No capital investment needed for lease-back scheme despite tariff cut
Landlords get option of free solar panels
A contractor and supplier have developed the first model to allow social landlords to install photovoltaic panels on their tenants’ roofs for free under the government’s reformed solar subsidy system.
Until now, it was widely expected that only landlords able to invest their own cash in PV would be able to install solar panels to reduce their tenants’ energy bills. This is because under the overhauled way the government pays the feed-in tarif subsidy to producers of renewable electricity, returns are too small for ‘free PV’ rent-a-roof deals with third parties to be viable.
The new system announced in March means the FIT will reduce on a six-monthly sliding scale to match the falling cost of PV with the next cut - of 25 per cent - due in July, when it will fall from 21p/kilowatt hour to 13.6p/kWh.
However, contractor Forrest, in partnership with supplier Dimplex, has formed a model that will allow landlords to install PV without capital investment and that will remain viable as the FIT rate falls over the next three years.
They are targeting landlords that had previously abandoned plans to install PV. Under the new model landlords would set up an off-balance sheet deal with a finance company that will lease the PV panels to the landlords for 15 years, using the FIT to cover the cost of the lease.
After the 15-year period, landlords will then own the PV and benefit from 10 years of returns. Based on a 500-property scheme, this would generate a surplus of between £3 million and £4 million.
Forrest and Dimplex have held discussions with several arm’s-length management organisations, which are now drawing up proposals to present to council cabinets. The companies declined to name the ALMOs until deals are signed.
Lee McCarren, chief executive of Forrest, said the model would allow landlords to tackle fuel poverty.
‘This isn’t a model which can be applied in any industry. With significant property portfolios and long-term visibility over their assets, housing associations are perfectly placed to capitalise on innovative forms of financing that still stack up despite the significant cut in FIT income,’ he said.
Steve Drew, director of assets at Alliance Homes, said the idea ‘had legs’ but warned that demand for solar PV ‘has fallen off a cliff’ since the reforms were introduced.
Separately, 15,000-home housing association Plymouth Community Homes has decided to push ahead with plans to invest £1 million in PV on 200 homes ahead of the July FIT cut.