How will FiT cuts affect returns on PV investment?

    There is currently much debate over the viability of Solar Photovoltaic (PV) installations, following significant cuts to feed-in tariffs (FITs) earlier this year and the recent announcement that the date of the next FIT cut has been put back to 31 July.

    Installations proposed after 31 July still have not had their FIT level confirmed and, due to a low uptake since the last FIT cut on 3 March, the Government has extended the period at the current FIT rates to encourage more entrants.

    The FITs that will apply until 31 July 2012 are still confirmed at 15.2p/kwH up to 50kw and 12.9p/kwH up to 250kw respectively, subject to Energy Performance Certificate (EPC) rating, creating some short-term stability and presenting an opportunity to install solar PV projects with returns in the order of 10–20%.

    There is the additional requirement that PV systems installed since 1 April must achieve an EPC rating of D or above to qualify for the full FIT payment; generators who cannot meet this requirement would receive a lower tariff.

    So what does this mean for returns on PV investments? Proposed FITs after 1 August would provide a 5–10% target return; this could be higher if most of their electricity is used by the producer, thus replacing purchased electricity (which currently costs 9–14p/kWh from a commercial supplier), rather being sold at an export tariff of the newly proposed 4.5p/kwH from 1 August. This return could rise further if energy prices continue to rise.

    The price of PV panels has more than halved over the past year, enhancing the returns achievable. Although this trend may continue, the benefit of forming a buying group to lower costs through economies of scale will help to achieve the best returns. Savills has valuable experience of this collaborative approach: we were early entrants into this sector, project-managing our first sites in Hertfordshire in July last year after having brought together a group of ten investors. We are currently commissioning 40 new sites, saving money and maximising returns by managing groups of investors.

    If you would like to discuss opportunities in this sector, please contact Giles Hanglin, Head of Food & Farming at Savills in the East of England, on 01223 347276, or at