RM Capital has announced that it will continue to offer finance to solar projects in January 2016 in spite of the dangers posed by government plans to cut subsidy for renewables projects.
However the company, which currently offers up to £5 million per project for those ranging from 250kw to 5MW, has said that it will only offer around half of that figure as project revenues are expected to reduce substantially once subsidies have been slashed.
Pietro Nicholls, head of primary capital markets at RM Capital, told Solar Power Portal: “We’ve looked at it and we think we’ll be able to lend to people post subsidy. It will not be as amazing as what it is at the moment but I think everyone can understand why. Subsidy makes up about 50% of people’s revenue in these projects.”
Currently, Nicholls says around 75% of the value of a new project can be lent but in his words, the ‘new environment’ will see this cut in half to around 30%.
Despite this reduction in the value of available finance, Nicholls says the viability of new developments will be dependent on changes in equipment costs, which he believes will fall by between 5% and 10% over the next 12 months. This is in spite of government plans to introduce a 20% VAT rate on solar panels following a ruling by the European Court of Justice that the current 5% on ‘energy saving materials’ is in breach of international tax relief rules. The Solar Trade Association has stated the move would add around £900 to the cost of an average 4kW installation.
“We know roughly what the costs are as we’ve funded a few of these projects now. We see a lot of variability against what the costs of a project is depending on who is supplying the equipment and various economies of scale. So while you might be getting VAT rises, there is quite a bit of variability in terms of what the project costs are from one developer to another. On the whole we think prices will come down, even once you factor that in, over time,” Nicholls said.
He added that as opposed to other countries where subsidy had been removed, the UK market is dependent on obtaining equipment in the most economically efficient way and then selling that power for the revenue, making price the salient issue for developers. It is for this reason that RM Capital are confident that it will continue to see demand for finance, just “not huge amounts”.
“I do think there will be a consolidation, there’s going to be a big shake-out in the same way there was when FiT had the big cut a couple of years ago. Here obviously it’s a far more fundamental shift away from subsidy full stop so I think a lot of the smaller players will fall by the wayside, either through bankruptcy and liquidation or being acquired by larger operators,” claimed Nicholls.
“The established players will diversify into other countries and there will be a kind of lull until the economics start to make sense again. There will be a point in the next 12 months where people will start taking stock and the ones that remain will be able to go out and do things in the UK.”