Posted by: Nick Duxbury09/12/2011
For most landlords, installing photovoltaic panels after the 12 December is off the cards.
The cut in the feed in tariff from 43.3p to 21p has been such a body-blow to the viability of PV schemes – especially rent a roof models – that almost none are still going ahead.
As for the prospect of schemes going ahead under the 16.8p FIT rate coming in to play in April, well, that is less than a pipe dream.
Unless you are extremely cash rich and risk-happy then it will be near impossible to deliver a large scale FITs programme. And few have even considered that solar firms would ever be able to resuscitate a rent-a-roof model that could work for landlords at the 16.8p rate.
This week, we reveal that one energy company claims to have managed to do just that. In the same week that Carillion announced it plans to exit the PV market that its energy services division largely led from the word go, Strategic Energy is rising like a phoenix from the ashes and returning to the PV market with vengeance.
The company claims to have come up with a lease model that will be ‘cost neutral’ for landlords. It has worked with Ernst & Young, the Council of Mortgage Lenders and five leading law firms to develop a legal framework that is compliant with lenders demands around obtaining their consent for schemes, is quickly accessible, and, most importantly, free for landlords to use.
No funders’ fees and no legal fees – yet documentation from top firms (the likes of Towers & Hamlins, Addleshaw Goddard, Cobbetts, Croftens and Hammonds) as well as backing from lenders including HBOS, Santander, Barclays and Dexia.
So many landlords are licking their wounds after having wasted hundreds of thousands of pounds each in legal fees and procurement costs for schemes that never happened, that this offer can’t fail to tickle interest. In fact, how many boards that have been burned once by PV schemes would return to the bargaining table without the concessions of no outlay and an assurance of lenders’ consent.
Now, unlike many of the rent a roof models previously, there is not going to be much money for landlords to make here.
But if they can cut their tenants’ energy bills and carbon at the same time, then there can only be very limited ground for complaint. Strategic Energy is going to offer a ‘kicker’ which will be worth around £10,000 for every 1,000 installs that can be used for community purposes.
So how can it possibly offer a ‘free’ PV model when no one else can make the returns stack up? According to its managing director, Andy Watson, the trick is to have an all-equity model.
This means that it is not confronted with the same problems of having to cover the cost of capital and claiming a return. Somehow, while most investors have been running to the hills, Strategic Energy has received £10 million backing from Hazel Capital.
This will last the window until April at the 21p rate, and then after that it has another mystery investor waiting in the wings that is happier with low, but secure returns at the 16.8p rate. This investor is institutional – i.e. a pension, life or insurance fund – and is exactly the type of investor that we have been told has had its confidence shattered in all things green at the moment.
It is currently working with St Vincent’s Housing Association where it is installing PV on 400 roofs. This will be the test for many of its claims, which, on paper appear quite impressive.
Two of these is that they can install in half the time of their rivals (having agreed with the Tenant Services Authority that it can carry out the Tenant Liaison Officer role) and get on site far quicker than anyone else as a result of the legal framework.
Assuming this works, it is hard to see this not being attractive to landlords that have been complaining about the FITs cuts on the grounds of the impact they will have on their ability to protect tenants from fuel poverty. That said, it is still quite a big if. There could well be plenty of compromises that landlords need to make in order to take up this offer. But more generally, whether their model works or not, it is refreshing to see a company taking a proactive route to carving out a niche in a market that only two months ago was saturated with entrants.
Their niche is simply that instead of trying to sue the government, they are still trying to make it work when, apparently, no one else is.
Presumably, others are doing the same.
But it is also likely that the company will come under some fire from the industry for leaving the PV picket line and taking advantage of it.
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