Head to head: FIT for business purpose?

2nd February 2011


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IEMA

Do feed-in tariffs really make good financial sense? We ask two business leaders.

Juliet Davenport

Chief executive at Good Energy, the UK’s leading 100% renewable energy supplier

FITs make economic sense for businesses and we have numerous customers who are reaping the financial returns.

Take Good Energy FIT customer Mike Hill, for example, who, along with his business partner, invested in two wind turbines at their vehicle accident repair centre, DMR, in Harworth, Doncaster.

While motivated by green ambitions, the primary reason for DMR investing in the 18-metre high turbines was the financial return they promised.

It spent £200,000 in total in 2009 and now exports all the electricity generated to the grid. This yields it a £50,000 annual return – 24.1p per kWh FIT payment plus 5p per kWh from Good Energy for the export.

Businesses should look at DMR and ask themselves why they aren’t making a similar investment and return. Of course, it is only appropriate to invest in wind turbines if your business is in an area with a good wind resource.

However, there are numerous other options for businesses to invest in renewable generation. For example, if you have a building with a south-facing roof, solar PV panels are likely to be appropriate.

As all eff ective chief executives know, good business isn’t just about keeping your costs down, it’s also about forecasting your costs with a degree of certainty.

When it comes to energy, investing in decentralised renewable generation doesn’t just give businesses good environmental credentials – increasingly important for today’s consumers – but also control over their future energy costs.

The introduction of the FIT in April 2010 made the business case even more compelling.

The FIT is not only financially viable, it also represents a strong long-term proposition for business where energy usage can have a significant impact on the bottom line.

Microgeneration also helps individuals, employers and employees develop a more personal relationship with their energy resulting in a reduction in demand.

When businesses generate their own energy, it becomes a visible, tangible part of their lives and consequently they value their energy more and use it less.

Lower demand means greater savings and, of course, lower emissions.

The question therefore shouldn’t be why should businesses invest in renewable generation, it should be when, because the incentives won’t last forever.

To take full advantage of the current level of FIT, you should act before 2013 at the latest when the scheme will be reviewed and payments may fall.


Tony Robins

Sustainable development director at office supplies company Wiles Greenworld

At last, I thought, subsidies to support renewables until such time as a credible carbon tax is introduced. Sadly the commercial evaluation of the FIT did not match my initial enthusiasm.

The financial numbers initially looked attractive, with a 3.5Kw PV system costing £15,000 producing almost £25,000 from the FIT, and saving us just over £10,000 on electricity expenditure (allowing for 5% fuel infl ation) over the 25-year period.

That’s a £35,000 return on the investment of £16,500 – including allowing for a replacement inverter halfway through its projected life.

Then I asked: “What would happen if I put the money in the bank for 25 years?” I’m no Warren Buff ett [the legendary US investor], and I appreciate that interest rates are currently unrealistically low, but the Bank of England website shows that if you had put £15,000 in the bank 25 years ago it would now be worth nearly £84,000 (using UK bank base rates) – £34,000 better than investing in solar panels under the FIT.

Not what I was hoping to see, and certainly not good enough to satisfy a chief financial officer looking at net present value or internal rate of return!

My next concern arose because of the tremendous ongoing investment in improving the efficiency and reducing the costs of PV panels.

Will Moore’s Law [the prediction by Gordon Moore, co-founder of Intel, that the number of transistors on a microprocessor would double roughly every 18 months] apply to PV as well as computer chips?

If I cover my roof in panels now will I be left in five years’ time with obsolete technology when current models produce 10 times more power at a tenth of the price?

Given the challenge justifying the investment from either a financial or a risk perspective, is there another factor that might sway the decision?

As a company we have a high profile promoting sustainability within our industry and win a significant proportion of our business from organisations that recognise the lack of a carbon price hides the true cost of energy.

We therefore have an obligation to set an example to others: how can we expect our customers to pay a premium (where necessary) for a green product if we don’t do the same ourselves?

The FIT guarantees that we won’t lose money; we just won’t make as much as if we invested elsewhere, such as in additional sales staff , or even if we left it in the bank.

We are going ahead with the installation of a 3.5Kw system, which leaves us with suffcient roof space for further phased installations as technology evolves while giving a clear message that we support a move to renewables.

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