Residential Solar, Storage & Electricity Market Change

Energise Barnsley is often asked why we are not currently installing another community energy residential rooftop solar project in Barnsley, and are there any lessons learnt to date from our innovation projects (solar, storage and demand side response), in order to predict when we can start installing residential solar again.

It is worth starting the response with the success story. The government subsidy scheme (Feed In Tariff) successfully drove down the price of solar PV technology, and prior to its’ closure, approximately 1 million homes can claim to generate their own rooftop solar electricity, subsidised by all electricity bill payers. Utilising this subsidy scheme we were able to take the commercial model (‘rent a roof/lease finance’) and put a community energy wrap around it, making sure that community investing members received a fair investment return for their capital (instead of shareholders/finance houses) and all profits were recycled back through local community benefit projects.

At the close of the scheme (April 2019), and prior to the new proposed replacement mechanism (Smart Export Guarantee) starting in Jan 2020, it is worth having a more detailed look at what the scheme has achieved, to see whether it can help contribute towards a model for the next 1 million homes to install solar PV. 

First and foremost the scheme has overwhelmingly been used as a financing mechanism/product. Whilst carbon emissions have been saved (by using less fossil fuel energy to create residential electricity), it should be recognised that many of the installations have been oversized to maximise the subsidy, as this was the predominant business model dictated by the support scheme.

Self-consumption levels of the solar electricity generated are disappointingly low (20 – 30%) on average, meaning that the exported energy is spilt onto the grid, going unaccounted for. There was no requirement to have domestic export meters (cost), and half hourly settlement meters were only in their infancy at the start of the scheme. Any future residential project requires metering for settlement purposes, and to allow for exported solar to be consumed by neighbours on the residential network side of a substation.

All new installations should be sized according to the demand profile of the home, so that the annual generation of the system is capped at the average annual total electricity consumption per annum per home (+ 20% headroom). This should see one installation per home leading to 2 other homes, without south facing roofs, or renting homes, to benefit from the solar exported electricity, and removes greed from the old business model.

A settlement centre for locally exported solar energy will be able to capture the export and local self-consumption. Coupled with improvement in the increased capacity of solar panels, hybrid inverters, and efficiency of panels it means that a smaller number of panels need to be installed, and therefore roofs unviable before become acceptable. Further innovation in mounting rails, panel shapes, and installation will improve performance and uptake. This does, however, rely on a change in the speed of the smart metering rollout programme (below).

Fixed costs on installing residential solar (scaffolding, labour and registration) are now proportionality a far higher percentage of the installation compared to the subsidy scheme at the outset, and will not decrease in cost, meaning that the residential sector cannot solely rely on equipment costs falling.

The current proposed smart export guarantee tariff will generate a maximum £100 in revenue per annum for our typical home in Barnsley, which when divided by the capital cost of the project pushes any ‘payback’ on the equipment too far in the distance to make the project fundable. If the exported solar is purchased at 2/3rds of the standard variable rate, with the generator being rewarded with the tariff, minus a small administration fee, the pay back period starts to become more attractive. There is a sufficient mix of energy demand profiles, coupled with different facings roofs to ensure that locally generated electricity is used behind the substation, and not spilt onto the wider grid. Our solar and storage study shows that this can lower network voltage levels, and increase the amount of homes that can be connected to the grid, reducing project time and cost.

Another mechanism to encourage homeowners towards the initial high capital costs would be to reward them with a year’s council tax rebate after the third year of operation. Councils have declared climate emergencies and they should welcome the opportunity to reward homeowners for reducing their carbon emissions. As local council budgets have been slashed, and council tax is the major revenue mechanism for their spending powers, there should be a reciprocal system for central government to re-finance local authorities for these rebates. Two of the Turner paintings in 10 Downing Street, owned by the Government Art Collection, and depicting classic British landscapes should be sold to HM Treasury, and loaned back to Downing Street, creating the funds for the first 20,000 installations under this council tax rebate mechanism. Whilst bond yields are low, the remaining monies can be raised by issuing government debt to fund the remaining homes, to make sure that we reach 2 million homes with solar by 2022.

Another learning curve from our innovation projects is that we are all operating blind, or taking a year to collect data for analysis, without smart meters. The speed of the smart meter rollout scheme, owned by the major utilities because it offered them a chance of ‘consumer retention/brand awareness’ has failed.

Local authorities should be authorised with the funds to deploy residential street-by-street mandatory meter changes, with the threat of a fine if households do not comply after three chances. Now that there is a widely accepted model of smart meter to install, it has to be taken out of the hands of the energy suppliers and sold as it should be – the change required to record digitalisation of electricity consumption.

Horizontal digitalisation of all low carbon technologies within the home, create the potential for a stream of stacked revenues from grid based revenue, or future market flexibility. Solar will still be the workhorse in this model, and the current cost price of residential batteries, means that when installed with solar, it is the solar that is effectively subsidising some of the battery costs. However all tenants who have received a free battery in our projects can’t understand why it is not mandatory for them to be sold with solar. The battery increases self consumption levels, and in those summer months, when our electricity demand is lowest, those kilo watt hours which have been generated by the solar during the day, and not utilised in full in the evening by the home with the installation, can be used by the neighbours in the arrangement as described above.

As an observation our first set of solar installation tenants only have a ‘linear’ relationship with the technology – generally by seeing lower electricity bills per annum. This relationship is lost when new tenants move in. We are creating a far more dynamic relationship with the low carbon installations (solar PV, and dual purpose air source heat pumps) installed in our demand side response project homes, retrofitting a smart battery and in home smart device which communicates between all the systems, and grid, whilst giving the tenants enhanced and simplified control of their heating and water temperature through a phone app. This same app will be able to message price signals for demand side response events, creating an automatic record and audit of household revenues any community third party intermediary will be required to have, in order to make it all cost effective for both tenants and community developer.

To conclude, at present we calculate that approximately 25 – 30% of the capital costs of a typical residential solar and storage project today still needs to be subsidised, and a fair export price using a behind the substation approach for sharing local electricity generation will contribute towards an acceptable payback period, and therefore make residential solar and storage project finance work again. 

We should caveat that sunshine levels in Barnsley are 20% lower than some of the best counties in the UK, and therefore the project finances should be easier to work elsewhere first, and we are not in a position to tie residents into one energy supplier, who might also supply broadband connection as well, as an energy service package. 

Andy Heald is a Co-Founder & Director of Energise Barnsley. Andy also sits on the Energy Network Association Distributed Energy Steering Group, and OFGEM’s Network Access and Forward Looking Charges Challenger Group with a focus of future access of the retail electricity market for small users.