First, I would argue that this is the wrong question. The question should be: Can I make the world a better place without it costing the school anything? Or: How much would it cost to provide a real life example on how to generate clean renewable energy on campus and integrate that achievement into the education of the children whose future we are shaping? The answer to these questions is easy. In most cases it can be done at no additional cost to the school and could save hundreds of tonnes of carbon and help prepare thousands on living more sustainably.
But let’s get back to the purely financial consideration. Let’s assume that your governors are just interested in saving money. (Most have a broader view than this!) The answer is relatively easy to calculate for the first year, but doing so for each of the following years becomes harder. So let’s tackle it one step at a time. (Or go to the end of the page and enter your school name in the calculator).
In cases where schools are agreeing to pay for electricity from the solar panels in exchange for someone else funding them, the savings are simply the difference between that agreed day-rate price per unit for the renewable energy and what the school is currently paying per unit for its mains supplies, multiplied by the number of units used from the solar panels. Or Savings = (Current day-rate Unit Price - Solar Unit Price ) x Solar Units used.
Finding out what a school is currently paying per unit is reasonably straight forward, assuming one can review that last 12 months electricity bill for each electricity meter the school has. One can then work out number of total units consumed and what the day-rate unit price for electricity was including the various variable charges such as Climate Change Levi (CCL) and Feed in Tariffs (FITs).
Determining the number of solar units consumed is a little harder. Typically a school will use between 75-99% of the units produced by the solar panels. We calculate this ‘self consumption’ percentage based on our analysis of other schools and the relative size of the installed system vs. the school’s annual electricity consumption (hence the need to review the bills). We work hard on getting this number right as it effects the returns to investors greatly if we overestimate it. Equally overestimating it means we would indicate higher savings than you would actually achieve. Generally speaking, the more of the solar energy you use (the higher your self consumption ratio), the better for everybody. And I really do mean everybody: School, investors and the world in general. So we try and be conservative with our initial figures, so we don’t disappoint anyone and end up out of pocket with the investors. In other words, you may consume more than we calculate and thus save more than we initially indicate.
This is the million dollar question. Actually more like £30,000-£250,000 pound question. We use a detailed 20-year model to work backwards from the Total System Cost, Annual Costs and Funding Costs to determine what income the system needs to generate each year to pay back those who are funding it, provide enough interest to attract them in the first place and cover all administration and management costs to make sure it works efficiently for at least 20 years. The income from the system is made up of the subsidy that the Government pays for each unit of electricity generated, (between 2-4p/kWh depending on systems size), each unit of electricity sold back to the grid (about 4p/kWh) and each unit sold to the school. Depending on how many units are produced and consumed by a given school then determines the price per unit. Small schools consuming less of it in locations where panels produce less units invariably end up with a higher unit price than huge schools in sunnier locations consuming most of the produced energy. Because of the banding on subsidies, systems just below 30kWp, just below 50kWp and systems larger than about 100kWp work best if the school can use at least 80% of the generated electricity.
Determining Total System Cost
Each system has a number of fixed costs (paperwork, surveys, connection and monitoring equipment) variable costs that depend only on total system size (modules, inverters) and variable costs that benefit from some economies of scale (installation labour). The total system cost we show is based on these tables and is a pretty good first pass. Sometimes when the installer checks the site before we start, we discover that it will cost a lot more and we have to start all over, so we try hard to avoid surprises. Equally, if it ends up costing less, we will either adjust the Unit Price of solar downwards or provide you with a few months of free electricity to make up the difference. Under the terms of the investment from the Low Carbon Innovation Fund, we are expected to pass on any savings to the school.
Determining Annual Costs
These are made up of a fixed administration fee per systems (£50 per month) and a variable asset management fee (£10 per kWp per year), plus budgets to cover insurance, spare parts and business rates. These are increased each year by RPI and ensure that the system is safe and hassle- free for the school, we are around to continue providing education support and tools and investors get their money back. It also means, God forbid, that if we went out of business, there is money budgeted for someone to take over and maintain the systems and keep the panels producing. Actually the mere fact that we have a small income stream each year ensures there will always be someone around to look after it. With a free system all these costs are built in so the school does not have to worry.
By default we have set the Funding Costs at 10.4% IRR over 20 years excluding taxes or unexpected repair costs above a sensible budget. This translates to a net return to investor of between 5-7% net of all fund management costs depending on how they invest. (equity, short- term loans, debentures etc.) and if a single institutional fund or thousands of parents. If a school can attract funding at a lower cost than we can, then we use that instead and the unit price that the school would pay for its energy is adjusted accordingly.
20-year savings are then calculated by simply adding up the savings each year. Simple in theory, unfortunately the numbers change each year as electricity prices are expected to go up and costs to manage the system also. The price paid for solar electricity is indexed to RPI, but we have no control on what mains electricity prices will be in the future. So to work out 20-year savings gets a little harder as it involves predictions about the future, which quite frankly I am very good at, but even I can’t actually promise to get right. While most people agree with me that electricity prices will continue to increase faster than inflation (RPI) for the ‘foreseeable’ future the real question is how much by and for how long?
Over the last 15 years mains electricity prices have increased by an average of 4.7% per year, and inflation (RPI) has increased by an average of 2.7%. We use these two figures as our default assumptions in our savings calculator. But history is no guarantee that the future will be the same. If you look at the data you can see that the annual changes vary significantly from the average. Both electricity prices and inflation have risen a lot and fallen a little during that period. Recently figures for RPI are below 2% due to a slow economy and electricity price increases have slowed a little too thanks to increased competition and current low oil prices.
Expected increases in electricity prices
Looking at DECC’s forecasts for electricity prices for the next 10 years indicates the average increase will be between 2.7% and 3.4% per year average over the next 10 years, depending on which scenario you consider. I am willing to make a bet that it will be higher. DECC then seems to have either given up or actually thinks prices will fall slightly. Personally I believe that one day electricity will be free, in the same way as bandwidth is today. i.e. you pay for your connection size, rather than bytes downloaded, but overall you will pay more annually than you pay today. Most people disagree and think that unit prices will simply continue to rise above inflation for ever.
Expected increases in inflation (RPI)
The Government and Bank of England goes to huge effort to forecast and manage inflation, but looking at historical predictions governments are usually out by at least 30% even just a few years before the forecast date. It’s hard, but what is clear is that inflation has in general lagged behind increases in electricity prices and on average has been about 1.2% less than electricity price increases.
1) Mains electricity prices are very likely to rise faster than general inflation for at least 10 years. The annual difference between the two being between 1% and 3% on average each year. Pick a number as it’s nearly anyone’s guess. The higher you think electricity prices will increase over inflation, the greater the direct savings from having solar panels.
2) It is theoretically possible that unit prices for mains electricity could actually rise more slowly than inflation and thus the school could eventually be paying more for each solar unit than each mains unit of energy consumed. If this were the case though, it means that in real terms, the schools expenditure on electricity as a proportion of total school costs will have fallen. I.e. Overall electricity will have become a smaller part of total school costs despite paying more per unit for clean solar electricity. Solar electricity acts as a natural hedge slowing potential increases in energy prices at the expense of reducing potential savings if electricity prices were to actually fall.
3) A lot will and can change in 20 years. Despite improvements in energy efficiency that will reduce energy demand, the needed electrification of heating and transport will mean demand for electricity will more than triple in the coming decades if we are to ever shed our dependence on fossil fuels and cut carbon emissions completely. The means by which electricity is charged will probably change, but electricity will be more valuable than ever.
Enter the name of your school below to see how much it could save over 20 years. (You can of course change the assumptions with your own data).