My solar PV first year payback calculation

Mcfi5dhc

Ergle wrote: »

Fred
There are plenty of approved suppliers to choose from.
If you or anywone else would like a copy of my excel spreadsheet email me [EMAIL="ergle@ymail.com"]ergle@ymail.com[/EMAIL].
The generating capacity I am looking at is 1.7kW - this being the most that will fit onto the roof.

Ergle - good luck with the PV - PM me if you have any specific questions whenever you want.

1.7kw is a good sized system and should easily return you zero bills - if you want more though you have two options.

1) If you have a bit of space*, you could go for a tracker - basically the PV panels sit on top of a rotating, tilting pole - increases efficiency by about 40%.

2) you can install on a north facing roof - its not as efficient - but you'll still get 80-90% of what you'd get on a South facing roof (PV works on daylight not sunlight, it just works better with direct sunlight)

* you need a lot of space for this unless you have very eco-friendly neighbours - about the size of a double garage minimum

cepheus

Mcfi5dhc wrote: »

Good point

No doubt your solution above would work, and would be very very green. Both boxes ticked.

But then you have to back to square one - why do people have microgeneration fitted? To be green 100%? Then, yes, your model still works and people could stay as they are.

But, to become more independant, to not pay out your hard earned monthly pay to the big companies, to be a bit green, to not be in the palms of the shareholders of the big companies, a bit of energy security and independence - all of the above are reasons why people go for microgeneration, hence why the micro route works.

MG works because someone can go out, buy enough equipment for their house, pay it off however they want, and enjoy cash free electricity for 20+ years (hopefully) - I know, because I have done this.

Arguements will go on for years about payback and ROI, and maintenance and so on, but fact is, I've bought them, they work, they're paid off and thats done it for me - no more bills for 20 years or so, and thats a nice feeling.

M

Yes I think I agree with some of your points. For those willing to do it as a hobby or an anti corporate thing rather than an astute financial exercise, local initiatives make sense. If enough people did it perhaps it would bring down the price of micro-generation? However are you sure that (after interest and maintenance) it really would pay back?

Another factor here, is that microgeneration causes greater differences between supply and demand requirements on the national grid. This can result in inefficiencies at the power stations which can meet demand fluctuations, but need to be run less than optimum levels.

Think of how much more carbon could be saved from the atmosphere if these funds were channeled into the most cost effective methods? Perhaps we should have 'salespeople' pressing everyone to have genuinely free insulation rather than merely changing energy company. These could be funded from higher council taxes from those individuals who refuse to comply.

yakky58

Just some thoughts on Cardew's input

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

Same a people falling for Banks offering 6% on account but the small print says there is a £10 monthly charge. Don't assume anything and do the figures at least twice.

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.

I think your being demeaning here to people. I think most know what interest is.

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.

You can get only 5% at the nationwide on > £50,000 if you lock it away for 5 years on annual interest. You get less for the Ergles £8210. So the figures are not correct. You also assumed a 5% return over the whole 13 year period. I would assume less than that. Also once you commit that money you are locked in for 5 years and any need for it means a penalty payment. What if inflation goes to 7%? Actually you are making a loss. At least any electricity generated is off your bill. I'd rather see that than 8K losing value in an account.

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.

Assumes 5% over 13 years and ignores inflation on the return.

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

Agreed, to a point if you borrow against you mortgage could be at a good rate and the panels add value to the property then ROI may be worthwhile. My panels have added £10K to the property according to an estate agent. I paid £8500. Having had over a £1000 is benefits I believe ROI is possible.


You simply cannot calculate a ROI without considering this factor.

ROI is a calculation of cost versus return plus increase in value.

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.

Good point this one. My panels are rated at 2050W I think 1,600Kwh is a massive array and for £8210 that's fantastic, I think you mean 1,600W or 1.6Kwh. I have had my panels over3 years. I reset the max output setting each year. Every year I have exceeded the array potential, namely 2009 I got 2085W against a rated 2050W. So based on actuals readings I cannot confirm that output drops over time. NB: If you keep the panels clean, washed twice a year I believe this helps.

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

If you are exporting to the grid is this a valid point?If I am at at work and consumption is low in my property the excess is exported to the grid for which I am paid for. So over the summer 2009 I have not paid for any electricity between the 4th April and 4th October and my power company still owe me £78. That includes money they paid me for for ROCs in 2009 I generated 2.

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?

Ok mine have been up for 3+ years and I have had no issues. The panels are guaranteed for 15 years. If you buy quality components then they should be trouble free. A lot depends on the component quality and the install. I bought cable that is guaranteed for 25 years external wear. Even is something does break most of my components are not that expensive. The only really expensive part is the inverter Fronius. The installation is covered by buildings insurance for damage inc accidental. Additional premium was nothing.

Cardew

Yakky,
Agreed Nationwide is 4.75% for £8,210.(so 3.8% after tax) You could put it in a fixed term Isa and get more.

Yorkshire BS give 5.3% on £100 for 5 years and Barnsley 5% on £100 for 4 years.
You are of course locking in the money for 5 years - but I suggest the £8210 is a lot more accessible than if you have given it to a Solar company!!!!

Agreed My figures assumed that the 5%(4% after tax) will be available for 13 years. That is an assumption - but most of the financial press are of the opinion that interest rates will rise.

My panels are rated at 2050W I think 1,600Kwh is a massive array and for £8210 that's fantastic, I think you mean 1,600W or 1.6Kwh. I have had my panels over3 years. I reset the max output setting each year. Every year I have exceeded the array potential, namely 2009 I got 2085W against a rated 2050W

.

I think you have got the terminology incorrect haven't you? The annual output is measured in kWh. What do you mean by 2085W in 2009?

The analogy with a mortgage interest is surely quite reasonable in this context.

Ergle stated that his 'investment' of £8210 would produce a return of 8% and thus an ROI of 13 years. Whichever way you look at the equation, you must consider what compound interest the £8,210 invested would realise. To ignore that factor is exactly the same as ignoring the interest paid on a mortgage.

I was questioning(not disputing) that 50% of generated electricity during daylight hours would be consumed in the house. For the calculations, it only makes a difference in the pricing of consumed electricity(13p/kWh in Ergle's example) and the exported electricity at 5p/kWh.

As for system life, if they are so reliable, why only a 2 year guarantee?

The overall point I am making is that the sales patter of solar firms on financial returns is a nonsense.

There is a natural tendency for those who have bought any product to defend their choice. I speak as someone who bought a Betamax video recorder and more recently a Toshiba HD DVD player!!!!!

yakky58

Cardew,

No issue with the investment rates, they change on a monthly basis. As to whether they will go up or down I think depends on what the banks do over the next 18 months.
Quote:
My panels are rated at 2050W I think 1,600Kwh is a massive array and for £8210 that's fantastic, I think you mean 1,600W or 1.6Kwh. I have had my panels over3 years. I reset the max output setting each year. Every year I have exceeded the array potential, namely 2009 I got 2085W against a rated 2050W
.

I think you have got the terminology incorrect haven't you? The annual output is measured in kWh. What do you mean by 2085W in 2009?

I read that Ergles array generated 1,600Kwh but as you say this is annual generation. My array generated 2169kwH between April 2008/2009. The array is 10x 205W panels so the maximum output should be 2050W but the max reading in 2009 was 2085W. I state that as you said the output declines over time. In the three years I have had mine the output has been steady and I have always exceeded the maximum rating.

The analogy with a mortgage interest is surely quite reasonable in this context.

Ergle stated that his 'investment' of £8210 would produce a return of 8% and thus an ROI of 13 years. Whichever way you look at the equation, you must consider what compound interest the £8,210 invested would realise. To ignore that factor is exactly the same as ignoring the interest paid on a mortgage.

Agreed on this point.

I was questioning(not disputing) that 50% of generated electricity during daylight hours would be consumed in the house. For the calculations, it only makes a difference in the pricing of consumed electricity(13p/kWh in Ergle's example) and the exported electricity at 5p/kWh.

I find this odd. Southern Electric refund me the same price for exported units as for imported, so in you example above I would receive 13p for every exported unit. Ergle should look around at the tarrifs. Plus they buy ROCs off me.

As for system life, if they are so reliable, why only a 2 year guarantee?

I can't answer that one. My panels are for 15 years. The other parts are 2 years but as I said I looked at MTTF (Mean Time To Failure) for the parts and the companies I used happily supplied details. The cables I used 25 year external guaranteed. Cable weathers badly, tip for anyone look for cable that is SWA (Steel Wound Armour with pirelli rubber)

The overall point I am making is that the sales patter of solar firms on financial returns is a nonsense.

Well I think most know that hence I said in previous post do the figures at least twice. Salesmen are salesmen they live by selling. When I pushed the company I used he was quite clear 10 years + on ROI. That depended in kilowatt price.

There is a natural tendency for those who have bought any product to defend their choice. I speak as someone who bought a Betamax video recorder and more recently a Toshiba HD DVD player!!!!!

I do defend the right that people should get both sides of an argument and the right to be informed. In the end people have to make their own decisions. And by the way Betamax was much better than VHS in quality and MTTF. I still have mine!

daytona600_2

see www.abb.com
search HVDC light
800,000volt - giga watt tramsmission lines
for pv , wind , cpv , tidal systems from n europe to n africa
also usa/canada , asia
should create a super grid

cepheus wrote: »

It seems that if photo-voltaics can even nearly work in Cheshire then they should be currently viable in Southern Europe at present prices, especially for powering air conditioning units.

I'm afraid I'm still sceptical of micro-generation for the UK. I think that large scale deployment and HVDC linking of Wind on Coastal Europe and Solar in the South of Europe might be a better strategy.

mking

Sorry for a delayed follow-up on this, but I'd still like to test my understanding and views with others.

Cardew wrote: »

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

I used the OP's data if I remember right as he had some hard numbers on actual power generated p.a. from actual experience whereas I don't have any pv yet.

Cardew wrote: »

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.

The discounted cash flows were my attempt to take account of the time value of money i.e.someone giving me £10 in one year's time is actually only worth £9.52 at 5% rates to me now because I could put £9.52 in the bank and have £10 in one year. (going to ignore tax in all this for simplicity. So pre-tax numbers)

The way I think about it is to separate the assets and the cash flows. For this example, let's assume you get the £2.5k off the government straight away then you're turning a £5,450 cash asset (very liquid) into a solar PV array asset.

Both of these assets "buy" you future cash flows.

Cash at the bank buys you, say, 5% p.a. growth on the asset and compounding over time. So £5,450 in the bank at 5% "buys" you a cash flow of £272.50 in year 1. Obviously this compounds: year 2 gives you a cash flow of £286.13 etc etc. These cash flows vary according to interest rates i.e. your chance for % growth in this cash flow stream is purely related to interest rates.

The solar PV asset is "buying" you £581.14 (estimated) of income from year 1 onwards as far as I can see. These cash flows vary depending upon:
- elec prices (buy and export),
- FIT changes (if any),
- maintenance costs (still no idea how big or small this is.)

So you've got those cash flows with their uncertainties and 2 different types of assets. In one scenario you've got a lovely liquid cash asset that you can do anything with and a year 1 cash flow of £272.50 and subsequent cash flows as above. In the other scenario you've got a lovely solar PV array asset and a year 1 and subsequent cash flows cash flow of £581.14 .

Cash is cash so that asset is easy. I've got no idea how you value the solar PV beyond the cash flows. Will it add value to your home? no idea. Will it depreciate fast or slow? no idea.

Cardew wrote: »

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.

£5,450 at your 4% rate gives these cash flows:
£218.00 £226.72 £235.79 £245.22 £255.03 £265.23 £275.84 £286.87 £298.35 £310.28 A total of £2,617.33

I could argue that the £5,450 converted into the solar pv asset earns me £5,378.51 of income over the same period. £148.25 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14 £581.14

The figures you've used and mine above are both undiscounted. So your £2,600 over 10 years is actually only worth £2,180 to me now i.e. I could put £2,180 in the bank and over 10 years the compound annual interest would have grown this to £2,600 in year 10.

The solar PV cash flows over the same period have a present value of £4,469 to me now.

Maybe over that 10 year period though I've had loads of maintenance problems? If so then my solar pv cash flows reduce. Maybe elec prices have gone up a lot in which case my cash flows have increased? Maybe I suddenly need cash for something and wish I had cash in the bank rather than a solar array on the roof? Maybe I lose my job and so I'm quite glad to have lower operating costs, as otherwise I'd just be burning through my cash?

Cardew wrote: »

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?

If electricity prices increase at a higher % than bank rates then the PV cash flows are more valuable relative to the bank and vice versa.

Agree with your point about the poor guarantee term, but that just could be insurance cost stuff for example i.e. new-ish market so limited insight into asset performance and limited competition in insurance market = high costs = limited guarantee...Or it could be rubbish technology:rotfl: no idea lol so just has to be a risk at this point. Same as there's a risk the bank with your money is Icelandic;)

At the end of the day you're converting your cash into this other asset with a lot of unknowns. FIT improves the income p.a. but a lot of people like having that cash in the bank I think.

Views welcome. Solar pv is more viable in my eyes, but still no easy win. If you want quick returns there are better places for your money. If you want to address other issues like climate change then the economics of residential solar pv are better than last year.

Cardew

mking wrote: »

At the end of the day you're converting your cash into this other asset with a lot of unknowns. FIT improves the income p.a. but a lot of people like having that cash in the bank I think.

Views welcome. Solar pv is more viable in my eyes, but still no easy win. If you want quick returns there are better places for your money. If you want to address other issues like climate change then the economics of residential solar pv are better than last year.

Really no point in discussing further your balanced post - we both agree that any calculations are dependant on a number of 'wet finger' assumptions on interest rates, inflation rates and maintenance.

The major issue in contention is perhaps the capital outlay of £7,950 before grant. Like ergle quoted earlier, my investigations show the £11k to £12k is more realistic these days - but that should reduce. However even using the OP's figure and claims of an ROI it would not be attractive to me.

Personally I wouldn't ever 'invest' irretrievable money into any scheme unless I had high confidence I would be showing a 'profit' within 10 years.

thor

It was mentioned earlier in this thread that solar pv take up was much greater in Germany. Does anyone know why? Maybe they have a system which can reduce payback times to make it more attractive?
Btw, what would be the most difficult task if you were to try diy a system?

Cardew

thor wrote: »

It was mentioned earlier in this thread that solar pv take up was much greater in Germany. Does anyone know why? Maybe they have a system which can reduce payback times to make it more attractive?
Btw, what would be the most difficult task if you were to try diy a system?

I believe you can only get the subsidies/FITs if you use an accredited installer! Which gives licence to kill!!!!

Without knowing the exact details I know that the incentives in Germany made solar PV attractive, and because the take up was high, I believe these subsidies are being reduced.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aNkjxKkZ0aUM

Having lived in Germany for some years, the 'Green Movement' is very active and is well represented their Parliament.