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The Solar Revolution – Risks and Rewards

“The UK is committed to delivering its share of the EU target for 20% of energy from renewable sources by 2020.

Achieving our targets could provide £100 billion worth of investment opportunities and up to half a million jobs in the renewable energy sector by 2020.” - The Energy Saving Trust

Since the Feed-in-Tariff (FiT), or Clean Energy Cashback scheme, was launched in April 2010 there has been an explosion in the Solar Photovoltaic (PV) market in the UK. As with any new initiative there is a huge amount of confusion in the market about how the scheme works, who can install PV and the skills required.

Historically the businesses fitting Solar PV prior to the FiT have been electricians and specialist renewable energy companies. This has created both a problem and an opportunity for those in the roofing sector. A large part of the skill-set required to install PV is involved with working at height and waterproofing and although the government has insisted on an accreditation programme, the skills difference between an experienced roofer and an electrician with no roofing experience are significant.

The average domestic PV installation can have dozens of roof penetrations and any one of those can create a weak spot. EH Smith have been involved in roofing for over 50 years both as a merchant and previously as a contractor. We have also been involved in the PV market since 2008. Our Chairman, Ken Smith, has recently stood down from chairing the Midlands Roofing Training Group after many years, so roofing is in our blood! We have approached this new sector from a risk management perspective and have selected partners based not only on their products but on their long term commitment to the market, technical support and training.

We can offer installation training for MCS Accredited organisations and advice on how to approach the market. There is only so much we can cover in an article such as this so I’d like to highlight the mechanism of how the FiT works, what risks are associated with it, and what options there are for roofing companies to become involved.

What is the FiT?

Following a lengthy consultation, the government introduced the FiT to offset the initial capital cost of the installation of renewable technologies by giving a guaranteed income from the electricity generated for a 25 year period.

The FiT is not funded by the government directly. The revenues are paid via a levy on all electricity bills and are administered by the large Utilities companies, which mean that it is less likely to suffer from government spending cuts.

The FiT pays the owner of the array a fixed amount per kWh for the electricity generated. The scheme was initially set to ensure an average return of 8% year on year, but with the reduction in the cost of PV products sparked by the rise in volume it is possible to get higher returns, especially on large installations.

The FiT was controversially cut in late 2012 and the confusion surrounding that has led many to believe that there is no point any more...

What about the FiT cuts?

Feed in Tariffs are designed to be cut.

The incentive tracks the price of the products to ensure the payback is achieved in a realistic time and the investment is also realistic. In late 2012 it was possible to get a 20% return, year on year for 25 years, tax free and index linked to inflation - too good to be true? It was too good to last anyway. These levels of return attracted investors who were not interested in anything other than the high returns and led to a gold rush which had to be stopped.

The Government acted rashly, and we later found out illegally, and cut the tariff from 43p to 21p. In reality, the returns were being adjusted back to their 8% level stated above. The press reported it as the death of the Solar PV industry - far from it! It is still possible to attact tax free returns at a higher rate than almost any other investment on the market.

Risks

The first risk is in the selection of the product. At EH Smith we have taken this very seriously as the last thing any reputable company wants is liabilities that are not managed responsibly. There are a bewildering array of modules, mounting systems and inverters on the market and the quality and performance of the products varies. We have identified key product risk areas such as:

  • Module efficiency
  • Output variance
  • Product warranty
  • Output warranty
  • Mounting system performance
  • Inverter lifetime
  • Inverter warranty

This means that our solution is not only competitive, but offers peace of mind. The other areas of product risk relate to the after sales support. There are a huge number of Solar PV manufacturing companies with no UK base, and consequently no commitment to the long-term market. PV is an investment over a minimum of 25 years so it is important for clients that if a problem is encountered in 15 years, the warranty has to be worth the paper it is written on!

The next risk area is with the supply chain. With any fast growing market there is a big risk associated with the planning and availability of products, and the financial capacity of the organisations involved. A recent report by PriceWaterhouseCooper concluded that specialist PV distributors will account for more than 70% of the future supply of products, as stock holding and logistics become ever more critical. Again, EH Smith can offer that solution.

Specific Opportunities for Roofing Companies

There are a number of ways for roofing companies to become involved in the Solar PV market.

  • Partnering with an MCS (Micro Generation Certification Scheme) Accredited Installer
  • Become MCS Accredited
  • Re-roofing properties
The investment is over 25 years and the roof has to last that long! Many of the large scale tenders that are run by Regional Councils and Housing Associations are looking for local companies to be involved. If your company can demonstrate the skills required, you could find a valuable income stream in these difficult times.
The Skills Gap

Training and skills are crucial to the long term success of the FiT. If the products are installed incorrectly it could lead to the need for expensive remedial work which could jeopardise the clients’ return on investment.

It is this focus on awareness and training that EH Smith are looking to promote to our customer base in conjunction with installers and roofing companies. Large scale retrofit projects are only just beginning and these growing pains are being identified by the more discerning clients who are seeking solutions – you may be able to offer that solution.

About the Author

John Cave is the Sustainability Director of one of the largest independent building materials distrubuters in the UK, EH Smith.

He has been researching the field of energy efficient construction since 2006 and now works with many of the UK's leading Architects, Contractors and Housebuilders. He also is a Non-Exec Director of the BPVA (British Photovoltaic Association) and the MEBC (Midlands Environmental Business Company) and sits on a number of industry working groups for the Government Department, DECC (Dept. of Energy and Climate Change)

EH Smith have depots in Leicester, Cannock, Birmingham, Solihull, Stourbridge, Sutton Coldfield, Witham (Essex) and Hemel Hempstead and has been trading since 1923.

If you have any queries on any aspect of sustainable construction please contact us on sustainable@ehsmith.co.uk

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