UK: Commercial rooftop PV can still be profitable, says industry

"A few years ago, we had to explain to corporates why investing in solar rooftops is a good idea, and that they should move quickly to receive the advantage of the available support schemes," said Jonathan Selwyn, managing director of Lark Energy at the Solar Finance and Investment conference, which took place in London this week. Today, Selwyn added, the industry needs to show businesses that, albeit under different circumstances, investing in solar PV rooftops is still a wise move.

Selwyn, whose company is a leading U.K. commercial rooftop PV developer, reminded the conference that a year ago the government was telling the sector that it wants to see the development of the commercial rooftop PV segment. Today, it appears the government has changed its mind yet again, he said.

In fact, speaking a year ago at the same event in London, Richard Cave, the U.K. Department of Energy and Climate Change (DECC) head of solar PV and hydro, had confirmed that the U.K.’s solar strategy aimed to shift the domestic PV market from large-scale to buildings, especially commercial and industrial rooftops.

But DECC has recently decided to drastically reduce any support for this fragment of the U.K.’s PV market, leaving the industry to drive growth efforts largely unaided by any type of support.

Complex job, but the market exists

Aside from the cuts to the Renewable Obligation (RO) and the feed-in tariff (FIT) schemes, there are other market uncertainties that we cannot always predict, so our job has become more complex, added Selwyn. "The good news though is that in the commercial rooftop segment we compete with retail electricity prices, not wholesale market prices, and this is very helpful."

When talking with companies about their electricity bills, most do not understand them all too well. Often, the electricity bill is not dealt with by senior company managers, and companies end up paying much more for electricity than they initially think they will, remarked Selwyn.

"After they get an accurate picture of their energy costs, most companies are very much interested in solar, but a common limitation, however, is that due to commitments to their shareholders, they want their PV investment to have a return in three to four years. And this is when it becomes difficult to sell," noted Selwyn.

Emma Tinker, director at private equity firm HG Capital, agreed with Selwyn that the financial model supporting rooftop solar post-subsidy is more complicated. However, she added, corporations are driven to install solar by the opportunity to make savings.

Lark Energy’s analysis, argued Selwyn, has shown that even with no subsidies at all (that is, without relying on the reduced FITs applicable from February 2016), a commercial rooftop PV project can lead to even double-digit internal rates of return (IRR), given though that certain factors remain in place. One of these factors is high retail electricity prices, energy management solutions etc. "So, it is not easy, but there is still a market to target; the key today is to offer more than just solar PV. We offer more integrated energy solutions that improve our financial models to attract customers," said Selwyn.

This situation is more or less the same everywhere in Europe now, added Luz Aguilar, project manager at BSW, Germany’s solar industry association. In Germany for instance, investors also look at what energy services they can offer beyond solar PV alone, and the most common questions concern the business models and how to finance them, added Aguilar.

However, when asked about the trend in Germany, Aguilar said that although she didn’t have specific data to hand, overall the trend is that Germany’s large-scale solar PV developers rather tend to move abroad to develop solar plants there than turn to the commercial rooftop segment in Germany.