Buying Commercial Solar
What are key considerations when purchasing a commercial solar pv system?
Introduction to Commercial Solar Procurement
Why have so few business installed Solar PV Systems?
Two key reasons are said to stand between business and the installation of Solar PV systems. Firstly, the market can be confusing and complex with many options competing for attention making it hard to know where to start. Secondly; many companies, especially Small and Medium sized Enterprises do not have the capital to invest in this money saving technology.
This article aims to show how a reasonably straight forward process can address these issues and open up the potential of significant financial savings alongside a material reduction in the carbon creation associated with a business’s activities.
What is Commercial Solar?
Commercial Solar systems are systems that are developed to generate electricity for a specific company or organisation that is used to reduce the amount of energy that company or organisation needs to purchase from the grid.
These systems are often mounted on the roof of a property that the company owns or leases but can be ground mounted within the companies property. Occasionally these systems can be located on a completely different site to the location of the energy consumption with the power transmitted to the company directly via a private wire or virtually through a contract.
Systems typically comprise Solar Panels, a mounting system, Inverters and associated wiring and swich gear. They may also include optimisers, which provide more granular control of individual panels and can mitigate fire risk, and batteries to store energy that is generated by the system and cannot be used immediately.
Most Commercial Solar systems are procured directly by the company, but it is also possible to organise for a third party to purchase, own and manage the system and then for the company to purchase the electricity the system generates under a Power Purchase Agreement. See our Guide to Financing Commercial solar for more information about Power Purchase Agreements.
What are the benefits of Commercial Solar for businesses?
For most businesses the primary benefit of a Commercial Solar System is financial savings. A well installed and maintained system may be expected to generate electricity for at least 20 years. If the business funds the installation out of its own resources, it may generate lifetime savings 3x - 6x the original capital costs with IRR’s in excess of 20%. Alternatively, grant funding, hire purchase funding and operating leases in the form of Power Purchase Agreements are all available to fund some or all of the capital costs of the system. If the system if fully funded by a third party a business may be expected to save between 5% and 20% of the businesses power costs after the cost of finance in year one and perhaps 2x - 4x the original capital cost of the project.
Of perhaps equal importance is the reduction in the environmental impact of a business. A well sized commercial solar system is likely to reduce a business’s energy purchases from the grid by 60% - 80% with a corresponding reduction in carbon emissions from energy consumption. Installing Solar PV systems is usually the largest and quickest single step a business can take to reduce the carbon generation associated with its activities and is also the most cost effective.
Overview of the procurement process
As with any procurement process it is helpful to start with a clear idea of the objective. When considering commercial solar there are three potential objectives that care usually: 1 – Maximising Environmental Impact, 2 – Maximising lifetime savings, 3 – Maximising year one savings. Inevitably the eventual solution will be constrained by resources and logistics but starting with a clear goal helps shape decision making in what can be a confusing area.
Once an overall objective has been established it is necessary to understand your current and future energy needs, form a view on the likely future cost of that energy, and identify the production potential of a Solar PV system on the available site. This information can be used to establish the likely system size and used as a basis for developing a detailed design and generating quotes. Once a decision to proceed has been made there will be a number of permits to secure and an installation process to manage before moving into a period of operation and maintenance. Although initially this can appear daunting, the process breaks down into a number of discrete steps and there is significant support available at each stage.
Establishing your objectives
Whether you expect to fund the investment from your own resources or are planning borrow from third parties for the capital expenditure it is helpful to have a view of the type of economic return you would like to see for the investment of time and effort in the project to allow you to assess whether you are prepared to proceed before worrying about the details of system design and choosing the right installer.
Optimising lifetime value
At its simplest level this can be how many years would you like the initial capital outlay to be repaid in. Typically, this will be between 3-7 years depending on the business and the scheme. (ignoring any tax benefits from the investment – see our Guide to Tax and Accounting for more information on some of the generous allowances that may be available).
A more involved analysis would be assessing the Net Present Value of the likely cashflows that the scheme will produce over the next 20 years or so. This can be done both for a self-funded project and a project funded by third parties using an appropriate discount rate, often 15%. This type of analysis can be used to identify a scheme size that is likely to deliver the greatest value to the company.
Optimising year 1 savings
Many companies do not have the resources to fund a Solar PV scheme themselves, or if they do, they would rather guard this capital for developing their business and thus want to take advantage of grant and other third party funding to develop the scheme. In this case the objective is usually to maximise year one savings after the cost of finance is taken into account.
As practical matter we think it is helpful to analysis both of these situations when looking at a scheme. We can assist with this analysis.
There are also a number of non-financial objectives that may be relevant. Maximising the environmental benefit of a system generally results in building the largest system that can be accommodated on the site. There may be operational reasons that make security of supply critical which will strengthen the case for batteries, or other aesthetic or practical issues with the site, installation and access that further constrain the economic optimisation.
Other Considerations
Once there is a clear idea of the objectives for the installation the first step is to understand hour by hour energy consumption patterns on the site.
A Solar PV system produces energy when there is sunlight. Ideally this energy is used by the company directly to substitute for energy that it would otherwise have purchased from the grid. If the Solar PV system produces electricity when there is no demand from the business, then the excess energy is either sold back to the grid or stored in a battery (if installed). Energy that would have been purchased from the grid typically costs businesses in the region of £0.20 - £0.30 per kWh but energy that is sold to the grid will often only receive £0.06 - £0.03 so it is critical to understand a business’s energy consumption pattern when assessing any proposed scheme
Understanding Your Energy Needs
Assessing your energy consumption
If the business has a smart meter, then half hourly consumption figures for the last 12 months (or since the meter was installed) will be available from your supplier. It is important to procure this data for each meter (MAPN) on the site. Generally, a Solar system will be wired into a single meter so where there are multiple meters on site it is common to either focus on a single meter or to install separate systems for each meter. More complex solutions to manage multiple meters are possible, but these can require expensive electrical installations and power management systems which are unlikely to be cost effective other than in very specialist situations.
If the business does not have a smart meter, then the last 12 months meter readings can be used with standard hourly consumption curves for different business types to approximate the hour-by-hour usage profile, but these are never as accurate as accessing the half hourly data from a smart meter.
When assessing energy consumption, it is also important to consider any major changes to future energy use that may alter the analysis. This could include installation of EV chargers used by employees during the day or the altering of usage patterns to reflect the availability of solar energy during the day.
Tariffs
The current and future tariff paid by the business will be critical for undertaking any financial analysis. Current tariff information will be on your electricity bills. It is possible to procure detailed tariff forecasts from specialist forecasting organisations but we typically us the current tariff the business is able to obtain and then apply inflation rates of 2.5% to the tariff with sensitivities at 0.0% and 5.0%.
Determining the size and capacity of the system
Once energy consumption and tariff information are understood it is possible to undertake preliminary system design. An initial high-level design using industry standard software can be prepared by an installer other third party like GreenHearth.
This design can be used to determine the amount of energy a system of a given size is likely to generate over a 12-month period on an hour-by-hour basis for the typical weather experienced on the site. This allows the hour-by-hour production and consumption figures to be compared and so the fraction of the energy produced by the system that is used on site (the self-consumption) can be established. This will be critical to establishing the economics of the system and software like our Solar Optimisation Software can illustrate these economics for a range of system sizes.
Choosing the Right Installer
Once you have established your objectives and complete a preliminary design to confirm that a system is likely to achieve these objectives it will be necessary to identify your preferred installer. It may well be that you have already selected an installer earlier in the process to assist with the analysis described above or you may want to collect two or three quotes at this point.
It is usually worth asking your preferred installer to move forward with the grid connection application process relatively early in the process as this is not expensive but can take several months. Planning permissions are generally not required for roof mounted systems but ground mounted systems will require planning permission which equally can take several months and so is worth initiating once an outline design is complete and the economic case has been made.
GreenHearth is not an installer but works with many of the leading installers in the country. We mainly arrange finance for companies who are interested in funding their Solar PV systems and as such we work with a number of leading lenders to make sure that the installers will meet the lenders requirements.
Typically, lenders will want to see an installer that has been established for a number of years and has worked on projects of a similar type and scale previously. They will look for recent references and reputation as well as membership of MCS (even though this is a certification scheme for domestic installations).
Lenders will expect designs to use “Tier 1” panels as designated by Bloomberg New Energy Finance with product warrantee of 25 years or more. We would expect inverters to be replaced once during a 20-year life and so look for a 10-year warrantee from a major supplier and the mounting system to be provided by a recognised system with a sensible warrantee.
With a detailed design and pricing in hand it is possible to look at the economics of options such as batteries and to confirm the economics of both self-funded and third party financed systems.
For larger schemes, typically with a capital value over £250k, it may also make sense to consider a Power Purchase Agreement. These agreements can be more expensive to arrange but may have significant advantage as a third party takes responsibility for the design, construction and maintenance of the project. See our guide to financing commercial solar for more information about PPA’s.
Conclusion
A structured procurement process that begins with clear objectives and begins with a clear analysis of the likely economics of a Commercial Solar PV scheme can be effective in addressing the two major reasons that have prevented businesses installing solar energy systems.
Economic analysis provides a clear rational for proceeding with a project of a certain size and by basing procurement around this analysis a business can be confident of securing third party funding for the scheme should this be required.
GreenHearth can assist with both the economic analysis and identifying third party funding options.
Frequently Asked Questions
A key element of the cost of a system will depend on the type and accessibility of the roof but assuming there is nothing particularly difficult then a price of £750 to £800 per kWp of capacity installed is reasonably. If the system is going to be ground mounted this figure could range from £1,100 to £1,500 depending on ground conditions.
How much does it cost to install a commercial solar system?
Commercial solar could deliver lifetime savings of 3x to 6x the original cost and payback in 3 to 7 years. If it is financed by a third party, it may deliver year one savings (after the cost of finance) of 5%-20% of current electricity costs. A well sized system is also likely to reduce carbon emissions from power consumption by 60%-80%. It is likely to be largest and most economic step a business can take to reduce its carbon footprint.
What are the benefits of commercial solar for businesses?
How long does it take to procure and install a commercial solar system?
Typically, it takes 1-2 months to complete the economic analysis, design and selection of an installer. Grid connection permissions can take another 2-3 months but could be much faster. The actual installation process will depend on the complexity of accessing the site and the size of the scheme but can vary from a week for a 75kWp system to a month for a 400kWp system. Six months is a good planning horizon to allow for decision making but we have seen schemes completed in six weeks and 12 months.
Are there financing options available for commercial solar projects?
There are a ranged of financing options including government grants, hire purchase, lease finance and Power Purchase Agreements. See our [Guide to Grants] and Guide to Financing Commercial Solar for more details. GreenHearth can help with this process.
What factors should a buisness consider when choosing a Solar installer?
There are a large number of solar installers working in the UK. Whilst it is usually important to get a couple of quotes to ensure that the pricing is reasonable businesses should also look closely at the reputation and quality of the installers track record. In particular verify how they carry out the work (directly or through sub contactors or are they just a sales operation for other installers). Speaking to them understand their approach to design, fire safety, installation and understand the equipment and workmanship warrantees that they offer.
See our Guide to Maintaining and Operating Commercial Solar for details on what maintenance is required for a commercial solar system.
What maintenance is required for a commercial solar system?
How can businesses monitor the performance of their solar system?
All quality inverters will provide significant amounts of data via an app or web link that will allow businesses to monitor performance. GreenHearth also provided its own monitoring services which makes use of the data from the inverter and compares it with the expected output of a “digital twin”.
Are there tax incentives or rebates available for commercial solar installations?
In the UK there are tax incentives available for all systems and in some parts of the country and for some business types there are also grants available. See our Guide to Tax and Accounting and our Guide to Grants for Commercial Solar for more information.
What size solar system do I need for my business?
The size you need will depend on your objectives and the amount and profile of your energy consumption. GreenHearth is expert in advising businesses on this subject and has develop a range of specialised software tools to support your analysis.
Can commercial solar systems be intergrated with existing energy infrastructure?
Yes, solar systems are typically linked to your existing system at the meter and can be combined with other solar systems and batteries. More complex arrangements are possible can be expensive.