Rooftop solar photovoltaic is the best renewable energy investment, according to property consultancy Carter Jonas’ 2015 energy index.
The index looks at factors such as development costs, value versus development costs, planning approval, development timescale and internal rate of return (IRR) across wind, solar photovoltaic, biomass heating, anaerobic digestion, hydroelectric, and ground-source heat pumps. It has taken into account the recent Department of Energy and Climate Change (DECC)’s proposals to remove support for on-shore wind and solar farms under the Renewable Obligation (RO) from April 2016.
A 50kW PV rooftop project is considered the most attractive technology from an investment perspective. While it does not deliver the highest IRR, it is considered relatively low risk and scores well in most categories. A 5MW PV park or 10MW wind farm has historically been among the most attractive technologies for investors, but the technologies were ranked eighth and ninth respectively in the latest index. Loss of support under the Renewable Obligation has significantly reduced the projected IRRs for both technologies.
Biomass systems of more than 200kW are an attractive investment, despite recent cuts to the Renewable Heat Incentive (RHI), ranking second by the index. In particular, biomass is considered an excellent opportunity for properties off the gas grid.
A 500kW wind turbine is ranked highly at third as it still delivers the highest return on investment for the right site. However wind has a lower planning approval rate and also low development costs’ score, reflecting the high development costs and risks associated with securing planning for sites.
A 1MW waste anaerobic digestion (AD) and a 500kW farm AD were ranked fourth and sixth respectively as operation and maintenance are higher than other renewable energy technologies, and there is volatility of financial support mechanisms, particularly the reductions in the biomethane injection tariff (RHI).
Ground source heat pumps (GSHP) are ranked fifth, despite a fair IRR and low risk at planning. This is because, relative to the size of the technology, GSHPs require more investment and a longer timeframe to develop, with less significant income potential for an investor.
A 500kW hydro scheme was ranked seventh as projects can require extensive environmental and ecological studies to obtain consent, the planning process can be complex and lengthy, and costs and resource income can vary significantly between sites.
Andrew Watkin, head of energy and marine, Carter Jonas said: “The UK has a fantastic pool of natural resources and we continue to call for the government to get behind the renewable sector. When considering renewable energy investment opportunities, it is prudent to consider the risks against the potential benefits”.
Watkin added: “The recent proposals by the DECC have presented a significant blow to the renewable industry in the UK, particularly at a time where projections were that solar would be subsidy free by 2020, based on previous projected investment. As an investment, renewable projects are generally not mature enough to withstand a complete removal of any support mechanism. For renewable energy to be successful without support, several critical changes would need to occur within the industry: reduced costs of installation, reduced cost of grid connection, and increased value for sale of electricity. Overall, the industry needs support from the government, not opposition with continual regulatory, planning and financial barriers driving investment away from the sector”.