To assist the UK Government in meeting its target of 15% of energy from renewables by 2020, property owners are being incentivised to install renewable energy systems, including Solar PV and Solar Thermal.
The Feed-In-Tariff scheme is already in place for Solar PV whereby homeowners are financially benefiting from the electricity produced on site to such an extent that the financials returns generated, and guaranteed for 25 years, make it a strong and secure investment opportunity comparable with other forms of investment.
At present, the financial returns on Solar Thermal are limited only to reduced fuel bills. However this may be set to change, as in March this year the government announced provisional details of the Renewable Heat Incentive (RHI), a policy aimed at encouraging consumers to invest more in renewable heat generation systems for energy generated. In the meantime, a Premium Payment is available to help people purchase Solar Thermal equipment (currently £300).
Greater detail on each system is provided below:
Solar PV (for Owner Occupiers and Landlords)
From April 2010, property owners, including Landlords, who install Solar PV panels on their properties, are eligible for the Feed-In Tariff (FIT) scheme, whereby they will financially benefit from the electricity generated on site.
The financial benefits of the Feed-in tariffs are designed so that the annual income generated will represent a healthy return on the investment needed to install the panels. (Even if the property owner has borrowed money to install the equipment, the scheme will still generate an income significantly greater than the monthly loan repayment (with a 25 year loan)).
The FIT financial returns come in three forms:
1. Generation tariff – a minimum payment for all electricity generated by the system. This is a set rate, linked to the retail price index, paid by the energy supplier for each unit (or kWh) of electricity you generate. This rate will change each year for new entrants to the scheme (except for the first 2 years), and recently rose from 41.3p to 43.3p per unit, but once registered, it is guaranteed to continue on the same index linked tariff for 25 years.
2. Export tariff – the Landlord will receive a separate payment of 3p/kWh from the energy supplier for each unit exported back to the electricity grid.
3. Energy bill savings – the Tenant will make savings on household electricity bills, because less electricity is required from the energy provider.
Investment returns
The return on investment will vary according to the size of system installed. As part of the surveying process, a site specific estimated return is calculated by taking into account the size of the system i.e. the amount of money the property owner is willing to invest and size of roof space; the efficiency of the system; average household use; current Generation Tariffs; and certain other prevailing factors.
However, as a guide, the table below (source: npower) provides indicative yields.
| Installed system size | 1.08kWp | 1.98kWp | 2.88kWp | 3.96kWp |
|---|---|---|---|---|
| Import Price p/kWh | 12.5p | 12.5p | 12.5p | 12.5p |
| FIT(Generation Tariff) (p/kWh) | 43.30p | 43.30p | 43.30p | 43.30p |
| Export price | 3.00p | 3.00p | 3.00p | 3.00p |
| Installed price (inc VAT) | £6,786 | £10,342 | £13,606 | £17,512 |
| Annual Generation (kWh/a) | 918 | 1,683 | 2,448 | 3,366 |
| Electricity exported (kWh/a) | 459 | 842 | 1,224 | 1,683 |
| Saving on electricity bill | £57.38 | £105.19 | £153.00 | £210.38 |
| FIT income | £397.49 | £728.74 | £1,059.98 | £1,457.48 |
| Export income | £13.77 | £25.25 | £36.72 | £50.49 |
| TOTAL (excluding savings on energy bills) | £468.64 | £859.18 | £1,249.70 | £1,718.35 |
| Investment yield | 6.91% | 8.31% | 9.18% | 9.81% |
Source: http://www.npower.com/web/feedintariffs/#___revealer_ident_3 (updated with current Generation Tariff).
Investment returns for Landlords
While owner occupiers will feel the benefit of both tariffs and lower fuel bills, Landlords must consider whether they sacrifice some of their return by passing the energy bill savings onto the tenant, as this figure will be difficult to determine and therefore difficult to recoup.
The return on investment for landlords therefore needs to be considered in two ways:
1) Ignore the electricity bill savings, as it is assumed they are passed onto the tenant. While this reduces the yield it is possible that less quantifiable benefits are felt; for example the property is made a more attractive rental proposition relative to similar properties in the market and thereby reduces void periods and attracts better quality, longer term, tenants. Indicative yields adjusted for Landlords are as follows:
| Installed system size | 1.08kWp | 1.98kWp | 2.88kWp | 3.96kWp |
|---|---|---|---|---|
| TOTAL (excluding savings on energy bills) | £411.26 | £753.99 | £1,096.70 | £1,507.97 |
| Investment yield | 6.06% | 7.29% | 8.06% | 8.61% |
2) Arrange to recoup the energy saving from the tenant and so produce a yield similar to that of an owner occupier.
Solar Thermal
At present, only non-domestic properties are eligible under the renewable heat incentive scheme, with little information on how the financial incentives might take shape for domestic properties. However, the second phase of the scheme will be for domestic properties, scheduled to commence from 2012.
For non-domestic properties, the RHI provides a continuous income stream over twenty years to any organisation that installs an eligible renewable heating system, ensuring that it becomes more commercially attractive than fossil fuel alternatives.
Assuming this is repeated for domestic properties, this is the first time financial support has been given to domestic customers for renewable heat generation in the form of a long term tariff payment for energy generated.
Under the scheme, support will be provided for a range of technologies and fuel uses including solid and gaseous biomass, solar thermal, ground and water source heat-pumps, on-site biogas, deep geothermal, energy from waste and injection of biomethane into the grid.
Figures are due to be released later in the year. At this point the only details available are criteria based, for example householders will have to meet requirements for home insulation based on an energy performance certificate and they must agree to monitor and record performance of the renewable heat source.
Eligible domestic installations installed after 15th July 2009 will qualify for support, which is scheduled to commence from 2012. In the meantime, a Premium Payment is available to help people purchase Solar Thermal equipment (currently £300).
