Solar Panel Guide Discussion

Cardew

Martyn1981 wrote: »

Hardly novel. Boringly standard I'm afraid!

You appear to simply write off the capital investment as unimportant.

If I invest any capital sum - say £1million - in any enterprise where that capital sum is spent and thus cannot be reclaimed by me, the return on that investment should, over a period of time, be more than the £1million would realise in the bank/stock market etc.

That of course is what an investment in PV will achieve - but the length of that period of time was the point I was making to Sirlaughalot.

Your statement:

My view on profit also doesn’t require waiting for capital repayment. For me, profit is reached when income exceeds costs. One of those costs being the cost of capital

So by your definition, if your income on that hypothetical investment of £1million exceeds costs by £2 a year it is profit. It apparently doesn't matter about repayment of the £1million capital.

EricMears

Cardew wrote: »

So by your definition, if your income on that hypothetical investment of £1million exceeds costs by £2 a year it is profit. It apparently doesn't matter about repayment of the £1million capital.

Guess it all depends on your viewpoint. If you think that income stream will last half a million years and are prepared to wait that long then it would indeed be 'worthwhile'.

But of course if that million pound deal had a first year return of £2 and was guaranteed to earn even more in subsequent years then it's even more attractive.

Going back to real world, I reckon my £12k of panels are 'costing' me ninety pence per day in lost interest (at 3%) and earning me a 13% ROI (which should rise in line with inflation) . That is indeed 'profitable' and I don't have to wait the ten years or so it should take to recoup the original investment to regard it thus. The 'bogey' of needing a new inverter every ten years isn't even all that worrying as (a) it may not happen at all , (b) it may only require a minor overhaul rather than replacement and (c) even full cost replacement would extend payback period by less than a year.

Martyn1981

Cardew wrote: »

You appear to simply write off the capital investment as unimportant.

So by your definition, if your income on that hypothetical investment of £1million exceeds costs by £2 a year it is profit. It apparently doesn't matter about repayment of the £1million capital.

I suggest you read it again.

I've fully accounted for the monies by:
1. Applying a cost of capital to cover lost interest.
2. Applying depreciation to account for the capital investment.

I believe this to be a perfectly normal approach.

What is left over is profit. In your example, if the £1m is being properly accounted for, over an appropriate timescale in the P&L then what is left over (£2?) is profit. And it is profit, when compared to the alternative investment option, which in this case would be used to dictate the cost of capital element, since the alternative investment is your opportunity cost.

Mart.

Martyn1981

EricMears wrote: »

Guess it all depends on your viewpoint. If you think that income stream will last half a million years and are prepared to wait that long then it would indeed be 'worthwhile'.

Sorry to disagree Eric, but the £2 doesn't repay the £1m. The £1m is already being repaid via depreciation costs, and any lost interest via cost of capital costs. These costs appear before net profit (£2).

Mart.

Cardew

EricMears wrote: »

Guess it all depends on your viewpoint. If you think that income stream will last half a million years and are prepared to wait that long then it would indeed be 'worthwhile'.

But of course if that million pound deal had a first year return of £2 and was guaranteed to earn even more in subsequent years then it's even more attractive.

Going back to real world, I reckon my £12k of panels are 'costing' me ninety pence per day in lost interest (at 3%) and earning me a 13% ROI (which should rise in line with inflation) . That is indeed 'profitable' and I don't have to wait the ten years or so it should take to recoup the original investment to regard it thus. The 'bogey' of needing a new inverter every ten years isn't even all that worrying as (a) it may not happen at all , (b) it may only require a minor overhaul rather than replacement and (c) even full cost replacement would extend payback period by less than a year.

Agreed.

With your investment in PV you will not have to wait as long as 10 years to recoup your original investment + the interest/appreciation that sum would have accrued in bank/stock market.

Be it 5, 7 or 9 years to recoup your investment there is a finite time before your PV investment starts to 'pay off'.

I suggest that if originally it appeared that it would take, say, 40 years for your investment to 'pay-off', you and most others would not have invested in PV.

Going back 3 years or so when the FIT scheme was introduced, there were masses of posts on the estimated 'break-even' point. The concensus was iirc around 10 years. However that was because interest rates on long term accounts were 5+%. As those rates have halved the break-even point has reduced.

In Sirlaughalot's earlier posts he queried the financial viability of a PV investment on the data he obtained from the EST.

1. I have just spent some time on the energy saving trust website and got figures of £9500 earnings from an investment of £7050 over the life time of the panels. ....

Am i missing something as i cant see how under any circumstances this venture makes any kind of financial sense at all!

2. These are the figures quoted by the energy saving trust on their website so i think some kind of inflation index must be factored in.

£7000 over 25 years in a basic fixed rate savings (3%) account returns well over £12500 that`s after tax.

In that context the issue of 'break-even' point with current FIT and interest rates is valid.

EricMears

Cardew wrote: »

I suggest that if originally it appeared that it would take, say, 40 years for your investment to 'pay-off', you and most others would not have invested in PV.

It's even more extreme than that. When I started building my house in 1997, the estimated payback period for a solar panel installation was approx. 400 years ! That made it only worthwhile for NASA spacecraft or rural homes several miles away from a grid connection.

Not surprisingly, I didn't do it then - although for sound ecological reasons did ensure that the roof was pointing exactly South. Shame about the slope - but at the time, headroom in bedrooms seemed more important than optimal solar alignment.

Have to say that I initially viewed the FIT scheme with suspicion. Far too many of such schemes became uneconomic when you factored in the cost of employing a 'certificated' (i.e. monopolistic) installer - e.g. there's an MSE thread about the 'Green Deal' that illustrates the point. Luckily, solar installers (or at least ours) weren't exploiting their monopoly quite like the other schemes' operators did.

Wouldn't like to give our governments too much credit but between them and the other ones with similar schemes we have indeed reached the point where panel prices have dropped almost to the point that future subsidies may be unnecessary.

Cardew

Martyn1981 wrote: »

Sorry to disagree Eric, but the £2 doesn't repay the £1m. The £1m is already being repaid via depreciation costs, and any lost interest via cost of capital costs. These costs appear before net profit (£2).

Mart.

I will try just once more!

1. £6,000 invested in PV will produce £x income pa, but there is no access to that £6,000 capital.

2. Alternatively £6000 placed in a bank will produce £y income in interest pa - that £6,000 will always be available.

The £x income from PV if invested in a bank will after a number of years accrue to the same sum as the £6,000(plus interest) placed in a bank.

That point at which the same sum is reached will be a finite number of years.

If the £x income in case 1 was only £2 more than the £y income in case 2 it would take hundreds of years for the original £6,000 spent on PV to be recouped. This might not be an attractive financial proposition to most people

Martyn1981

Cardew wrote: »

In that context the issue of 'break-even' point with current FIT and interest rates is valid.

No issue regarding breakeven point, but you were questioning the profit point!

Cardew wrote: »

If someone offered an investment where it took, say 12 to 15 years to break even and start generating a profit; I wonder how many people would take up the offer.

You have claimed that profits aren't generated until investment monies (and any lost interest) are fully recovered. And today have claimed that I have not been accounting for these monies, but simply writing them off. You have also claimed that my approach that profit is when income exceeds costs, is novel, when it is in fact the norm.

If you want to move away from when profits are generated and go back to when breakeven arrives, then fine with me.

Mart.

Martyn1981

Cardew wrote: »

I will try just once more!

1. £6,000 invested in PV will produce £x income pa, but there is no access to that £6,000 capital.

2. Alternatively £6000 placed in a bank will produce £y income in interest pa - that £6,000 will always be available.

The £x income from PV if invested in a bank will after a number of years accrue to the same sum as the £6,000(plus interest) placed in a bank.

That point at which the same sum is reached will be a finite number of years.

If the £x income in case 1 was only £2 more than the £y income in case 2 it would take hundreds of years for the original £6,000 spent on PV to be recouped. This might not be an attractive financial proposition to most people

You are now trying hard to obfuscate.

In that example the £2 is not net profit, it is at best gross profit, from which the cost of capital, and the loss of capital, have to be deducted over an appropriate time period.

If the £2 is a true profit, then those costs have been accounted for, as per my post #2082.

In your post you described a net profit:

Cardew wrote: »

So by your definition, if your income on that hypothetical investment of £1million exceeds costs by £2 a year it is profit. It apparently doesn't matter about repayment of the £1million capital.

now you are trying to twist it into a gross profit?

Mart.

Elainemary

I last posted on 9 April about heading off from forum theme into Google ( thanks for telling me how we got there by the way ). Now we're back to the usual suspects trying to outdo one another in the " who can argue best about a few £££ " arguement. In the long run does it REALLY matter to the extent you've taken over this forum and just argue back and forth?? I know SP is still the subject, but we've had all these arguements before. so can you PLEASE go back to the original reason for this forum? Thank you very much.