Well, er, yes. And we feel rightly so. This is directed primarily to anyone considering installing free solar PV on roofs of social residents (or private residents including RTB too).

Let me explain why and you’ll see. Financiers view financing free solar PV as amortising project finance. This means by the end of the term (20 years in the case of rooftop solar PV, the duration of the Feed-in Tariff) all the costs, or capital expenditure, capex for short (all the costs of materials and labour) is amortised (reduced) to zero. It has to be done in this manner because at the end of the period the principal (the capex) needs repaying and if it isn’t done gradually this will not happen. So everyone has to do this, North Star included and it is done generally at a rate of 5% per annum. 5% x 20 years = 100 (the capex amount).

Banks have a Return On Equity (ROE) expectation and charge generally between 6% to 8% for their money to finance free solar PV. That’s fine, we like everyone else has no problem with a lender charging a reasonable return for the risk they assume.  This forms the basis of all financial markets. Higher the risk higher the return we all understand this.

But UK solar PV isn’t a high risk investment! 10 year government Gilt yields are 2.25%. And the market really prices solar risk as UK government risk (called quasi government risk as it isn’t directly government risk). Which means the banks are making a substantial profit (a killing in other words) ultimately from the subsidies which are paid by you and I. We feel this is unfair.

Housing Associations are paying this cost too since the true return banks need to install free solar PV is 11% to 13% (5+6 to 5+8) and the ONLY roofs which fit this return profile are south facing perfectly pitched ones. Hence the reason anyone but us only offers free solar PV on south facing roofs. The maximum anyone using bank finance will install free solar PV is 25% of any portfolio of roofs.

We take the rather simplistic view this is wrong. Wrong especially for the community. We finance ourselves directly from pension funds and our costs of financing is far far lower. Which means we can afford to look at portfolios of roofs on an average productivity basis. This allows us to install 100% of roofs in any portfolio, a portfolio in Aberdeen suits us admirably.  We take the view everyone in a community should benefit from free daytime electricity. Why create social tension when it isn’t necessary? Installing 25% of roofs just leaves the remaining 75% of residents complaining – and legitimately so we feel.

Are banks greedy? I think I’ve answered this and we all know this answer anyway. Ask others offering free solar PV using bank financing whether they offer any form of profit sharing? We do and we know what their answer will be. It won’t surprise you but nonetheless please go ahead ask the question. After all, who owns and manages the roofs?

Peter Sermol

© 2016 North Star Solar