My solar PV first year payback calculation

mking

Dear All, I just want to say thanks to all (except those trying to flog stuff) as I've read all of this thread and it's very useful. It also sums up some of the challenges of this area for me:
- the numbers aren't easy and there are lots of different views

- solar and other environmental 'initiatives' don't always line up perfectly with the economics, otherwise we'd have done them all ages ago. We can argue about externalities and rights and wrongs but...another thread I guess:P

I'm looking at putting solar on our roof at the moment, therefore I don't speak from direct experience so take the following with that pinch of salt. I don't work in the solar industry at all, but I am very interested in the 'green' agenda in its many guises and have been for a long time. That's my disclosure stuff done I hope;)

I've been playing around with some numbers and want to throw them into the discussion for what it's worth. I've taken some figures from the OP for system cost and units generated. Used the LCBP grant of £2.5k which I understand to be correct. Elec price of 10p/kWh. Solar export tariff of 14p kWh - Good energy say this - I've seen a range from 5p to 28p, but frankly doesn't change the scenarios loads. Assumed 50% exported as per early in the thread I think. FIT of 36.5p from 2010 and it stays flat. Assuming 0% growth in elec prices (!). Put a line in for maintenance, but have no idea what to put against it so left it empty - should be considered a risk imo.

The cash flows are discounted at a 5% discount rate to give present values.

This model gives just over 9 years for a simple payback and ~12 years for a discounted payback i.e. £x now is worth more than getting £x in 10 years as you could put the money in the bank etc.

I've played around with some of the variables - e.g. using a 2.3kWp array at a cost of £12,350 and keeping other things as above gives a discounted payback of 11 yrs 4 months. Not much difference.

Things like the ongoing value of the PV assets and the impact upon house value are important but not modelled. If you assume the £5,450 capital cost of the array is not retrievable then you are using that £5,450 to generate yourself about £500-£600p.a. in revenue and savings on your elec bill. Over a 10 year period this is a negative ROI and turns positive over the following years.

The long and the short of it as I see it is you don't go into solar as the simplest dead-cert financial winner. FIT makes it better undoubtedly but you need to go in with the other reasons clear in your mind - environmental, social, showing off (!) etc. All the marketeers will know that markets are full of segments. Ecotricity, Good Energy and green tariffs wouldn't exist if these segments weren't real. I'm sure some would think these people are economic fools, but people buy for various reasons. Solar isn't a decision where the economics are simple - got to be other factors for the buyer I think.

As a noob poster I don't seem able to paste in a picture of the model, so I hope you can follow the numbers from below.

More than willing to be challenged on the model and the way I see it.


************


Initial cost £7,950
Grant £2,500
Units generated p.a. 1186
Unit cost of elec £0.10 p/kWh
Solar Tariff - export £0.150 p/kWh Good Energy
% exported (estimate) 50%
Unit price (FIT) (Apr 2010) £0.365 p/kWh
FIT change p.a 0%
Elec price change p.a. 0%
Solar tariff change p.a. 0%
Discount rate 5%
Discount period 10 Field not used in this model

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Income £2,648.25 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14
Grant £2,500.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Solar Tariff - export £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95 £88.95
Feed-In-Tariff 0 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89 £432.89
Electricity bill savings £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30 £59.30

Expense -£7,950.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Capital cost -£7,950.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Maintenance £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00

Simple Cash flow -£5,301.75 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14
Discounted cash flow -£5,301.75 £553.47 £527.11 £502.01 £478.11 £455.34 £433.66 £413.01 £393.34 £374.61 £356.77 £339.78 £323.60 £308.19

Cumulative simple payback £581.14 £1,162.28 £1,743.42 £2,324.56 £2,905.70 £3,486.84 £4,067.98 £4,649.12 £5,230.26 £5,811.40 £6,392.54 £6,973.68 £7,554.82
Cumulative discounted payback £553.47 £1,080.58 £1,582.59 £2,060.69 £2,516.03 £2,949.69 £3,362.69 £3,756.03 £4,130.64 £4,487.41 £4,827.19 £5,150.79 £5,458.98

Simple payback 9 Years 1 Months
Discounted payback 12 Years 6 Months

Return (10 year horizon) -£814.34

Cardew

Hi,
Interesting post.

Playing the Devil’s advocate(or solar sceptic!) a couple of points.

It doesn’t seem that such a system can be purchased for £7950 these days, £12,000 seems nearer the mark.

To ‘invest’ £x thousand in solar surely you must take the cost of borrowing that sum into the equation; or loss of interest if you are using savings?

Of course to offset this, you would also need to factor in the interest on the savings you make each year. e.g. in the example the £581 saved each year would earn interest.

Would post certainly agree with your definituin of "the long and short of it"!

Even taking the(low) figure £5,450 invested @5%(4% after tax) would have earned £2,600 in interest over 10 years. If you borrow you pay far more.

Whilst I appreciate that it is only an illustrative example, I would think to assume no increase in electricity prices over the next 10 years is not realistic; and also not to factor in repairs is equally unrealistic – if they were that reliable, why only a 2 year guarantee?

daytona600_2

£ 7950 is about right for 2.3/2.5kw system - £ 12000 very expensive

£ 7495 for a complete 2.5kw system

£ 11995 for a complete 4kw system
modules , inverters , roof mountings , cable , switchgear etc
MCS certified for grants & FITs

minus £ 2,500 uk grants or £ 4,000 in scotland - grants should cover your installation costs

ps - i declare my interest - wholesale solar supplier

Cardew wrote: »

Hi,
Interesting post.

Playing the Devil’s advocate(or solar sceptic!) a couple of points.

It doesn’t seem that such a system can be purchased for £7950 these days, £12,000 seems nearer the mark.

To ‘invest’ £x thousand in solar surely you must take the cost of borrowing that sum into the equation; or loss of interest if you are using savings?

Of course to offset this, you would also need to factor in the interest on the savings you make each year. e.g. in the example the £581 saved each year would earn interest.

Would post certainly agree with your definituin of "the long and short of it"!

Even taking the(low) figure £5,450 invested @5%(4% after tax) would have earned £2,600 in interest over 10 years. If you borrow you pay far more.

Whilst I appreciate that it is only an illustrative example, I would think to assume no increase in electricity prices over the next 10 years is not realistic; and also not to factor in repairs is equally unrealistic – if they were that reliable, why only a 2 year guarantee?

Ergle

I am about to go for a solar PV installation, and have watched this thread with interest. My spreadsheet for a 1.7kW system (the biggest that will fit on my house) shows an 8% return:
System capacity 1.7 kWp
Cost of installation £10,710.00 inc VAT
Less grant £2,500.00
Nett cost £8,210.00
Energy generated per year 1600 kWh
Feed in tarriff 36.50 p/kWhr
Total feed in revenue £584.00
Exported electricity per year 800 kWh
Sale price of export 5 p/kWhr
Exported revenue £40.00
Inflation 5%
Electricity we don't need to buy 800 kWh
Cost of bought-in electricity 13 p/kWhr
Saving on bought-in electricity £104.00
Electricity savings £144.00
Maintenance £100.00 per year( Assume a new inverter every 15 years)

Total annual revenue £628.00
Payback time 13.1 years
Return on investment 8%

My savings in the bank are not earning at this level. I have obtained a £2500 grant for the installation, and am very keen. The only slight concern I have is the level of the Feed in Tarriff - this is the most significant element of the cost calculation - if it were 10p lower then this moves the payback time to 18 years and the return to 6%.
My concern is that big business may be able to successfully lobby the Govt to improve the returns on commercial installations, at the expense of the little guys. I went to a seminar last week given by a member of the Solar Trade Association, who told us that the water companies, who are huge users of power, are looking at putting PV farms on the tops of their reservoirs - clearly an acre of PV's on a slab of unused concrete is a more cost effective installation than loads of little installations on peoples houses. There will be other commercial interests for sure.
On the other hand, the FiT rate will be announced just before the election, which may work in the little guys' favour..

Another nugget of info I learned at the semimar is that 98% of the patents for PV technology are owned by the oil companies - who have no intention of allowing PV to spoil their businesses.


Ergle

BFG_2

Ergle wrote: »

Payback time 13.1 years
Return on investment 8%

My savings in the bank are not earning at this level.
Ergle

WRONG

You've fallen for the biggest scam going wrt solar sales.... aks ......

The ROI Bollox

8% is certainly more than the banks ROI on savings at the mo, but ....
after 13.1 years you would STILL HAVE THE CAPITAL IN THE BANK PLUS THE INTEREST!!!!!!!!!!!!

With solar you may as well say...I'm giving £13k to the solar people and the amazing thing is that they are going to give me £1k per annum back for 13 years, so i'm getting 8% ROI.........No!!!!!!!! You're not!!!!!! All you're getting is your own money given back to you...in dribs and drabs.
ie after 13 yrs all you have is an obsolete contraption on the roof and no capital.

In other areas it known as a Ponzi scheme....best example being Bernie Madoff's $7BILLION [yes, billion] scam on investors!!!!!!!!

Even allowing all this guff and smoke and mirrors to stand............13.1 yrs is a TERRIBLE payback period.

Have another think, before you waste a shedload of money.

Alternatively send me £5k and I'll promise you 8% return for the next 10 years....interested????

Cardew

BFG wrote: »

WRONG

You've fallen for the biggest scam going wrt solar sales.... aks ......

QUOTE]

Absolutely correct - I really am amazed that people fall for this line time and again.

If someone said - 'I have a mortgage of £100,000 and pay back £5,000 a year I will have paid off my mortgage in 20 years' - everyone would see the sillyness of that argument. e.g ignore interest payments.

Well in effect that is what the solar ROI 'scam' is doing!

Ergle is 'investing' £8210.

Now assuming that you have the money in the bank, there are plenty of places where you can get 5% on long term fixed rate deposits - Nationwide for one. That gives 4% after tax; and that is compounded.

So you would be getting £328 interest in the first year and by year 13 that would earned £5460 interest and your £8210 would have grown to £13,679.

Of course if you have to borrow money, then the situation on ROI is much worse.

You simply cannot calculate a ROI without considering this factor.

Even leaving out this factor, there are plenty of unknowns in Ergle's calculations.

Will he get 1,600kWh out of a 1,700kW array - try getting a guarantee on that figure!! Especially as output of photovoltaic cells does drop off with time.

Will you use 50% in the house during daylight hours?

Everyone assumes that these systems will be trouble free for many years - well if that is the case - why do they only give a 2 year guarantee?

Ergle

Apologies - ROI was the wrong term to use.

Regarding performance - Mcfi5dhc generated more than his supplier estimated - but I've knocked 100 kWh off the annual generation estimate to be on the safe side
This makes the simple payback 14 years.

Regarding the life of the installation - I believe manufacturers are offering 25 year warranties on the PV's. The vulnerable part is the inverter, and this has been factored in. I think a 25 year life for the whole installation with a couple of inverter changes is a reasonable estimate.

I work at home, so will use about half the output during daylight hours.
Playing around with the figures - over 25 years the FIT would need to be 60p to equal the return on a long term investment at 5%, which I guess is why the Germans get higher FiT's than our proposed figure.

It may be worth if if I can get the installation for £2,000 or so less - but otherwise it isn't looking quite as good as it did.

albyota

what is the ROI on a new car costing £8,210?
what is the ROI on a new conservatory costing £8,210?
What is the ROI on a new Kitchen or Bathroom.....?

whether you get a loan or use savings.....does it matter?

neither of the above generate electricity into the national grid, provide a small income, reduce electric bills, lower carbon emissions.

.........ducks behind chair while cardew and BFG attack.:eek:

Cardew

albyota wrote: »

what is the ROI on a new car costing £8,210?
what is the ROI on a new conservatory costing £8,210?
What is the ROI on a new Kitchen or Bathroom.....?

whether you get a loan or use savings.....does it matter?

neither of the above generate electricity into the national grid, provide a small income, reduce electric bills, lower carbon emissions.

.........ducks behind chair while cardew and BFG attack.:eek:

A car, kitchen, consevatory or bathroom isn't bought on the premise that it will pay for itself in xx years. Anyway, as I tell my wife, I need a new car and the new bathroom, conservatory and kitchen are just not necessary;)

The electricity you get with, or without, having solar panels on your roof is exactly the same. It ain't better, won't impress the neighbours, and the wife won't even notice - so no brownie points there!!

albyota

but................