© Sustainable Opportunity Solutions Ltd 2012 1

Solar Cities Scotland 2012 Conference

Business Case for

Solar PV Investment

Paul Adderley

15 June 2012

© Sustainable Opportunity Solutions Ltd 2012

Is it worth it?

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!  Since March 1, 2012, system delivered: –  15,700 kWh –  Income equals 100% of Electricity Bills –  8.5 TCO2e Carbon Saving

!  100% Loan Finance (low interest) !  Tax Benefits !  Better Staff Engagement !  Strengthens Reputation

© Sustainable Opportunity Solutions Ltd 2012

OUTLINE

!  Case Study Background

!  Business Case

!   Integrated Due Diligence Approach

!  System Performance (Energy, Carbon, Cash)

!  Key Messages

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© Sustainable Opportunity Solutions Ltd 2012

Case Study Background

!  Blue Chip Customers:

!  MD’s Leadership !  Average Energy Spend: £7000 pa !  Low Carbon Reputation

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© Sustainable Opportunity Solutions Ltd 2012

Business Case for Solar PV (50kW)

!  Additional revenue (FiTs) generation £11.5k pa

!  RPI linked for 25 years (20 years from 1 Aug’12)

!  Reduce exposure to energy price volatility

!  Engage staff in “Tangible” low carbon project

!  Easy access to 5% loan finance up to £100K

!  Benefit of £25k Annual Investment Allowance 5

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Approach: Integrated Due Diligence

Technical

Supplier Financial & Carbon Returns

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Optimal Investment

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Technical

Initial Assessment Technology

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Panel Efficiency & System Size

Structural Considerations

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Supplier Selection: 3 Stage Process

1. MCS Suppliers/Installers -> Mandatory for FiTs 2. Short List:

–  Seek Recommendations –  Local Case Studies

–  Financial Position (Companies House / Credit Check) –  Telephone Interview

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© Sustainable Opportunity Solutions Ltd 2012

Supplier Selection

3. Tender List: - Customer Site Visits & Feedback - Review of Contractual Terms: “Ownership” - Rigourous Assessment of Assumptions - Benchmark to industry averages (EST)

Selection: Installer that remained committed, & managed risk 9

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De-Select Suppliers

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Flawed Assumptions - 90% proportion for Own Use - Incorrect Feed-in-Tariff Rates

- Optimistic System Yields

Lack of Transparency

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Financial: Investment Models

!  Reflect Savings of Energy Efficiency Energy for Own Use (~60%) System Degradation (20%) Seasonality

!   Impact of Loan on Weighted Cost of Capital

!  Net Present Value –  Discount Rates: Benchmark @ 10% , Project Specific @ 5%

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© Sustainable Opportunity Solutions Ltd 2012

!  Tax: Capital Allowances –  Solar PV ineligible for Enhanced Capital Allowances –  Annual Investment Allowance (General P&M) –  £25K at 100% Allowance in Year 1 –  £5k Cash saving

!  Value Added Tax –  Must have export contract to recover VAT paid –  £100k System = £20k “cash saving” in next return.

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© Sustainable Opportunity Solutions Ltd 2012

!  Financing: Energy Saving Scotland Loan –  Only for SMEs, landlords –  5% interest rate –  Loan Up to £100,000 repayable over 8 years –  100% LTV –  Solar PV Income covers 67% Repayments

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© Sustainable Opportunity Solutions Ltd 2012

Financial: Managing Uncertainty

At 4th Feb 2012 Option  1    Option  2   Energy  Yield  (kWh)      33,500  37,000 Carbon  Saving  (KG  CO2e)  18,250  20,150    CAPEX  £’000        98    111   Low  FiTs:  15.2p  (NPV  @10%)    54      45 High  FiTs:  32.9p  (NPV  @10%)    85      88          .    Additional  CAPEX  Funds          0 11  

 

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© Sustainable Opportunity Solutions Ltd 2012 15

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System Performance Since March 1, 2012

Generation: Expected 14,600kWh Actual 15,700kWh Export: Expected 8,700kWh Actual 6,500kWh Own Use: Estimated 60% Actual 59% Income Up 15%

© Sustainable Opportunity Solutions Ltd 2012

Key Messages for Business

✓ Optimise ROI: Avoid >

Efficiency > Renewables

✓  Uncertainty requires

robust Financial models

✓  Balanced Assessment of

Multiple Benefits

Key Messages for Installers

✓  Commitment Wins

✓  Realistic Assumptions &

Transparent Quotes

✓  No longer a “No-Brainer”

✓  Engage with Accountants

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© Sustainable Opportunity Solutions Ltd 2012

Thank you for your time

Paul Adderley Managing Director:

pauladderley@sos4business.uk.com

Tel: 0845 475 1275 / 07917 372573

Web: www.sos4business.uk.com

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