The STA commissioned independent modelling by consultant James Owen, formerly of Public Power Solutions, for typical solar projects that local authorities are likely to want to invest in. Using up-to-date cost data and real-life HH consumption data from schools, the modelling assesses;
- Individual and multiple school projects in several regions of the UK including Bristol, Manchester and Nottingham
- Individual and multiple council building rooftop installations
- Solar farms, using both a grid exported PPA and a private wire PPA.
All of the nine analyses assume 30 years project lifetime and electricity rate rises of 5% per annum, and all schemes are constructed using PPAs, which have funded the large majority of the solar installed in the UK today and which qualify for ‘mainly export’ business rates.
Examples of findings
A modest 15kW solar project for a school rooftop in London funded using zero interest Salix Finance as senior debt. The installation is sized to maximise onsite utilisation. The example project is owned by the local authority with the power sold via a PPA contract to the school at 10p/kWh, less than the market rate. Under this model, the project will qualify for ‘export’ business rates. Appropriate assumptions on pricing, staff costs, degradation, maintenance, modest elec inflation etc.
- IRR is 11.6%, with payback in 8.7 years.
This payback period slightly exceeds Salix payback period of 8 years for schools, so modest capital funds or junior debt are required, such as via PWLB. At the end of this period when the debt is paid off, the council has many options such as to sell or gift the solar to the school or to reduce the price of power under the PPA contract.
For interest, if the school pays business rates under the ‘mainly self-consumption model’ the IRR would be reduced to 10%.
Multiple Schools North
Tenders for multiple schools in the North of England totalling 1000kW, using Salix Finance as senior debt. A mix of roof types is anticipated. Power is sold to the schools at 10p/kWh via a PPA contract, qualifying for ‘export’ business rates.
- IRR is 10.64 % with payback in 9 years.
Again the payback period slightly exceeds Salix payback periods requiring a small additional junior debt or capital funds from other sources.
Multiple Council Estate Rooftops – average national insulation
A scheme where the council tenders for multiple rooftops totalling 1000kW using loan finance from the Public Works Loan Board at 3%. A mix of roof types is assumed with an average install cost of £750kW(p). Installations are sized to maximise onsite utilisation, with power sold to council buildings under a PPA at 10p/kWh.
- IRR is 12.9% with payback in 7.6 years.
For interest, if business rates were paid at ‘mainly self-consumption’ values the IRR would reduce to 10.3%.
Grid-connected Solar Farm Wiltshire
A 5MW solar farm established on a site owned by the council with good grid connections using loan finance from the Public Works Loan Board at 3%. Assuming a grid PPA of 5.5p/kWh with the off-taker procuring all of the energy generated.
- IRR is 6.83 % with payback in 15 years.
The economics can be improved through a bankable private wire, securing a PPA of 8p/kWh. This would result in an IRR of 11%, with payback in 9 years.
Our analysis confirms that by scaling schemes to optimise utilisation of rooftop solar generation, and by making use of zero interest Salix Loan Finance, and cost efficiencies of multiple tender schemes, local authorities can finance solar projects today with good rates of return without support from central Government. Local authorities should also be able to develop solar farms in good sites today.
The STA is campaigning for rooftop solar PV to be excepted from business rates. Business rates accrue to the council in any event, so councils need to keep this in mind. We have produced detailed briefings on business rates and our web resources include a freely available guide on how to set up Special Purpose Vehicles so that projects can qualify for the lower ‘mainly export’ business rates.