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Tamar Energy Community

TEC's Surplus income and member returns

TEC’s base case business plan for the Solar Roofs indicates they will generate sufficient income to cover all operating, administration and finance costs (including a target 5% interest payment to Members). It is expected the surplus income will be around £200,000 in total over the next 16 years, with at least £10,000 per year being generated for the community fund from the outset.

The business plan is based on 21 years from 2016 when the Solar Roofs were commissioned as this is the term of the roof lease agreements, apart from Tesco’s which is shorter. The solar PV systems have an operational life of 25-30 years so there is potential for further income generation if the roof leases are extended.

Funding to date

The feasibility costs for the TEC Solar Roofs Project were funded by a £20,000 grant from the Rural Community Energy Fund. The installation works, which were completed in 2016 and 2017, were funded by a combination of short-term seed loans from a number of local supporters (which raised £118,100 in total) and a £285,000 long-term loan facility from the Low Carbon Society (LCS Loan), a specialist community energy loan fund.

Target for Share Offer and how the funds will be used

TEC is launching this Share Offer to enable people and organisations in the Local Community and beyond to participate in the ownership of TEC and have a say in how it is run. The target for this Share Offer is to raise up to £290,000. The funds raised will be used, firstly, to repay the short-term seed loans and, secondly, repay up to 60% of the LCS Loan (the maximum early repayment permitted under the loan agreement). TEC is seeking to repay the LCS Loan as the loan interest cost is higher than the target share interest for this Share Offer. Therefore, raising new capital through this Share Offer will result in a lower cost of finance for TEC and increase the community surplus generated.

If the Share Offer raises less than £290,000 a greater amount of debt will remain with the Low Carbon Society. The Minimum for the Share Offer is set at £160,000 to achieve repayment of the seed loan investors in full and at least 15% of the LCS Loan.

Income and expenditure

The Solar Roofs have been up and running generating electricity and income from the sun for over 3 years. The Feed-in Tariff and Power Purchase Agreements and operations contracts are all in place.

TEC’s anticipated annual income from Feed-in Tariff payments, electricity sold to the host buildings through a PPA, and payments for electricity exported to the electricity network (where applicable) is around £59,000 per year, increasing with inflation each year. Whilst the Feed-in Tariff and PPA rates are fixed, TEC’s income will vary according to the amount of electricity generated each year and the amount that is consumed by the host building.

Projections for annual electricity generation are derived from averages of the actual generation over the last 3 years. To account for the fact that the months on record may have received more, or less sunshine than long term models predict, a factor was applied to scale the monthly generation up or down accordingly. Degradation of generation from the solar PV modules over time is assumed to be 0.4% per year, which is in line with industry practice. Finally, any months with technical issues that have since been solved were omitted from the average.

The electricity at three sites will be sold to an energy supplier at the FiT export tariff rate which is currently 5.5p/kWh or via a commercial export PPA agreement, whichever yields the best overall return. The cost of metering and the high onsite use at the two Mount Kelly School sites make export metering uneconomic. Tesco Callington uses all energy generated on site.

Operating costs for the Solar Roofs Project include service and maintenance, insurances and business rates. A reserve fund will be built up to cover foreseeable component replacement and repair costs that fall outside of the warranties and service and maintenance agreements. These costs will be paid by TEC.

TEC will also incur administration costs which have been factored into the business plan. These include company and director insurances, book-keeping, annual accounts and member relations.

Key assumptions

TEC raises £290,000 through the Share Offer. Interest is paid at 5% each year with Share Capital repaid from 2025 to 2037. As Share Capital is repaid, the annual interest costs to TEC decrease accordingly.

The residual balance of the Low Carbon Society Loan of £47,000 is repaid by 2036.

Inflation (RPI) averages 1% to 2022 then 2.5% to 2025 then 2% thereafter. The reduction from 2025 anticipates the Government’s current intention to bring RPI into line with the Consumer Prices Index which has historically averaged lower than RPI.

Export electricity prices are based on the guaranteed Export Tariff available for FiT-supported renewable generation. An electricity price projection is not used. A component replacement reserve is built up to cover the cost of replacing all the inverters between operating years 11 and 15. Additional reserves are built up to cover cash flow needs and the cost of removing and replacing the panels for up to 2 roofs if roof repairs are required. It is assumed these reserves are not spent and they are added to the community benefit fund after 16 years.

In addition to allowances for annual accounts, company insurances and subscriptions, £2,000 per year is budgeted for book-keeping and administration, but the management of TEC’s Solar Roofs is dependent in part on volunteer resource.

Corporation tax is assumed to be 19%. 

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