PV & Feed in Tariff (FIT) - self fund or rent-a-roof option?

Everyone engaged in property matters will have come across the installation of photovoltaic (PV) solar panels, in order to reduce electricity consumption from the grid and to take advantage of Government’s feed- in-tariff (FiT) scheme. Social landlords and local authorities are making moves to undertake feasibilities and to commission installations. A key issue for their feasibility thinking is whether to self-fund installations or to do so via a third party, also known as the ‘rent-a-roof’ option.

How does each option work?
Self funding is on the face of it very simple, the property owner might choose to finance it with cash (savings) or a loan. Indeed with interest rates on savings and other ‘low risk’ investments so low, using spare cash to fund smaller PV installation and then collecting the FiTs that are generated from it, represent very good rates of return. However, larger installations may require the owner to borrow part of or all of the sums required to finance the installation. In such circumstances, with lending costs around 4-5%, this still represents a viable option, with typical PV installations giving returns of approximately 10% per year for 25 years - very attractive in today's market.

Rent-a-roof is a mechanism to facilitate funding of the upfront installation by a third party.  An investor will provide the funds necessary to undertake the installation; in return the investor will receive the vast majority of the FiT proceeds. This is established by the property owner granting a lease to the investor for the roof space, upon which the installation is fitted. The investors will typically be looking for returns in excess of other relatively low risk investments.

Assessing Feasibility
The starting point for any property owner thinking of installing PV panels through the rent-a-roof scheme is to contact the third party who will establish which properties are suitable, what the expected capital costs are and what revenue may be generated. The usual starting point is to undertake a desktop study where each property is assessed, via web-based imagery, such as Google Earth, to determine the suitability of the property for a PV installation. If the third party deems that they can make a good return on their investment they will send a sales team to validate the Google Earth survey by on-site surveys. The financial feasibility of any particular installation is a reflection of the electricity that it will generate.

This can be calculated for each property, by reference to:

- The size of the proposed installation
- The efficiency of the panels to be installed
- The expected amount of daylight hours that a property should be exposed to over the course of a year
- The orientation of the property, relative to South.

An algorithm will then calculate the amount of electricity that the installation should produce and hence the overall ‘income’ that is derived, made up of three things:

1) The tariff paid for the generation of the electricity
2) The tariff paid for selling surplus electricity back to the grid
3) The saving that the property occupier makes on using the generated electricity.

It would be usual to produce a cash-flow forecast, which would include the initial cost of installation and the forecasted ‘income’ over 25 years.

The forecast allows the property owner to:
- Assess in cash terms the revenue that would be generated.
- Assess the ‘attractiveness’ of the return, relative to other options.
- Determine if self funding or rent-a-roof might be the best option.
- The potential impact on the value of the property.
- The impact on others with an interest in the property.

The practical consequences of giving a long-term lease interest over the roof of the property, in the rent-a-roof option, must be carefully considered. While the lease will identify who has what rights and responsibilities, the involvement of a third party in the property will be an added complication, for example where maintenance has to be done to the roof, for home insurance quotes or potentially when the property is to be rented out or sold on.

- Where the property is tenanted, the lease or tenancy agreement may need changing to facilitate granting a lease under the rent-a-roof option.

Urban Energy

Urban Energy has earned a reputation as the south’s leading renewable energy specialist. This has been achieved by ensuring that from the initial point of client contact we offer 1st class customer service and care.

We only install products that lead the way within the renewable energy industry and that are renowned for their high quality and ecologically sound production. This reflects our own high standards and quality assurance.

We understand that introducing a renewable energy system to either your home or business is an investment that lasts for many years. With our in-house electrical and plumbing division it is our promise to you the customer that your satisfaction and peace of mind throughout this period is our number one priority.

For further information about Urban Energy products and services:

Call: 0800 232 1624

Email: info@urbanenergy.org.uk

Website: http://www.urbanenergy.org.uk/