Posted by: joachim in Renewable Energy,Solar on February 27th, 2011

Free Solar Offers in the UK Press

Since the introduction of feed-in tariffs in the UK in April 2011, many companies, including British Gas and HomeSun, have been offering so-called "free solar" deals. This means: The "free-solar" company installs a solar system on a roof for free or, in some cases, for a small one-off fee. For the duration of the tariff, 25 years, the roof owner can consum the electricity generated by the system, thus saving on electricity charges, but it is the company that pockets the government-guaranteed feed-in tariff for each kWh generated.

Are there any alternatives for roof owners without own capital?

For a roof owner who does not have the capital to invest in a solar module there is one alternative to the "free solar" offer: Get a bank loan. In this instance, the roof owner will not only get the cost savings from electricity used onsite, but also the much higher feed-in tariff. We examined the differences in the cash flows for the roof owner between those two scenarios for different loan interest rates (cost of debt) and costs of equity. In our calculations, we assumed figures for solar radiation (830kWh/kWp), operating costs (1.5% of investment pa), installation costs (£3,300 per kWp), and a cost of capital of 7%, fairly typical in the UK. For an estimate of the savings we assumed a retail price of £0.12 per kWh.

The difference between the two options can be compensated for by a ficticious roof rent that the home owner charges in order to get equivalent cash flows. Intuitively, with the lower the interest rate on the loan and the higher the energy yield (i.e. more sunshine), the larger the rent.

As the homeowner would be worse off with "free solar" than with the "100% loan" option, we would argue that "free solar" isn’t free. And indeed, some organisations like councils are capturing some of that value by demanding roof rental payments from solar installers.

For instance, if a roof owner in Exeter can get a 100% loan with 6% interest, they could demand a £400 annual rent from the "free solar" company. In Glasgow, this would be reduced to £50. In most cases, this is quite a big amount that a roof owner could demand.

So what’s the catch? Homeowners can only do that, if bank loans were available. They aren’t at the moment. Interestingly, in Germany, the most mature solar market, 100% loans are not uncommon to finance solar modules. Once they are on offer in the UK, "free solar" will most likely disappear. Until then, the not-so-free "free solar" deal may be the best on offer for home owner without own capital.

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One Response to “Just how free are Free Solar offers?”

  1. Branimir says:

    Great article Joachim!