My solar PV first year payback calculation

Fred_Bear_2

freddix wrote: »

In broad terms = 13.7 year payback (assuming a £400 grant) which sounds great, but

Thanks for a very complete answer freddix. One point that needs to be established is the amount of the grant. I understood that it was £2500 for PV and £400 for solar thermal. Can you clear this up one way or the other?

Fred

Cardew

freddix wrote: »

I think therefore the investment is borderline at best (if equipment fails at any point then it would be a disaster).

Freddix,

Agreed

Your figures only differ slightly from mine because you used a lower(3%) interest rate than myself(4%) and didn't consider maintenance costs.

I wonder how many people would consider an 'investment' in any other field where they might 'break even' in 15 to 20 years at best, with a strong possibility that they will never break even.

I was listening to a late night radio programme where a professor was far more pessimistic than I about solar. She said at current prices and subsidies(including feed in) it is a complete non-starter.

Anyway googling to find more information I came across this. The Royal Institute of Chartered Surveyors have written a guide on energy efficiency and have concluded that PV panels will take between 50 and 100 years for payback(ROI)

http://www.independent.co.uk/environment/climate-change/solar-panels-take-100-years-to-pay-back-installation-costs-917202.html

To pre-empt any protests they have ignored subsidies, so it isn't the complete picture by any means.

P.S.
Amber22 might like to see what they think about Solar Hot water - which is a joke in Money Saving terms

Fred_Bear_2

Using Mcfi5dhc's original figures and assumptions, I have constructed a spreadsheet which shows that PV breaks even in 13 years, shows a profit of £5,148 after 20 years and £10,214 after 25 years.

Actual figures
Cost of PV installation £7950
Grant £2500 (UK Solar PV grant) (Solar thermal is £400)
Net cost of PV installation £5450
Units Generated 1186
Feed-In Tariff (pence per kWh) 36.5 fixed for 25 years
Assumptions
Electricity price (pence per kWh) 10.0
Annual increase in price 5.0% (2004 - 2009 increase was 11.0+% per annum according to consultant John Willoughby)
Interest on Savings 4.0% net of income tax
Annual maintenance £50 (First two years is covered by warranty (Panels covered by 25 year manufacturer's warranty)

If anyone would like a copy of my spreadsheet please PM me. I am considering installing PV myself, maybe next year, and I would be pleased if anyone could point out any serious errors in my calculations. If anyone can find a significant error I will make a £50 donation to an environmental charity.

Fred

Cardew

Fred,
I don't doubt the accuracy of your spreadsheet, however as you point out it is based on assumptions.

One 'error' is your assumption that all units generated will able to be used in the household - that clearly will not be the case. Unfortunately you cannot store electricity so you will be selling it back to the supplier at currently(sorry) 5p.

There is one major point of contention and that is the Net cost of the PV installation. It was my understanding that the Government have suspended the £2,500 grant??? Or has that suspension been lifted?

http://www.guardian.co.uk/environment/2009/mar/12/renewableenergy-carbonfootprints

Secondly when feed-in tariffs are introduced next year there will be no subsidy?

So I don't think your figure of £5,450 is representative - or at least will be for long.

That said, even at £5450, if anyone offered Mr Average an investment that might break even after 13 years with a lot of 'ifs and maybes' I wonder how many people would invest?

Fred_Bear_2

Cardew wrote: »

The bottom line is that you can make any assumptions you wish(and I used those of the OP) IMO I cannot see any way that solar makes economic sense.

Using the OP's assumptions, after 13 years PV is beating savings and thereafter the return only gets better. That makes economic sense to me, but of course others will disagree.

Cardew wrote: »

The Royal Institute of Chartered Surveyors have written a guide on energy efficiency and have concluded that PV panels will take between 50 and 100 years for payback(ROI)

The RICS report is irrelevant to this thread as it ignores all subsidies, ignores a previous 30% unit price increase and assumes no future price increases. You acknowledged that subsidies had been ignored, but then why refer to the report at all?

Your comment on the grant is a good one and it would be good to get a definitive answer. Looks like Mcfi5dhc took the plunge at the right time and I may have missed the boat.

Cardew

Fred_Bear wrote: »

Your comment on the grant is a good one and it would be good to get a definitive answer. Looks like Mcfi5dhc took the plunge at the right time and I may have missed the boat.

Mcfi5dhc lives in Wales and perhaps like Scotland they have different rules.

There was also an article by a reporter(Telegraph?) bemoaning the fact that they had stopped the £2,500 grant.

Mcfi5dhc

Copied fromwww.lowcarbonbuildings.org.uk today:

Applications for a grant are welcome from private individuals who own their own home and reside in properties located within England, Wales, Northern Ireland or Scotland (excluding the Isle of Man and the Channel Islands).
For details on the funding levels available for each of the technologies and the grant validity periods please click here. Please note: There is a £2,500 grant cap per household. Householders can apply for more than one technology but the funding will be limited up to a maximum of £2,500 per household depending on technologies involved and to one grant per technology type.


Grants are currently provided towards the cost of installing the following technologies:

• Solar photovoltaics
• Wind turbines
• Small scale hydro
• Solar hot water
• Ground source heat pumps
• Air source heat pumps
• Biomass

A.) What levels of grants will be available?
The current grant levels are as follows and we will regularly review them as the market for each technology develops:
Technology
Maximum Amount of Grant
Solar photovoltaics
Maximum of £2,000 per kW of installed capacity, subject to an overall maximum of £2,500 or 50% of the relevant eligible costs, whichever is the lower

It looks like grants are still available. Please note, I have copied these bits from three seperate pages on their website.

The RICS report has been ripped to pieces many times in the press before - just google "RICS solar".

Thanks

Fred_Bear_2

I have telephoned the Low Carbon Buildings Programme (0800 915 0990) this morning and they confirmed that the grants (Max £2,500) will continue until April 2011 at least. This applies to all the UK.

[Deleted User]

A number of other points need to be addressed in this ongoing saga.

The current proposal for FITs is still in consultation so nothing is certain*

Firstly, any calculations need to be run on a 20 year period. This is the term that the Government is proposing that FITs will be paid for. After this time it is unlikey that an installation will receive ANY supplement. Income after this period will only be the offset of your own electricity purchase and what you may be able to sell your surplus electricity for on the open market.

Talking about returns for 25 years makes no sense.

Secondly, under current microgeneration schemes (those rated at <50kW) you do not have to pay tax on income earned from generation. The Government is going to leave it up to HM Treasury as to whether or not there will be taxation on income from FITs! I wonder what they might choose to do..... (a £60,000 deficit for every man woman and child in this country might just sway them a little).

This is the text from the consultation document

"3.139 Sections 20 and 21 of the Finance Act 200736 set out the current income tax exemptions for domestic microgeneration in respect of the sale of electricity and the income from ROCs.

3.140 The treatment of FITs with regard to tax is a matter for the consideration of HM Treasury."

If the Treasury decides to tax income on FITs then you will NEVER get a return.

Whilst Grants might still be available, the *consultation is not yet complete (It finishes in Ocotber this year and will go before parliament in the spring, to come into statute for 1st April 2010) and as such, it could well be that ALL support is removed.

The level of FITs is designed to be self supporting and to be able to attract (due to its bankable nature of guarantee) finance for installations etc. The government believes that providing it shows returns of c. 6-7% IRR that it will be attractive for people to take up.

Fred_Bear_2

freddix wrote: »

The current proposal for FITs is still in consultation so nothing is certain*

Firstly, any calculations need to be run on a 20 year period. This is the term that the Government is proposing that FITs will be paid for. After this time it is unlikey that an installation will receive ANY supplement. Income after this period will only be the offset of your own electricity purchase and what you may be able to sell your surplus electricity for on the open market.

Talking about returns for 25 years makes no sense.

Thanks Freddix for pointing out that the Dept of Energy and Climate Change is still consulting. I hadn't realised that.

The proposals for PV FITs are for 25 years. For other technologies it is 20 years. Please refer to 'Consultation on Renewable Electricity Financial Incentives 2009' P.83 paragraph 3.94.

I doubt if the government is likely to reduce the proposed incentives at this late stage, but you are correct that we shall have to wait a little longer to be sure.

I think calculating the profits at 25 years is worthwhile because this is the point that both the warranty on the panels ends and the FITs end.