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Solar for Schools

Financial performance

This Innovative Finance ISA (IF ISA) eligible bond offer aims to raise up to £2,000,000 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 10 and 13.5 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 5.2 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 a 125 kWp system which could be funded from £86,000 of investment in Solar for Schools CBS bonds. Note income from exported electricity is no longer guaranteed as it was while subsidies existed.

Period Year 1 Years 2-5 Years 6 -10 Years 11-15 Years 16-20 Years 21-25 Totals
Energy Generation (kWh) 112,500 444,403 543,119 529,676 516,566 503,780 2,650,045
Income (indexed to RPI)
Generation subsidy - - - - - - -
Export 1,533 6,473 8,920 9,939 11,074 0 37,940
Sales to school 9,927 41,927 57,776 64,375 71,727 79,919 325,652
Total income 11,460 48,400 66,697 74,314 82,802 79,919 363,592
Loan
Loan (bond) repayments -2,625 -11,879 -18,510 -23,624 -30,151 0 -86,790
Interest payments -4,339 -15,978 -16,311 -11,197 -4,670 0 -52,495
Total repayments to investors -6,964 -27,857 -34,821 -34,821 -34,821 0 -139,284
Other costs (indexed to RPI)
Opex, Rates & Reserves 3,393 14,512 20,456 23,371 26,701 30,506 118,940
Fund/investor management costs (not indexed) 835 3,338 4,173 4,173 4,173 0 16,690
Total costs 4,227 17,850 24,629 27,544 30,874 30,506 135,631
EBITDA
Depreciation 4,173 16,690 20,863 20,863 20,863 20,863 104,314
EBIT 3,060 13,860 21,205 25,908 31,065 28,550 123,647
Benefit to school
Electricity Savings (£) 729 5,337 13,293 22,827 35,271 51,369 128,826
Profit share/Income 134 1,346 3,623 5,713 5,914 21,852 38,583
Total financial benefit to the school 863 6,684 16,916 28,541 41,185 73,220 167,409

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. 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 -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 payback period has been reduced from 12.5 to 12 years to increase the IRR of the projects and provide some additional protection against prices for exported electricity falling rather than rising over time.
  • 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 7.5% is achieved. (12 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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