Sunday 21 July 2013

Let's Get Down to Brass Tacks

How to Sell Solar With the RHI

The shape of things to come?  Solar heating and solar PV in a combined installation.
Image courtesy : Viridian Solar

Perhaps inevitably, the first reaction of the solar industry to the new domestic Renewable Heat Incentive (RHI) has been to compare the financial returns for solar heating to the Feed in Tariff (FIT) available for solar photovoltaic panels.

A quick, back-of-envelope comparison is not normally favorable to the RHI, but a more considered evaluation raises some interesting points.

So, before you screw up your envelope and toss it in the bin, read on…

Wide Applicability

Solar water heating requires a much smaller area of roof than PV.  An area of 3 or 4 square metres (2-3 kWth) is ample for most households.  The average PV installation according to the Energy Saving Trust has reached 3.75 kWp or around 22 square metres.  Solar heating therefore is more useful for partially shaded roofs, where only a small part of the roof area can be used.

Because it takes only a small portion of the roof, it can also be more palatable for customers who are interested in the impact of the solar installation on the looks or re-sale value of the home.

The RHI will require only loft insulation and cavity walls to be filled, and only where it is practical to do so.  This means that any building can qualify at modest cost.  The FIT is limited to homes that can achieve EPC D, and many cannot except at exceptional cost. (I’m expecting the FIT to migrate towards similar qualification criteria to RHI – watch this space).

Solar heating is also less affected by orientation or the location of the installation, with a lower drop-off in energy yield for east or west facing roofs or installations in the north of the country.

These factors all contribute to a large potential customer base for solar heating.

Sweet Spots

As the Feed in Tariff (FIT) rates have fallen, energy savings start to feature more and more highly in the financial returns calculations.  Solar companies are starting to get used to the idea that the financial returns for PV now depend much more on the customer’s patterns of energy use and therefore the sizing of the system.  (See my blog on self-consumption of solar electricity here.)

The Renewable Heat Incentive for solar is set at a level where the return on investment also relies upon the amount of energy saving the customer achieves.  This creates “sweet-spots” with above average financial returns:

Larger families
On average, the more people in the house, the more hot water the household uses for showers and baths.  The same solar installation will produce a greater annual energy output when there’s more cold water to be heated up, and the MCS deeming method captures this.

Oil or electric heating
The more expensive the heating fuel being saved, the better the returns that are achieved.  Off gas grid installations will have a higher return on investment.

Cost Sharing
Installing solar heating at the same time as other necessary work can transform the return on investment.  The installation of a solar cylinder can be as much as one third of the cost of the installation.  If a customer was planning to replace an old hot water cylinder anyway, then going solar at the same time would make a great deal of sense.  The same argument goes for roofing repairs, where roof access costs can then be shared.

Rather than relying on chance to provide opportunities for cost sharing, the solar industry now has a gold-plated opportunity to create its own.

From “Either-or” to “Both-and”

A solar installer can create cost sharing to boost the return on investment for customers very simply.

Create your own sweet-spot by offering to install both solar PV and solar heating together

The shared costs of travel, roof access and roofing works provide obvious cost reductions, but it goes much further than that.  Because the average sales price per install is boosted the costs of customer acquisition (sales and marketing, survey) are also shared across more revenue.

Counting All the Pennies

When preparing a financial calculation for solar water heating there are a couple of important points that are easy to miss out.

First, the saving on the energy bill is not the same calculation as the solar energy added to the hot water cylinder.  The fuel burnt to create the same level of heat is higher because the back-up heater will operate with efficiency below 100%.  In fact, it gets better because the “summer efficiency” of boilers is lower than the “winter efficiency” because they have to heat up just to prepare the domestic hot water.

The new version of MIS 3001 proposes a range of “solar efficiencies” for different back up heaters, but a few of the more common ones are shown below:

The energy saving is the solar energy input to the hot water cylinder divided by the boiler efficiency.  Depending on the efficiency of the back-up heater in the home, the fuel saved can be as high as double the solar energy.

Second, the customer is getting a brand new hot water cylinder as part of their solar installation.  If it’s replacing an old cylinder with lower performing insulation and if it’s carefully installed with insulation on all the connecting pipes (not just the solar ones), then there is a significant energy saving for the customer.  When replacing an old cylinder with a properly installed new one, the energy saving averages 750kWh/year, adding around 50% to the energy saving.

These savings are real and they are significant, they should be taken into account in any presentation of the financial benefits of solar heating. 

Getting Emotional

The solar PV market has spent the last few years selling a financial product.  Cold, rational arguments about return on investment, fuel price inflation and comparative returns from ISAs have crowded out the emotional reasons people still have for buying into renewable energy: energy independence, climate protection, conveying their values to others.

Solar heating and solar PV top the charts as the renewable technologies most people know about and understand.  This is especially true for solar heating.

When you step under a hot shower provided by a solar heating system, you are provided with an intuitive, physical link to the energy you are producing.   A customers’ relationship with solar water heating is intimate and emotional.

After all, which other renewable energy technology do you get naked with?

People are not cold, profit-maximising robots - they are individuals with a wonderful capacity to  surprise. The solar industry needs to re-connect with all the emotional reasons for installing solar – oh, and by the way it makes great financial sense too.