Peterborough council has 'gained its own understanding' of the value of its solar panels after external contractor's errors

Peterborough City Council (PCC) has “gained its own understanding” of the financial modelling its specialist consultancy used to value its rooftop solar panel portfolio after errors were spotted by external auditors.

The council tasked Cambridge firm EdenSeven with valuing its thousands of solar panels in 2021 after it brought their management in-house.

Before that, modelling had been performed by Empower Community Management LLP, with which PCC agreed a £20m loan in 2014 to deliver solar panels in the city and across the region.

But, seven years later, after the company had been taken into administration before undergoing insolvency proceedings, the council was left to deal with valuing its solar panels itself.

PCC’s external auditors Ernst & Young (EY) said it’s had to invest a “significant amount of work and significant amount of specialist involvement” in understanding the modelling EdenSeven then produced because PCC officers sometimes struggled to understand it themselves and account for some of the assumptions it made.

For instance, it assumed that replacing the solar panels' inverters – which convert electric currents – would only be necessary in around seven per cent of the council’s stock, while in the original Empower model it was assumed all would need to be replaced as they have a life expectancy of 15 years and the contract runs for 20.

“Our estimate for a full replacement programme of inverters could reduce the valuation of the assets in the model by up to £3.4 million,” EY wrote in their audit report of PCC’s finances.

EdenSeven also used a five per cent inflation assumption throughout the model, rather than actual inflation figures from Ofgem, EY added, which it considered to be an “error” despite not resulting in a material difference in the final valuation.

PCC says that these issues have now been “fully resolved” and that EY has signed off on its accounts.

“The valuation of solar panels is a very niche area and we wouldn't be expected to have this level of expertise in-house,” a spokesperson for the council said.

“However, to overcome this issue, the council’s Corporate Finance team has now gained its own understanding of the modelling, including the cost of replacement parts, and were able to answer EY's questions to enable the query to be closed,” they added. “Going forward, we now have the ability to update the model ourselves.”

This was recommended by EY, who said in their report: “We recommend the council to regularly revisit and reassess the rooftop solar panel model to ensure accurate and complete inputs for future valuations.

“Management should thoroughly understand and substantiate all model assumptions with corroborative audit evidence.”

EY says that its own valuation of PCC’s solar panel portfolio is £17.55m, as of March 2022, which is not “materially different” from the valuation in PCC’s statement of accounts in March 2021.

This is less than PCC’s original loan, but Empower has previously said it paid almost £6m to the council in interest before being taken into administration.

PCC bought the 7,700 solar installations the company had completed in 2021.

The council and its partners – Peterborough Limited, BayWa and Next Gen Eco Solutions, Low Carbon Exchange and Professional Energy Solutions – continue to maintain these solar panels but no longer undertake new installations.