Solar remains attractive proposition for rural businesses, says James Cowper Kreston

The Government last week (9 February) announced changes to the renewable energy Feed-in Tariff (FiT) scheme designed to bring greater predictability and transparency to investors.

Rural businesses and those with multiple photovoltaic, or solar, installations, such as farms, should welcome the proposed changes, says accountants and business advisers James Cowper Kreston, as the energy savings, payback time and resulting profits continue to remain an attractive investment platform.

The changes include:

• A new tariff of 21p/kWh is proposed from 1 April this year for domestic sized solar installations, rather than the 43p/kWh currently on offer.  The new tariff will apply to all new schemes certified from 3 March.
• Those installing solar on or after 1 April will be required to have an energy efficiency rating of ‘D’, rather than the previously anticipated ‘C’ rating.
• A multiple installation tariff at 80% of standard tariffs will be introduced for photovoltaic schemes for those already receiving FiT for existing schemes.  However, the threshold for multiple installations has increased from more than 1 installation to 25 or more.

Fiona Hawkins, a senior manager with James Cowper Kreston said: “These changes are being introduced to, amongst other things, create predictability for investors.  The Government believes that installation costs are falling and the high FiT rate available to investors is no longer sustainable.”

Despite the cut of 50 per cent in the FiT rate, investors can still see returns equivalent to a compound interest rate of almost 5.5 per cent, as illustrated by the following example.

A farmer installs a 49.95kWp system certified from 3 March at a cost of £110,000.  A total of 40 per cent of electricity generated is used by the farm.  The FiT farm scale reduction for a 10-50kW scheme will fall from 32.9p/kWh to 15.2p/kWh.

In its first year, the farmer will receive a FiT income of £6,455, together with £790 from exporting energy.  The farmer makes a saving of £2,463 on his energy bill, making a total benefit to the farm of £9,708.  The total payback time is just over eight years, and over a 25 year period the farm will make a total profit of £387,000.

Fiona adds: “If that same farmer were to invest the £110,000 for 25 years with a compound interest rate of three per cent, he would receive a return of just £120,000.  To achieve a return similar to that outlined in our example, the farmer would need a compound interest rate of almost 5.5 per cent.”

At the same time, the Government has also announced a consultation on a programme of six-monthly tariff reductions for solar PV and reducing the long-term cost of supporting tariffs from 25 to 20 years.

Fiona adds: “Obviously, the actual return and payback will vary depending on the type of panels, their location and orientation.  Anyone considering solar energy schemes, or any other renewable energy generation scheme, should first seek independent advice on costs and payback times.”

Fiona Hawkins, Senior Manager, James Cowper Kreston LLP, Tel +44 (0)1635 35255 or email fhawkins@jamescowper.co.uk