Feed In Tariffs(FIT) Announced.

Cardew

Andy,

Nice post but needs to be a large envelope to get all that on the back!!

I suggest 14p/kWh is high(<10p is available) - but as you indicate that won't affect the overall figures that much.

In fact 2% inflation might be on the low side!

The £750 pa you save off your mortgage payments should be invested and the compound interest on that sum be considered. e.g. £750 @4% produces £30 in the first year. The following year you have £1530 invested etc.

My biggest reservation would be that you have made no allowance for repairs, despite stating "Cost of installation/repair etc written off = £-15,000". You paid £15000!

Whilst every indication is that the panels will be ultra reliable, I am not convinced that wiring, mounts(exposed to UK winters on a rooftop and electronics will be! If they were, why can you not get better than a 2 year guarantee for the syatem?

However I generally agree with the thrust of your post.

Mcfi5dhc

Cardew wrote: »

Whilst every indication is that the panels will be ultra reliable, I am not convinced that wiring, mounts(exposed to UK winters on a rooftop and electronics will be! If they were, why can you not get better than a 2 year guarantee for the syatem?

Could you post some examples where installations have failed outside the warranty?

I have tried and failed repeatedly to find examples (any) where peoples Solar PV has gone wrong (due to manufacturing/installation fault)

Just because you're not convinced about Solar PV, it doesn't mean solar PV is doomed.

(Note to new people: I don't sell Solar PV, I just own a Solar PV system, which I'm very happy with)

Mcfi5dhc

noncom wrote: »

After 10 yrs, though, if you wanted to sell your house
:
Solar PV income = £11,951.94 + £573.70 = £12,525.64
Cost of installation/repair etc written off = £-15,000
Total return = £-2474.36

Or you could include the Solar PV as a selling point and increase house price accordingly?

Or if youre writing it off as lost after ten years, take it with you - even if govt stops all FIT/ROC payments, you can still have your meter run backwards or sell the equipment on ebay - I'd give you a few grand anyday for just the panels.

noncom_2

Cardew,

Either a big envelope or very small writing.....

1) I'm aware that the 14p per unit electricity charge is high. I can't remember where I got this from, but used it for two reasons: one, to make some sort of provision for "above inflation" energy price rises in the next few years; two, because I'd guess that a lot of people considering this option (like myself) are on one of the "green" energy tariffs and therefore not getting the absolute cheapest deal they could anyway.

2) Yes, I would guess that 2% would be pretty much a minimum expectation for inflation. But since it's (iirc) the Govt's stated target at the moment, I used that figure.

3) Thanks for pointing out my omission of the compounding of the mortgage payment savings. In fact, instead of 4% interest, I would be most likely to use the surplus to (guess what?) overpay on my mortgage, thus saving effectively at the same 5% rate.

Doing this makes a pretty huge difference to the headline return on the "pay off mortgage" option, increasing it from £18,750 to £35,795!

So on the face of it, this would blow the Solar option out of the water.... except that the annual (tax free, let's not forget) income of the Solar system could also be saved and compounded in this way, which (unless my maths fails me) would change the "real" return from £32,265 to £62,675.

In fact, counting this compounding of the gains from each option tips the scales quite strongly in favour of the Solar power.

4) The figures for installation / repair etc: I found a website (who have been labelled "expensive" by at least one online comment I found) estimating approx £2k plus £4k per kW of the solar array. Using these figures gives an installation cost of about £14,000, leaving £1,000 for repair. It seems generally accepted that during the 25 years the inverter would probably need replacing (currently around £700), so there is a bit of spare left for repairs to other bits, but not much as you say. It may be that there are considerably cheaper deals for initial cost (I've seen about £10k for a 2.5kW rig somewhere) making this more realistic. But as you say, they do have a reputation for high reliability, and I'm not sure the wiring would be a particular concern. A small scale rewire of one system like that wouldn't be massively expensive. I would (perhaps wrongly) assume that the only "exposed" electronics would be contained within the panels themselves and subject to the longer guarantee (20 years seems common).

Thanks for your thoughts and corrections, and I look forward to reading any other comments you or anyone else may have.

Andy

noncom_2

@ Mcfi5dhc

That was my point, trying to work out how much you'd have to increase the selling price of the house in order not to lose out. As in the post above, considering the compounding of the savings from each option makes the Solar system pay for itself quicker than in my original post, so actually after 10 years it would be much less than £10k needed, but I really can't be bothered to work it out again now!

Andy

shoi

Technology is changing and panels will get cheaper and will produce more power. But when that happens the price available today (41.3p) will plummet.

Effect on value of house:
Income of 1200 pa, would cover the payments for an extra 16000 on the house price if mortgage interest was 7.5%. And because (I think) that the price you are guaranteed today will have reduced sharply by the time you come to sell your house in (10 say) years time that price is correct. In other words in 10 years time I'll guess the figures would be more like
Installation 6K. Power produced 4000KWh. FiT, well I'll guess it will be aimed to give a 20 year payback if it's subsidised at all, so it'll generate income of just 300 a year ie 900 less than today's offer.
So house A with 41.3p FIT, or house B with no PV. House A has got to be worth at least 10K more. Crude sums, and pretty speculative, but it still seems to me that the bird in the hand is a golden goose (sorry)

[Deleted User]

noncom wrote: »

Assumptions: 3kW system, generating 2550 kWh pa (taken from "official" estimates, but possibly over-optimistic) and costing £15k to install.

From this, I would challenge George Monbiot's assertion that it is the best investment that a homeowner with spare cash can make. I think it's a decent investment, especially given that at the end of 25 years, a good quality system should actually have a reasonable life left once it's "paid for itself", but not a no-brainer. And compared to reducing your mortgage, it is at least doing something to help the fight against climate change.

Andy

Andy,

A good analysis of the return of PV, but in regards to your challenge to George Monbiot's assertion.

It is not sufficient to just compare the investment on a pound in pound out basis i.e "a no-brainer" or compared to reducing your mortgage.

The only way to look at this is on a NPV (net present value) basis.

What this will achieve will be a proper cash flow analysis of ALL the future income streams (set against a discount rate) and/or writen off value (if required) and then look at what that investment is worth today (as the value of £1 or money today, will be more than £1 of money in 2 years time for example.

I am not going to do the calculation as I get fed up doing them (and I'm not great at them so it takes me ages to get them correct), but the principle is.

That under the FITs we will no (pretty much exactly give or take the odd % change in inflation) the income streams - you have set them out above.

Equally as you assert, we can calculate the saving on a mortgage payment reduction, based on an assumed %interest charge saving.

However, to do this correctly you will also need to add in the compound savings and interest (for both investments) and equally the write down of the investment.

In the case of PV, clearly your £15,000 is gone at the end of the period as the asset has no value. In the case of reducing your mortgage by £15,000 you are reducing your debt, so do we count this as having an asset value or not? That is an interesting question in its own right, and I don't know the answer (as from a NPV perspective - the £15,000 is offsetting a debt/ the mortgage, which normally would be treated as a minus within the calculation as debt, borrowings are treated as negative / or cost against the future income stream i.e profit).

What will make this an interesting calculation to run, is that the income stream from the PV, is higher (and rising) even from years 1-2 never mind over the 25 year period, than the theoretical saving on interest payments from a mortgage at say 5% which equals your £750 per annum. The effect of then reinvesting this income and compounding the interest will see the PV income (even on a modest 3.5% rate of return) grow very quickly.

The start of this example is as follows

Y1 1142.40 * 3.5% = (£39.98) £1182.38

This sum is actually the end of year 2 income as clearly you have to make the income/saving 1st and then invest it, but I don't want to overcomplicate matters.

Y2 1153.82

In year 2 we make income/savings of £1153.82 and can add this to the £1182.38, so we then have £2,335 to which we can earn 3.5% £81.73

Y3 1165.35

Then of course we have year 3, which we add to the £2416.73 from the previous year giving us £3582.08 + 3.5% £125.37 total £3707

Applying the same to the £750 we save on the mortage (our income is of course the £750 that we save on not having further borrowings of £15,000 against an assumed 5% interest mortgage charge)

Yr 1 (as above is actually year 2 because we have to save the money 1st but for simplicity of the illustration)

Yr 1 £750 * 3.5% £26.25 = £776.25
Yr 2 £750 + 776.25 * 3.5% = £1579.66
Yr 3 £750 + 1579.66 * 3.5% = £2411.19

So after 3 years our income from PV is £3707 and income from reducing the mortgage is £2411 once we include interest on both. So our PV investment has grown by an additional 54%.

Without the interest on the income stream, the growth is only a percentage point behind in the early years, but by year 10 your income from the PV, is almost 66% more than the direct income from the mortage saving opportunity and that is before we have applied compounding of interest.

So all in all, I think George Monbiot might have a valid point (although I doubt he has done any economics on this fact!).

BTW, indexation will apply to the the export value of the 3p, just for the sake of clarification.

The above post is not meant to be critical of you, as said at the start your post is nice and clear and illustrates well the income stream (with the FIT indexation, and correctly identifies the reduction in panels performance as a consideration), but we have to look at these statements on paybacks, returns etc in great deal to get the full picture.

regards

FREDDIX

noncom_2

Hi Freddix

As far as I understand your post, haven't those issues already been addressed? Cardew challenged my initial post by stating (correctly) that I hadn't taken into account compounding of the money saved from mortgage payments and, presumably, invested. I responded (in point 3 of my subsequent post) by working out the figures for this, and also realising that I could also invest the "savings" from the Solar PV system and compound that. As I said:

Doing this makes a pretty huge difference to the headline return on the "pay off mortgage" option, increasing it from £18,750 to £35,795!

So on the face of it, this would blow the Solar option out of the water.... except that the annual (tax free, let's not forget) income of the Solar system could also be saved and compounded in this way, which (unless my maths fails me) would change the "real" return from £32,265 to £62,675.

In fact, counting this compounding of the gains from each option tips the scales quite strongly in favour of the Solar power.

Perhaps I should have more explicitly stated that once this is taken into account, George Monbiot's point is given more validity.

With regard to the "writing off" off the Solar PV system (assuming, probably wrongly, that it has no value at all left at the end of 25 years) as against the "asset" of the lower mortgage, the way I looked at it was this:

Mortgage option - at end of 25 years, mortgage is £15k lower than it would have been.

Solar option - at end of 25 years, mortgage is unaffected, therefore to achieve a level playing field for comparison of the two options, I should take £15k of my solar profits and use them to reduce my mortgage. Only then can I see how well I've done in real terms.

As you will have gathered, I'm no economist! But this seems to make logical sense to me. There is a slight discrepancy in that paying off £15k of the mortgage at the beginning of the 25 years "costs more" in real terms than paying off £15k at the end of 25 years. I think this again favours the solar income option, but my brain's starting to hurt.



Andy

[Deleted User]

Andy,

Must apologise, I had read your post a few days ago and didn't then bother to check if any further posts had been made.

As you say both Cardew and yourself, have subsequently addressed all the issues, I then spent re-addressing so I'm feeling very stupid! (nothing changes).

BUT what we are ALL saying is that sometimes saving money (i.e) stick it in the bank, is not as good as investing or paying off debt.

As I calculate it, the PV gives the best return overall, followed by paying off part of your mortgage and with last place going to keep your money and get paid interest at the same rate as above.

Now all we need to do is find £15,000..

regards

Freddix

noncom_2

Freddix

Please don't feel the need to apologise. I'm glad to have you join in the debate: also that you seem to agree we've now taken my original major oversight into consideration, and that there don't now seem to be any glaring errors. Thanks for spotting (as Cardew did) my earlier omission.

I would agree that the Solar PV option (if my many assumptions prove reasonably accurate of course) represents the best return for the original investment. As far as I can see though, either a) paying it off the mortgage at 5% and using the savings from reduced payments to overpay even more, or b) investing the £15k in a savings account at 5% tax free and allowing the interest to compound, then paying the resulting lump sum off the mortgage at some point, will result in the same return as each other. a) is of course entirely possible, whereas b) will be hard to achieve.

I am in the fortunate position that in the summer, I will be receiving a substantial enough amount of money to consider any of the above options. Hence my desire to work out whether the Green option really is viable, and it's a pleasant surprise to find out it seems to be financially advantageous too.

I also found out today that my Local Council might still be offering up to £1000 grants towards the cost of installation even after April when FITs begin. Fingers crossed.....

Andy