for their consumption from the array and a similar estimate of an amount exported to the grid attracting an export tariff income.
With these estimates we were seeing paybacks of approx. 2 to 3 years.
This was achieved by spending some time reviewing our client’s historical consumption patterns and building a solar PV array correctly sized for his business. Too larger an array will see too much exported and too smaller an array will see too much drawn from the grid.
PPA
We have always had a suspicion that the benefits of the PPA option was significantly weighted in favour of the lenders/banks, but we were interested to see by how much. Our calculations showed that over the 20-year period you would lose around half of your savings and any export cash income to your PPA supplier. Putting this into numbers with our array the difference was around £4 million. There is another factor that affects many PPA decisions, which is the legal charge required on the roof, committing that PV array, to remain untampered with for typically a 25 year period.
Loan
We reviewed several clean energy asset funding loan options with £0 or 25% deposit over 7 and 10 years. If we take a £0 deposit option to compare directly with a £0 outlay with a PPA model then savings and cash income reduced by just over £1m. You may have some maintenance and inverter replacement costs to factor in but this still is a significant difference to the PPA model and you retain control of your assets and properties with no complex legal agreements to adhere to.
With the finance costs we found the payback period to nudge out a year or so to around 4 years but also importantly the savings and cash income were greater than the finance payments giving a positive cash flow even during the finance term.
After this term the savings and export cash income is all yours!
As Peace Marsh has recently blogged energy security and predictable reduced energy costs are becoming critical to UK businesses, we develop electricity generation assets in locations where the technology matches the resource and energy storage systems. It’s important to assess your business needs and setting carefully so that you have all the information you need to make the right decisions.
Please do get in touch, our team will be happy to help navigate you and your company through the renewable energy options, and which is most suitable for you.
This information does not constitute financial advice or recommendation and should not be considered as such.
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