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Solar for Schools

Financial performance

This Innovative Finance ISA (IF ISA) eligible bond offer aims to raise £1,000,000 to fund more solar panels on schools.

Annual return

The Solar for Schools CBS aims to pay a return of 5% paid annually on the 31st October.

Projected costs

The principal operational costs of the community benefit society are:

  • Insurance, rates and other applicable taxes such as corporate and value added tax.
  • Payments to Solar Options for Schools Ltd for ensuring the proper running of the systems on each school in the portfolio under the Operations and Maintenance contract which may also subcontract certain services such as monitoring or inspections to third parties, as required.
  • Build up of reserves to cover inverter replacements and eventual dismantling of the system.
  • Payment of interest and repayment of principle to Bondholders and any social investors that may subsequently invest in the projects to re-finance and re-pay Bondholders.
  • Other third party costs related to administering and managing payment to investors. These are provided by Solar Options for Schools Ltd under the Fund Management Agreement, including bond issue administration, bond registrar and ongoing bondholder relations.

 

Borrowing

The Solar for Schools CBS banks with Triodos and intends to ultimately re-finance the projects with the bank. The Directors may also work with Social and Sustainable Capital to provide up to £1.5m of loans to Solar for Schools CBS until they are re-financed by Triodos.

Projected income

Most of the income to repay investors is derived from the sale of clean electricity from the solar panels to the schools. Each school pays between 9 and 12.5 pence per unit (kWh) depending on their location and system size. The rate is determined such that it delivers the required return to the Solar for Schools CBS. In addition, any electricity not consumed by a school is exported to the national grid and the Solar for Schools CBS then receives the current export rate of 5.1 pence per unit (kWh). Given that selling electricity to the school results in double the income vs. selling to the grid, being able to install a system with a high percentage of the electricity generated being used by the school is key.

Financial projections

The financial projections are based on an aggregated system of around 260 kWp which could be funded from £240,000 of investment in Solar for Schools CBS bonds.

Period Year 1 Years 2-5 Years 6 -10 Years 11-15 Years 16-20 Years 21-25 Totals
Energy Generation (kWh) 247,000 975,712 1,192,448 1,162,933 1,134,149 1,106,078 5,818,320
Income (indexed to RPI)
Generation subsidy 6,891 29,103 40,104 44,685 49,788 0 170,571
Export 1,434 6,055 8,343 9,296 10,358 0 35,486
Sales to school 22,488 94,978 130,882 145,830 162,486 181,043 737,708
Total income 30,812 130,135 179,330 199,811 222,632 181,043 943,765
Loan
Loan (bond) repayments 7,418 33,573 52,316 66,770 85,217 0 245,295
Interest payments 12,265 45,160 46,099 31,645 13,198 0 148,367
Total repayments to investors 19,683 78,732 98,415 98,415 98,415 0 393,661
Other costs (indexed to RPI)
Admin inc. monitoring, insurance, rates, inspections 7,247 30,999 43,696 49,923 57,036 65,163 254,066
Fund/investor management costs (not indexed) 2,382 9,526 11,908 11,908 11,908 0 47,630
Total costs 9,629 40,525 55,604 61,830 68,944 65,163 301,696
EBITDA
Depreciation 7,675 30,701 38,376 38,376 46,052 0 161,180
EBIT 5,501 24,919 38,127 46,567 55,805 0 170,918
Net revenue before repayments 21,184 89,610 123,726 137,981 153,688 115,880 642,069
Profit
Surplus set aside for repairs, etc 1,500 6,673 9,406 10,746 12,277 14,027 54,629
Remaining surplus available for distribution 0 4,205 15,905 22,753 29,261 93,053 165,176
Total profit/surplus including reserves 1,500 10,878 25,311 33,499 41,538 107,080 219,805
Benefit to school
Electricity Savings (£) 1,638 12,113 30,145 51,752 79,950 116,428 292,026
Profit share (50% of surplus) 0 2,102 7,952 11,376 14,630 46,527 82,588
Total financial benefit to the school 1,638 14,215 38,097 63,128 94,580 162,955 374,614

Key assumptions

The financial projections are based on the following key assumptions:

  • The solar panels on UK schools have an operational lifetime of 25-30 years, but FiT revenue ends after Year 20. The financial model assumes that all investors are re-paid in full within the first 20 years and as such electricity prices to the schools in subsequent years could be lowered significantly to a point determined by maintenance costs only.
  • Electricity production for each site is based on PVGIS forecasts (a widely used energy forecasting tool) using industry standard assumptions.
  • The projected proportion of solar electricity consumed by each school from the solar panels is based on Solar Options for Schools Ltd's analysis of the school’s total annual consumption and data collected from the 50+ school systems currently under management by Solar Options for Schools Ltd. 
  • The price paid by each school is determined by the online calculator and based on the above assumptions and determined so that the underlying project delivers a 12.5 -year payback to the Solar for Schools CBS after all operating costs, fundraising and fund management costs as well as inverter and dismantling reserves. 
  • The system costs of each project, including project management; planning, surveys, equipment, installation, testing and commissioning, are based on open book costs and the agreed success fees per project. Should a project come in below the forecast cost, the benefit passes to the Solar for Schools CBS. Should a project come in above costs, Solar Options for Schools Ltd is obliged to absorb the costs. In the event of multiple projects being installed at the same time, under costs in some projects may be used to offset overruns in other projects as long as the minimum IRR target of 7% is achieved. (12.5 year payback).
  • Retail Price Inflation (RPI) to which all costs and electricity price sales are indexed to is set to 2.7% in the model, which is the average in the UK over the last 15 years. In comparison, mains electricity price inflation is assumed to be 4.7% per year and is also based on the average for the last 15 years.
  • Degradation in solar panel performance is assumed to be 0.5% per year. Solar panel performance warranties apply if the panels decay at more than 1% per year.
  • The projects continue to be insured for risks such as damage to equipment, roofs and third parties.
  • If any one of the assumptions on this page is not being realised, it is likely to result in adjustments to the financial projections with small changes reducing the profit share to schools and larger changes ultimately requiring an extension of the loan re-payment period to ensure Bondholders are re-paid.

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