I’m sure you have all heard about the proposals to slash Feed-in Tariff payments for small-scale solar projects – falling from the current level of 12.48p/kWh to only 1.63p per kWh.
The news has sent shockwaves throughout the solar industry and threatens to impact many energy generation projects.
However, as an energy professional, now working in a procurement environment, this could make an interesting study.
Looking at the short term
The announcement will inevitably cause a short term increase in demand for photovoltaics as customers and suppliers rush to complete installations before the cuts are introduced. Having discussed this situation with some suppliers, there are concerns this could impact on available stocks of the best performing panels and inverters and that these supply shortages will compound the problems caused by spikes in demand.
The long-term impact on small businesses in the solar industry could be incredibly destructive with many SMEs now frantically re-assessing their business model. The loss of smaller players in the industry cannot be a positive thing; not only do SMEs account for something in the region of 80% of British jobs, making small business incredibly important for local employment but as small businesses give way to larger corporations, this has an impact on the end customer.
Large businesses, no matter how excellent, almost always have higher operating costs and more complex internal bureaucracy than a smaller organisation. These aspects ultimately impact prices and timescales offered to the customer.
Ray of sunshine?
To find the proverbial sunlight in the storm-clouds, after the expected initial glut and vacancy of PV projects being commissioned, it is reasonable to expect installation costs to come down as the industry reacts to the falling demand, in the knowledge that customers can no longer rely on the Feed-in Tariff (FiT) to support the business case.
Initial analysis suggests that PV should still remain a viable option after the FiT cuts, particularly for high energy users with a large roof-space; however payback times will lengthen significantly and investment Rates of Return may drop from the 20-25% we’re commonly seeing now to around 10-15% after the cuts.
Any organisation wanting a small-scale PV system installed is currently trying to tender their requirements as soon as possible to ensure work can be completed well before the end of December this year…
But don’t be surprised if the supply base is unable to meet the demands of everyone thinking the same thing!
Georgina Penfold is the Category Manager for Energy Solutions at YPO, a not-for-profit procurement company that helps public sector organisations benefit from cost and efficiency savings.