In Conversation With Hollis: Planning changes power up the case for solar panels

At the end of last year, the government introduced limited but nevertheless significant changes to the permitted development regime for solar installations, effectively lifting the cap on the volume of energy that can be installed.

Moreover, the cost of panels is now incredibly low – in all likelihood, unsustainably so. In the short to medium term, prices are likely to start going up again for a variety of reasons.

Property Week caught up with Stuart Patience, director and head of energy solutions at Hollis, to find out more.

What is the significance of the changes to permitted development?

It’s part of the government’s strategy to remove red tape in planning, to try and help decarbonise the UK and get more people to invest in solar. Previously, you could install up to 1 megawatt without full planning permission under permitted development rights (subject to certain caveats). Now they have taken that cap away, allowing solar to be installed on buildings more easily and removing the costs and time associated with full planning applications.

These are welcome changes, and it’s hoped they will help the government reach its ambitious target of 70 gigawatts of solar PV deployment by 2035.

What sorts of properties will potentially benefit?

Principally, properties with large roof spaces, such as large logistics warehouses, shopping centres and the like. With some clients, we had reduced the PV system sizes to fall under the previous cap of 1 megawatt, to avoid full planning requirements. Now, we can look at scaling up the energy production to deliver larger PV systems with a lower cost per kilowatt and making further tenant savings.

Were there any other changes?

The government has made it easier to install solar car ports. There has been a lot of traction with car ports in Europe and in the UK, we’ve perhaps been a little bit behind the curve. Previously, all car ports needed full planning permission but now, with certain caveats, they fall under permitted development.

The downside is car ports tend to be a lot more expensive to install than rooftop solar, but sometimes they are the only option. There might be structural issues with a roof, or it might have the wrong orientation. But car ports make a lot of sense with the increased number of electric vehicles on the roads. People often feel they’re charging their car directly from the sun, which is quite an exciting concept.

How much potential is there for greater installation in the UK?

The UK has delivered about 15 gigawatts of PV in the past 20 years and the government has a target of 70 gigawatts by 2035, although this will be a challenge to achieve. There are more than a million solar systems in the UK at the moment, but most of that is either small-scale domestic or ground-mounted systems in fields. The potential in commercial property is huge. The UK Warehousing Association found less than 5% of UK warehouses have solar on their roofs. So, there are still some massive opportunities with both tenants and landlords looking to achieve a shared goal now.

But we still have to address other challenges, namely grid connections and the low rate paid for exporting back to the grid, to allow firms to scale up system sizes while being confident any surplus is sold at a fair market rate.

How does the business case stack up?

There is a great business case. With roof-mounted systems, the power is consumed directly underneath where the solar panels are located. You are not putting panels in a field where there’s no off-taker for the power and having to send it back to the grid, and someone else finds a use case for that power. If everyone had these micro-power stations on their roofs it would decentralise the energy network.

A lot of developers are finding it difficult to get a grid connection. Is that a concern?

It is an issue, but after coming under pressure from government, Ofgem is looking at removing ‘zombie projects’ from the backlog – that’s where somebody has applied for a connection for a project that often is nowhere near ready. A lot of them are large, ground-mounted systems where the developer hasn’t acquired other consents. They’re effectively speculative applications and are blocking viable projects from getting connections. Ofgem will kick projects out of the system if they’re not ready to make progress. It’s a big move away from the current ‘first-come, first-served’ system.

Combined with panel prices coming down, does the new planning regime present a big opportunity for landlords and occupiers?

In a word, yes. My first PV project involved an 84-year payback in terms of how long energy savings took to cover the capital outlay. Panels are down to less than £50 a module, when they were over £400 each. Typically, we now see five- to seven-year payback on larger commercial PV systems, but it can be as a low as three years.

There are several ways for landlords to structure a deal with tenants, the most common being power purchase agreements where the landlord or a third party pay for the capital costs and maintenance of the PV system, and tenants buy the solar energy at a competitive rate. The key is to understand tenants’ energy usage to minimalise grid export. Some landlords also rentalise the PV as a simpler route to market.

Is £50 per PV module sustainable?

Probably not. Panels are being sold into Europe below their actual manufactured cost due to government offsetting, which is squeezing European margins.

We are also seeing the runout of older tech, with manufacturers moving to new technologies such as tunnel oxide passivated contact and heterojunction technology with higher efficiencies, so they’re looking to clear out existing stock. I don’t think the price of panels will stay this low for too long.

So, now is the time to install panels in the UK?

It is definitely a good time to look at it with the cost of units at an all-time low. There’s a lot of rooftop space out there and we’ve got a lot of clients that are looking at their building portfolios. Installing solar can help companies meet their net zero targets, but for landlords it can also add a lot of value. The difference in capital value between a warehouse with an Energy Performance Certificate (EPC) ‘D’ rating and a ‘B’ rating can be substantial.

Solar will also become important for the future-proofing and marketability of a building; along with air conditioning, we predict that solar may become a requirement.

Are there other benefits?

Yes. Obviously, it’s about making sure that the system pays for itself and is earning some money for the landlord. But it’s also about retaining tenants in the building. When a lease is up for renewal, the tenant might look at other buildings that are more energy efficient to run. And having to remarket a vacant unit and get a new tenant in might be a much more costly exercise than putting the PV on the roof. There are lots of reasons people are looking at this at the moment.