Cabinet
14 February 2011
Agenda Item No_____15________
INSTALLATION OF PHOTOVOLTAIC PANELS AT VICTORY LEISURE CENTRE
Summary:
This report contains a business case for installing photo-voltaic panels
on the roof of Victory Leisure Centre.
Conclusions:
Recommendations:
There are two options for Members to consider in relation to the level
of capital investment required to take forward such a scheme. The
financial implications of both schemes have been fully evaluated and
the larger scheme would deliver a better return on the investment and
secure more revenue savings in the medium to long term. However
neither option is without risk, particularly in relation to the future of the
FIT scheme over a 25 year period, and the financial returns are not
significant. In the early years of the scheme the revenue impact would
be cost neutral and clearly this would be an iconic project for North
Norfolk in shifting some of our energy consumption to sustainable
sources over a period of time which is likely to see large price rises.
Cabinet are asked to consider whether they would wish to proceed
with the scheme and to consider the two options as outlined within the
report.
Cabinet member(s):
Ward(s) affected:
Eric Seward
All
Helen Dixon, 01263 516271
Helen.dixon@north-norfolk.gov.uk
Contact Officer, telephone number,
and e-mail:
1. Introduction/background
At Cabinet on 10 January 2011 members requested that a business case be prepared for the
above proposed capital project. This can be found below and has been completed according to
the Council’s Guide to Project Management; this project is classed as a medium-sized project in
the above guidance.
2. The Project Proposal
Department /
Service
(leading)
Environmental Health
Head of
Service
Nick Baker
Project
Manager
Helen Dixon (until external Project Manager appointed)
Cabinet
Project
Sponsor
Project Scope
Summary of
what the
project will
cover / include
(and perhaps
clarification of
what it does
not include.)
14 February 2011
Nick Baker
Installation of photo voltaic panels on the roof of the Victory Leisure
Centre and claim the Feed in Tariff for the electricity generated by the
panels:
1. Write project specification.
2. Carry out building survey.
3. Appoint external project manager.
4. Apply for planning permission and permission to connect to the
national grid
5. Agree return of cost savings from energy bills with DC Leisure.
6. Procure equipment (OGC framework or EU tender process).
7. Install panels.
8. Register for, and claim Feed In Tariff.
Two different size panel options are available and considered in this
document:
46.5kWp
99.9kWp
Objectives and
Outcomes
What
corporate
objectives
does this
project seek to
deliver?
Have you
considered
sustainability?
Financial
benefits
What financial
benefits
should be
obtained on
completion of
this project?
Environmental sustainability and biodiversity:
We will lead the district by example in promoting environmental
sustainability through a range of actions including reducing carbon
emissions...and achieve these aims by better management of our own
property, and through policy development.
YES
Have you considered
the equality impact?
YES
Claiming the Feed in Tariff will generate income for the Council over the
25 year lifetime of the tariff in 2 ways:
1. Generation payment per kW electricity generated
2. DC Leisure will also save money on their electricity bills; by using the
electricity generated by the panels they will need to buy less from their
grid supplier. An agreement with DC Leisure will need to be put in place
so that these cost savings are passed onto the Council.
The exact benefits will depend on which size option is chosen. Details
of both options are presented in the Business Case below.
Cabinet
Other benefits
What else will
this project
help to
achieve?
14 February 2011
The Council will reduce its carbon footprint through consuming less grid
electricity.
Again, the exact benefits will depend on which size option is chosen.
Details of both options are presented in the Business Case below.
Will this
project involve
any other
internal
service?
YES
Will this
project involve
any other
external body
or persons?
YES
If Yes list them
here
FIT provider.
Property Services.
Development Control.
Leisure and Cultural Services.
DC Leisure.
External project manager.
Supplier and installer of panels.
Distribution Network Operator.
Cost
How much will
this project
cost to
complete?
Give
breakdown of
costs as much
as possible
including final
£.
Resources
What or who is
essential to
the success of
this project?
£10k or
under?
£10 £50k
£50k £100k
Over
£100k
Y
Please see table in section 3.5
Does this include
internal staff time costs
or backfill?
N
Does this include
Venues, refreshments,
meeting costs?
Y
Does this include costs
incurred by other
services?
N
Does this include
Communication and
correspondence costs?
Y
Does this cost include
any ICT
upgrades/changes?
N
Does this include
equipment costs?
Y
Appointing an external project manager to oversee the project.
Contract manager at NNDC.
Agreement with DC Leisure regarding cost savings from electricity bills.
Gaining planning permission and permission to connect to the national
grid.
Installation of panels before 31.03.12
Cabinet
Timescales
When do you
anticipate this
project would
start and
finish?
List any key
milestones.
14 February 2011
Start Feb 2011, Finish March 2012.
Feb 2011 – write specification for Project Manager and obtain quotes for
project management.
- obtain building survey to confirm weight of panels can
be supported by roof
March 2011 – appoint project manager.
April – Apply for planning permission
- Submit G59 application (permission to connect to the
national grid)
May – start procurement process.
August – appoint successful contractor.
Sept - Jan 2012 – install panels.
Feb – contact FIT provider and register for FIT.
2.1 Individual Project Risks:
Risk
Causes
Impact
Likelihood
(1=lowest, 5=highest)
Diminished
return on
investment
System
failures
Timescales
slip (e.g. due
to supply chain
shortages, EU
procurement
process, FIT
registration
process)
Failure of
inverters
Unable to claim
highest FIT if
system not installed
by 31.03.12
Additional cost of
replacement
4
3
4
5
Project
manager
needs to be
appointed, EU
tender
procurement /
OGC
framework
process
followed and
agreement
with DCL on
savings from
electricity bills
Inverters
expected to
fail after 10
years
Risk
score
Mitigation
16
Employ
project
manager to
oversee
project.
HIGH
Ensure
penalties in all
contracts if
slippage.
Install
<50kWp
system to
reduce time
taken for FIT
registration
process.
15
HIGH
Ensure long
warranty.
Hold stock of
spare
inverters.
Cost of
replacement
inverters
included in
Cabinet
14 February 2011
ROI.
Diminished
return on
investment
Increased
attractiveness
of other
investments
Other investments
would bring better
ROI than PV
3
Diminished
return on
investment
Diminishing
yield with age
of panel
Reduced income
1
Unable to
agree
payback
from lower
bills with
DC Leisure
Unable to
agree on
payback of bill
savings with
DC Leisure
Generate less
revenue from bill
savings
4
Roof unable
to take
weight of
panels
Structure of
building
Loss of income
4
Diminished
return on
investment
Reduction or
loss of FIT
payment
Loss of guaranteed
payments affect
ROI
3
5
Few
investments
currently
delivering
high rate of
return
Yield
expected to
drop off after
15-20 yrs
1
9
MED
5
LOW
4
LOW
4
1
1
New steelframed
building, with
known
construction
detailing
Coalition gov
appears to
support FITs;
scheme is
part of Act of
parliament.
4
LOW
4
LOW
Compare
against other
potential
investments –
see section
3.5
Ensure
warranty
guarantees at
least 80%
rated
performance
at end of
period.
Involve DCL
from start.
Acknowledge
there will be
some
disruption and
compensate
accordingly
Get structural
engineer to
confirm roof
can take
weight of
panels.
Ensure
installed by
31.03.12 to
protect
grandfather
rights.
Scheme will
be reviewed
in 2013 in
favour of most
cost effective
technologies.
System
failures
Failure of solar
panel
Loss or reduced
income
3
Diminished
return on
investment
Yield reduced
through dust
and debris
Reduced income
3
Theft and
Failure/loss of
Loss of income /
2
1
1
1
Solar panels
rarely fail
Panels
generally self
cleaning by
rain if installed
at correct tilt
Access to roof
3
LOW
3
LOW
3
Ensure long
warranty.
Ensure annual
cleaning
maintenance
contract
included in
ROI
calculations.
No action
Cabinet
14 February 2011
vandalism
panels
cost of
repair/replacement
Poor solar
yield
Excessive
cloud cover
Lower energy
output and FIT
payment
difficult
1
2
Weather
trends
suggest this is
unlikely
LOW
2
LOW
required.
Yields
estimated by
suppliers have
been checked
using EST
cash back
calculator and
most
conservative
used.
3. Business Case
3.1 Background
In April 2010 the government introduce a new Feed In tariff (FIT) scheme to financially
incentivise the installation of micro-renewable technologies, such as photo voltaic panels.
Those eligible to receive the FIT will financially benefit in 3 ways:
• Generation tariff – a set rate paid by the energy supplier for each unit (or kWh) of
electricity generated. This rate will change each year for new entrants to the scheme
(except for the first 2 years), but once you join you will continue on the same tariff for 20
years, or 25 years in the case of solar electricity (PV).
• Export tariff - you will receive a further 3p/kWh from your energy supplier for each unit
you export back to the electricity grid, that is when it isn’t used on site. The export rate is
the same for all technologies. We have not assumed any income from the export tariff
as it is anticipated that Victory will use all the electricity generated by the panels.
• Energy bill savings – Cost savings on Victory’s electricity bills will be made, because
generating electricity to power the centre means DC Leisure won’t have to buy as much
electricity from their grid supplier. The amount saved will vary depending how much of
the electricity is used on site.
The Sustainability Coordinator raised the potential income at the 21 July Environmental
Sustainability Board, who requested that further information be sought on potential costs and
revenue.
The Sustainability Coordinator sent a quote to 6 local companies for PV panels on the Cromer
office and Victory Leisure Centre.
Two quotes were received in October 2010 from RenEnergy and Mosscliff Environmental. The
RenEnergy quotes for two different sized panel options at Victory are considered in this
document.
3.2 Why the Project is Needed
The key benefits of the project are:
• To generate revenue for the Council over the next 25 years.
• To reduce the CO2 emissions generated by the Council over the next 25 years.
The project contributes to the Council’s corporate environmental sustainability objective, its
Environmental Policy and Strategy and the CO2 reduction target in its Carbon Management
Plan.
Cabinet
14 February 2011
3.3 Benefits (over 25 year FIT tariff lifetime)
3.3.1 CO2 emissions savings
The amount of renewable electricity used by the buildings will be metered and the
corresponding CO2 emission saving will be calculated and reported annually.
46.5kWp
99.9kWp
Predicted annual CO2 emission saving
20
42
% Council’s CO2 reduction target (to March 2014)
3.2%
6.6%
Predicted CO2 savings over 25 years
500
1,050
It should be noted that on a cost per tonne of CO2 saved this project does not represent the best
value for money, compared to other projects in the Carbon Management Plan.
3.3.2 Cost savings on electricity bills
Once installed DC Leisure will be able to use the ‘free’ electricity generated by the panels during
the day and will therefore need to use less grid electricity, resulting in lower bills. The amount of
electricity generated will depend on the size of the panels chosen. The Council will need to
negotiate an agreement with DC Leisure to ensure that the financial savings gained are passed
onto the Council. This could be through a variation to the contract or a separate legal
agreement. A cost of 9p per kWh for grid electricity has been assumed in the table below. The
net surplus assuming no agreement can be made with DC Leisure can be found in Appendix Q,
please note that there is a low risk of this scenario occurring.
3.3.3 Income from Feed in Tariff
If the panels are installed and the FIT provider notified by 31.03.12 we would be able to claim
the highest rate of feed in tariff which is 31.4p per kW of electricity generated, this has been
assumed in the table below. If we miss this deadline then the tariff rate drops to 28.7p per kW,
the revised net surplus in this scenario can be found in Appendix Q. Estimates of the amount of
electricity likely to be generated have been provided by the supplier and checked with the EST
online calculator.
3.4 Benefits realisation
3.4.1 CO2 emissions savings
These would start immediately the panels start to generate electricity and would be calculated
annually as part of the Carbon footprinting work undertaken by the Sustainability Team to
measure our progress towards the corporate CO2 reduction target.
3.4.2 Cost savings on electricity bills
DC Leisure is billed monthly by their supplier and so we would want the agreement referred to
above to provide a monthly payment to the Council. This would be calculated from the amount
of electricity generated by the panels in kW (as recorded by the generation meter onsite)
multiplied by the cost saving to DC Leisure in pence per kW.
3.4.3 Income from Feed in Tariff
This would start when we submit our first 3 months of generation meter readings to the FIT
supplier. Payments will normally be made on a quarterly basis in arrears.
3.5 Implications for NNDC budgets
Cabinet
14 February 2011
The table below shows a summary of the capital and revenue implications of each of the
proposed schemes. Please note that the annual revenue savings figure shown is the average
over the life of the 25 year scheme, the actual anticipated budget movements can be found
within Appendix R for the 46.5kWp scheme and Appendix S for the 99.9kWp scheme.
The full detail of the costs contained within the table below can be found in Appendix Q.
Summary of capital and revenue costs over the 25 year life of the project
46.5kWp
99.9kWp
£
£
Equipment costs
154,042
307,750
Cost of support frame for panels
17,000
34,116
Labour costs
28,820
33,300
Planning application fee
170
170
Project management
20,003
37,534
Replacement inverters
30,000
60,000
Install costs for inverters
3,000
6,000
Total capital cost
253,035
478,870
Lost investment income
54,015
14,109
Supplier maintenance costs
61,484
61,484
Building maintenance costs
12,500
25,000
Feed in tariff (FIT)
(308,093)
(642,300)
Energy saving
(156,065)
(325,358)
Total (saving)/cost over scheme life
(83,124)
(388,195)
Average annual revenue budget (saving)/cost
(3,325)
(15,528)
Capital
Revenue
Less:
Based on the estimated capital costs the return on investment (ROI) for the 46.5kWp scheme is
1.31% (£3,325/£253,035 x 100), while the ROI for the larger 99.9kWp scheme is 3.24%
(£15,528/£478,870 x 100).
Trying to estimate the average rate of return for investments over the next 25 years is incredibly
difficult but if an average return rate of 5% is assumed, if the capital funds were left in the bank
rather than being invested in this scheme the interest would amount to £12,652 (£253,035 x
5%) per annum (£316,300 over 25 years) for the 46.5kWp scheme and £23,944 (£478,870 x
5%) per annum (£598,600 over 25 years) for the 99.9kWp scheme.
Cabinet
14 February 2011
This information is summarised in the table below:
Comparison between rate of return from proposed PV scheme and investment returns
46.5kWp
99.9kWp
£
£
Total return from installing PV panels as per above
(83,124)
(388,195)
Investment return @ 5%
(316,300)
(598,600)
Difference
233,176
210,405
These figures differ from the actual lost investment income detailed in the table above due to
the cash flows in and out each year.
One of the project risks, as highlighted within the risk section of the report, is that the scheme
cannot be formerly registered by 31 March 2012, which would mean that rather than receiving
31.4p per kWp the Council would only receive 28.7p per kWp. The impact of this is highlighted
within Appendix Q but the effect would be to reduce the FIT income received over the life of the
project by approximately £54,000 for the larger 99.9 kWp scheme and £26,000 for the 46.5kWp
scheme, which increases the payback period for both schemes. This Appendix also looks at the
impact of DC Leisure not agreeing to pass on the energy savings along with some sensitivity
analysis regarding the assumptions made in relation to both the amount of energy produced and
the levels of energy savings.
If the scheme were to be approved in principle there is a risk that there may be abortive costs,
as a G59 application needs to be made to have the scheme approved and to gain permission to
connect to the national grid. If, for whatever reason, this application is refused then the scheme
would not be able to go ahead as the Council would not be able to access the FIT income,
which would make the scheme unviable. These costs would not however be expected to exceed
£15,000.
3.5 Project Definition
3.5.1 Project deliverables
External project manager appointed to manage project.
Agreement in place with DC Leisure regarding return of cost savings from electricity bills.
Planning permission and permission to connect to the national grid secured.
PV panels procured and installed.
Registration for FIT and collection of payment.
3.5.2 Constraints
The timescale required to claim the highest FIT rate is the main constraint: The panels need to
be in place and we need to have registered with a FIT provider by 31.3.12. Given the time
required to write a specification and appoint an external project manager, and then the likely
planning permission, procurement and installation timescale, a decision needs to be made
immediately as to whether this project will be taken forward or not if the highest return on
investment is to be achieved.
Cabinet
14 February 2011
3.6 Resource requirements
In addition to the costs detailed in the project proposal, officer time to write the specification,
appoint and manage the project manager will be required. This can be accommodated into the
Sustainability Coordinator’s work plan as required.
3.7 Costs/timescales
It is anticipated that all costs detailed in the project plan above would be incurred in financial
year 2011 – 12 apart from the following:
•
Maintenance
•
Replacement Inverters (including installation)
•
Additional building maintenance
3.8 Risks
Please section 2.1 for details of risks.
4. Other Implications and Risks
4.1 Legal
There are no legal implications arising from this report.
4.2 Sustainability and reputation
Installing photovoltaic panels at Victory Leisure Centre will contribute to our corporate aim of
becoming an environmentally sustainable council, however as mentioned in section 3.3.1 the
actual CO2 savings are relatively small in terms of the overall cost of the project.
4.3 Equality and diversity
There are no equality and diversity issues arising as a result of this project.
5. Conclusions
There are two options for Members to consider in relation to the level of capital investment
required to take forward such a scheme. The financial implications of both schemes have been
fully evaluated and the larger scheme would deliver a better return on the investment and
secure more revenue savings in the medium to long term. However neither option is without
risk, particularly in relation to the future of the FIT scheme over a 25 year period, and the
financial returns are not significant. In the early years of the scheme the revenue impact would
be cost neutral and clearly this would be an iconic project for North Norfolk in shifting some of
our energy consumption to sustainable sources over a period of time which is likely to see large
price rises.
6. Recommendations
Cabinet are asked to consider whether they would wish to proceed with the scheme and to
consider the two options as outlined within the report.
Cabinet
14 February 2011