My solar PV first year payback calculation

albyota

What is 'tariff degression' then? .. and how would it apply to my system?

The level of the tariff applicable to systems installed in the future will decrease with time, using the annual 'degression' rates shown in the last column of the table on this page. The degression rate is used only to determine the tariff applicable to the system based on its registration date - once you've been alocated a tariff that rate would apply for the full 20/25 years above.
[For example: If you install a 5kW PV system in June 2010 you would receive 31p/kWhr for 25 years until June 2035. If you installed it in May 2011 you would receive 28.83p/kWhr - 7% less - until May 2036

albyota

credits....Thanks to John Willoughby energy consultant for the use of these tables.

Cardew

albyota wrote: »

just so everyone can see, just take the gas for instance, it has jumped from 2.58p/kW to 7.24p/kW...a 180% increase in 5 years!! surely you have to factor this type of increase in fuel costs..... makes interesting reading doesn't it. are we likely to ever get 180% interest from the banks......

That is completely misleading I am afraid.

You have compared the tier1 price for gas - 2.58p/kWh and 7.24p/kWh which only accounts for a small proportion of gas costs. Tier 2 accounts for the majority of costs.

In any case the chart states the tier1 allocation in 2004 was for 12kWh a day(it was in fact 12.52kWh - 4,572kWh pa)) and in 2009 the tier 1 allocation was 7.3kWh per day(2,800kWh pa)

So you are comparing apples with lemons.

Cardew

albyota wrote: »

What is 'tariff degression' then? .. and how would it apply to my system?

The level of the tariff applicable to systems installed in the future will decrease with time, using the annual 'degression' rates shown in the last column of the table on this page. The degression rate is used only to determine the tariff applicable to the system based on its registration date - once you've been alocated a tariff that rate would apply for the full 20/25 years above.
[For example: If you install a 5kW PV system in June 2010 you would receive 31p/kWhr for 25 years until June 2035. If you installed it in May 2011 you would receive 28.83p/kWhr - 7% less - until May 2036

All this of course makes solar even less attractive for future installations.

Fred_Bear_2

Cardew wrote: »

The £7500 invested compound at 4% nett will be worth £11,100 after 10 years and £16,430 after 20 years.
Comments?

Hi Cardew,
I understand a lot of the points you have made on this thread, but as far as lost interest is concerned surely the relevant figure to use is net interest minus CPI. Real rates of return are very high at the moment (using CPI) but I would suggest 1 to 2% is normal.
Fred

Cardew

Fred_Bear wrote: »

Hi Cardew,
I understand a lot of the points you have made on this thread, but as far as lost interest is concerned surely the relevant figure to use is net interest minus CPI. Real rates of return are very high at the moment (using CPI) but I would suggest 1 to 2% is normal.
Fred

I am not sure I understand why you think CPI comes into the equation.

The issue is simply if it is worth investing(or borrowing) capital for a solar system that will produce savings.

That capital will appreciate at whatever rate of interest you can obtain and 4% nett is reasonable.

Now I appreciate that in the case I quoted inflation will reduce those sums in real terms.

"The £7500 invested compound at 4% nett will be worth £11,100 after 10 years and £16,430 after 20 years

However in estimating the savings from solar, the cost price of electricity was inflated each year by 5%, and all savings accrued interest at 4%(including the savings on the fixed feed in tariffs)

If you were to take into consideration Inflation, then the 36.5p/kWh fixed feed-in tariff would need to be reduced in real terms(by the CPI) each year in the calculations; plus of course not use 4% for any of the calculated savings.

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.

amber22

For those a little hesitant about installing PVs because of the initial expense, a solar hot water system should be a very attractive alternative. It can provide most of your hot water needs during the warmer months. These installations generally come in two types - flat plate collectors and evacuated vacuum tube collectors. The latter is more sophisticated in that the tubes reduce conducted heat losses, allowing them to reach considerably higher temperatures. Also, the curved surface enables it to compensate for changes in the angle of the sun. Look around for a well-established, reliable system. One example is the LaZer2 system produced in the UK by SolarUK. Regarding the comment in the earlier posting about a 25 year guarantee seeming dubious, it is at the very least a sign that the manufacturers have confidence in their product; and if the company has been around for some years already they are unlikely to 'disappear'. Sometimes a good, well-established company is called in by a customer to sort out the problems left by one of the less able firms.

Cardew

amber22 wrote: »

For those a little hesitant about installing PVs because of the initial expense, a solar hot water system should be a very attractive alternative. It can provide most of your hot water needs during the warmer months. These installations generally come in two types - flat plate collectors and evacuated vacuum tube collectors. The latter is more sophisticated in that the tubes reduce conducted heat losses, allowing them to reach considerably higher temperatures. Also, the curved surface enables it to compensate for changes in the angle of the sun. Look around for a well-established, reliable system. One example is the LaZer2 system produced in the UK by SolarUK. Regarding the comment in the earlier posting about a 25 year guarantee seeming dubious, it is at the very least a sign that the manufacturers have confidence in their product; and if the company has been around for some years already they are unlikely to 'disappear'. Sometimes a good, well-established company is called in by a customer to sort out the problems left by one of the less able firms.

Firstly anyone who joins MSE and makes their first post a recommendation for a specific solar system from a specific firm is very probably posting spam.

This is especially so when the product is for solar hot water.

This is a money saving website and there is no way that solar hot water can save money.

'Your website' states that your systems cost from £3,000 to £8,000.

Would you care to give an expected annual output of the systems in kWh for each month. Say for an ideal location in the Midlands.

Would you agree that a figure of around 1,000kWh pa is reasonable? - that is the figure that 8 systems tested for the Government produced.

Mcfi5dhc

amber22;
If your are going to jump onto forum and push your companies products, maybe it would show some intelligence to (a) use a unique username, and (b) not copy and paste from your other posts on other websites.

amber22 wrote: »

Sometimes a good, well-established company is called in by a customer to sort out the problems left by one of the less able firms.

Surely, "a good, well established company " wouldn't break the very simple rules about not posting links for personal gain.

I am in total agreement with Cardew on this occasion.

Amber22 - you'll note I haven't clicked the thanks button, but seriously, "thanks" - best laugh I have had in ages reading your post.

If anyone has any further questions about Solar PV calculations, please send them through (lets try and keep this on topic please). Thanks

[Deleted User]

Lots of interesting discussion -

I have not posted for a while, but feel I have some qualification in giving my opinion having previously called B&Q to task on flogging Windsave turbines, which they finally withdrew 3 years after I wrote to their CEO on the very subject.

PV - does it stack up

For the sake of clarity I will review the FITs so we are clear what it does.

FITs provide 3 potential types of income from the generation of renewable energy.

1) The offset saving.

That is the saving you make from using the energy you generate rather than having to purchase from your electricity supplier.

c. 10 pence per kWh

2) Energy you cannot use (offset) you sell back to an electricity supplier

The government's consultation paper talks about a figure of 5 pence per kWh

3) The Feed In Tarrif

This is stepped and phased depending on the technology i.e PV, Wind, Biomass, Hydro etc and is dependent on the rated output of your technology.

For a PV system (retro fitted, new builds with PV incorporated don't receive as much) rated at under 4Kw the price as already talked about is 36.5 pence per kWh which you receive whether you use the energy generated on site or export it. It is based on total annual generation.

"Degression" should be considered if installations are due to occur after 2011 (this is the mechanism the government will put in place that will see the FIT value fall year on year - 7% for PV, which is designed to encourage early take up and has been factored based upon anticipated reduction in installed costs of equipment as technology/manufacturing and the market picks up reducing overall costs).

Turning to the maths:

There is a generation income which is based on:

1186 kWh @ 10p per unit (offset cost) = £118.6
1186 kWh @ 36.5p per unit (FIT) = £432.89
There is no sale to the grid if we assume best case scenario of all energy generated is used on site.

If you generated significantly more than you can use then this excess would have to be calculated at only 5p per kWh.

Total income is therefore £551.49 per annum.

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

CARDEW is correct.

The cost of borrowing or the loss of investment on savings is a critical calculation.

What these figures should be is difficult to set, but one also has to factor in income tax/capital gains etc. To remove this element, I would suggest a net annual figure of 3% growth per annum on savings is valid. In regards to borrowing 5% is probably a more realistic figure.

Should we apply inflation to electricity prices? This is difficult to calculate as in real terms electricity prices today are no higher in real terms than they were 18 years ago. This is because electricity prices fell steeply in the 80's and 90's but in the last 5 years have risen by 75%. Prices are likely to rise for the forseable future, but when new nuclear plants are built and as the take up of renewable energy grows, electricity prices from fossil fuel may well come down.

I think it is therefore realistic to leave energy prices as non inflationary - this at least gives a worse case scenario against which to benchmark the risk of investement, because this is what spending money on renewable energy generation is; an investment risk.

On £7550 at 3% compound the total interest is £6086 or equivilant to £304 per annum with a total termination value of £13,636 after 20 years

If we take the annual saving we are making on the offset and FITs and put this into an equivelent account at 3%, after 20 years of compound growth the £551.49 per annum would have a termination value of £15,247.

So if we spend our £7000+ to buy our PV system and compare the growth of savings of this £7000+ (spent) compared to our return of £500+ invested, it takes until approximately year 18 for the 2 values to reach parity. BUT this does not take into account any maitenance costs, failures or breakdowns or deteriation in the performance of the PV (which does happen as they equipment gets older).

Equally it needs to be established whether or not the year represented is an average year in terms of daylight production or not. A +/- 20% change in the number of units produced would have a significant effect on the figures (either positive or negative).

Our climate is changing and we appear to be having more wet = cloudy days and whilst PV does work when its cloudy it does not perform to the same level as when it is bright day light.

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