Subsidies are dead – long live PV!

Our Business Development Director, Stephen Preece, gives his account on the recent end of the feed-in tariff and how this will impact the solar energy industry:

Having been involved with Solar PV since the feed-in tariff was launched back in 2010, it is with very mixed emotions that I look at the end of the feed-in tariff on the 1st April 2019.  There is a reason we in the industry called it the “Solar Coaster” with the most tumultuous series of boom and bust strategies and impacts I have ever seen an industry endure.

The tariff was launched at 43.3p per kWh for generation, and I remember the early adopters paying over £20,000 for domestic arrays.  The tariff was generous enough to launch a range of “free solar” schemes and rent a roof, eventually overcoming insurance and legal obstacles to do so.  Then in the first of the shock moves, the Government pulled the brakes on and cut the tariff by more than half with only six weeks’ notice.  They eventually lost a legal challenge on that and installations up to 3 months later were granted the higher tariff but many hundreds were left in limbo for months not knowing what their system might be worth.

The tariff has been gradually eroded ever since and currently sits at just 3.79p for small scale arrays getting the higher tariff, and that will end for new installations after the 1st April.  However, the reason for this is that the combination of reducing solar PV product prices and increasing electricity costs mean that Solar PV now makes perfect financial sense without a subsidy.  For the first time, the industry can concentrate on a subsidy free business model and not be subject to the vagaries of Government policy and short term incentives.

For example, I modelled an array last summer and got a cautious cash flow like this:

Key Financial Metrics:
Scale of Project: 56 kWp Payback: 11 years
Installation Date: 26 August 2018 Capex: £56,000
NPV: £36,013 Lifetime Energy Saving: £116,789
IRR: 8.7% Annual CO2 Saving: 14.04 tCO2e

Since then, the cost of installation has dropped nearly 30% and the cost of electricity has increased by nearly 20%.  Modelling this exact same array for installation in a couple of weeks looks like this:

Key Financial Metrics:
Scale of Project: 56 kWp Payback: 6 years
Installation Date: 30 April 19 Capex: £42,000
NPV: £108,428 Lifetime Energy Saving: £235,651
IRR: 19.3% Annual CO2 Saving: 14.39 tCO2e

The rate of return and the lifetime financial savings have doubled, and the system now pays back in just 6 years!  This works because the site concerned is using nearly all the energy generated by the array, and displacing grid imported energy.

So, you no longer just need a south facing roof, a good grid connection, and some money in the bank.  You also need a site with a decent daytime electricity consumption, and a clever bit of software to check the model for you. arbn renew can do just that.  I ran the model above in just five minutes, using the half hourly data from the site and mapping the best area of roof from a satellite image.

So down with subsidies I say, and long live Solar PV.

By Stephen Preece