Loan for solar PV system?

ed110220

Hi all, I'm posting here rather than in the green and ethical forum because my question relates mainly to the loan side of things. Please could you give me some advice on the wisdom (or foolishness!) of my idea.

As you may know the high court is going to hear a case on the legality of the government's proposal to cut the feed in tariff (FIT) for small scale solar installations on Friday 13 Jan. If the government loses it may mean that the previous 43p per kilowatt-hour tariff is restored for a limited period, probably until 1 April. If this happens, there is almost certain to be a scramble to install before the new deadline, as there was before the previous one. The FIT is guaranteed and index linked for 25 years. Please note, I am trying to make an informed decision on what to do if the 43p rate is available again.

I have been quoted £6667.50 for a 3kWp system. By the government's conservative calculations, this will generate 2465kWh per year. At 43p per kWh, I will get £1059.95 whether I use the electricity or export it. There is also a 3.1p per kWh export tariff, so in the most conservative scenario in which I used none of the electricity and exported it all, I would also get £76.42 (this is the most conservative estimate, as if you use the electricity yourself, you lose the 3.1p per kWh but save the 13 odd pence that it would have cost you to buy the electricity at the normal rate). So at the most conservative estimate, it would give an income of £1136 per year.

Now for the tricky bit. I have funds sufficient to cover about £2667.50 for the installation cost but would need to borrow the remaining £4000. I do not usually borrow for anything - the only things I have borrowed for were the house (mortgage) and an expensive camera that I bought on 6 month interest free credit. Usually I would save up for any purchase. This is different as, if it happens, there will be no time to save up but am wary of getting myself into debt.

I am on a limited income and have only just bought my house on a mortgage, so probably the worst time to be accepted for a loan. On the plus side, I'm paying a lot less in mortgage payments than I did for the past three years privately renting.

Martyn1981

Hi Ed.

This may not help you much, but I'd look at this from 3 directions,

1. you get the 43p,
2. you try for 43p but get 21p,
3. you settle on 21p.

1. Things are so in the air at the moment that the rate you may / will get between now and April will be a real punt.
2. Taking a punt on 43p but getting 21p would still give a good return, but
3. If 21p is good enough and you don't want to gamble, nor borrow today, then you will probably still get 21p right up to the summer, and you may then get a better install price (but lose 6 months generation).

If you can borrow at a reasonable rate (and I too hate unnecessary borrowing, or as Martin might say bad debt rather than good debt) perhaps adding to the mortgage, family or friends, then the returns are good.

Note I've referred to 21p a lot, I'm assuming that this is still the default review figure, but you never know.

Also, is the property pretty good in relation to efficiency, as the EPC C rate requirement will be kicking in after April.

Lastly, at 21p, and not knowing too many specifics about your system and circumstances, I'd still guess that you're looking at annual savings and income of about £650 (FIT £525, Exp £40, savings £90), so not a bad rate of return. If you want advice on narrowing down those estimates a bit, let me know and we'll run some numbers.

Keep smiling, don't stress. It's getting sunnier.

Mart.

ed110220

Hi Martyn, thanks for your advice.

I have actually been quoted for two alternative systems by GD Electrical and Solar of Minehead. Firstly a 3kWp system of 12 Suntech 250 panels plus Power One 3000 inverter for £6667.50, or a 3.36kWp system of 14 Sanyo HIT SE10 240 panels plus Power One 3600 inverter for £8893.50. My roof faces South West with a pitch of approx 20 degrees and is made of asbestos cement, which has limited my choice of installers (most won't consider it).

The house has been rated as E 49 in energy efficiency and I think it would be difficult to bring it to C. The suggestions in the energy report were to use energy saving lighting (done), top up the loft insulation which was only thin (doing) and replace the 65% efficient back boiler with a modern condensing type (still seeing how much gas we use, but I suspect as we use fairly little, the payback period for a new one would be long - perhaps the Green Deal will cover it?).

The house has a steel frame with external cladding of concrete render downstairs and corrugated steel upstairs with a fibreboard on timber internal layer and some 1940s rock wool insulation in between, which scores very poorly on the energy report. My intention was to strip off the fibreboard, put in better insulation and replace it with plasterboard, but that's a longer-term room-by room plan.

GD Electrical have actually provided some numbers at the 21p rate, not sure what you think of them.

For the Suntech system:

Estimated annual system output 1 - SAP Calculation: 2464.8
Annual Solar Radiation (S): 1027
Over Shading Factor (ZPV): 1
Feed-in Tariff rate 2 (VF): £517.61

Basic Payback Calculation
Proportion of electricity generated consumed on premises (Cd): 50%
Proportion of electricity generated exported to grid (Ex): 50%
Standard Import tariff (It): £0.14
Proposed export tariff 4 (Et): £0.03
Annual Value of electricity consumed: £172.54
Annual Value of electricity exported: £38.20
Total value of electricity generated: £728.35
Basic Payback (years): 9.2
Annual Return on investment: 10.92%

For the Sanyo system:

Estimated annual system output 1 - SAP Calculation: 2760.576
Annual Solar Radiation (S): 1027
Over Shading Factor (ZPV): 1
Feed-in Tariff rate 2 (VF): £579.72

Basic Payback Calculation
Proportion of electricity generated consumed on premises (Cd): 50%
Proportion of electricity generated exported to grid (Ex): 50%
Standard Import tariff (It): £0.14
Proposed export tariff 4 (Et): £0.03
Annual Value of electricity consumed: £193.24
Annual Value of electricity exported: £42.79
Total value of electricity generated: £815.75
Basic Payback (years): 10.9
Annual Return on investment: 9.17%

If I can borrow the money cheaply, which I somehow doubt as we've only made our first mortgage repayment this month, then the income from the 21p rate could still be more than the repayment. Sadly I don't have the money in a savings account looking for an investment, as it would still be a good one I think. However, if the 43p rate is available again, it seems too good to miss.

john_white

A couple of points spring to mind,

1. When do you get the income from the FIT?
2. What is the 25 year maintenance costs?
3. A salesperson gave you these numbers?

ed110220

john_white wrote: »

A couple of points spring to mind,

1. When do you get the income from the FIT?
2. What is the 25 year maintenance costs?
3. A salesperson gave you these numbers?

Perhaps Martyn or someone else can help out here, but this is my understanding.

The FIT is paid quarterly, obviously as much more electricity is generated in summer than winter the payments will not be spread equally through the year. The figures are for the whole year.

This is what housingenergyadvisor.com says about maintenance (the Energy Saving Trust and Guardian investments say similar): "Solar PV systems are generally maintenance free with the exception of panel cleaning at a cost of around £50 every 5 – 10 years. The system components are designed and proven to last a minimum of 25 years, but occasionally the inverters do fail and need replacing at a cost of £1250 if not covered by a warranty. All components and installations come with typical warranties of 5 – 10 years with extended warranties available at an extra cost. Systems can also be insured against vandalism, theft and damage (sometimes as part of your house insurance)."

As my house is double-storey and without easy access, theft or vandalism is unlikely, but damage could be covered by my home insurance (I would check this first of course). I expect that the roof will need replacing within the life of the system, but not within the payback period. I was thinking of using the income perhaps to put towards a new roof.

The number of kilowatt-hours per year estimation was provided by the installers. The Energy Saving Trust gives a slightly higher estimate (2567 kWh per year given my roof orientation, angle and location). From what current owners of solar PV report on forums etc, this seems realistic or conservative. Again, perhaps Martyn or others can comment.

The total value of the electricity does of course depend to some extent on whether you use it yourself or export it. One gets a greater benefit using it yourself than exporting it as you get much less for it (3.1p per kWh) than you pay to buy electricity normally (13-14p per kWh). If you exported all 2567 kWh you'd get £79.56 on top of the FIT, but save nothing on your electricity bill. If you used it all you'd get nothing from selling it, but save £333.71 on your bill @13p/kWh. As it's hard to predict exactly how much you'll use and how much you'll export, it's perhaps safest to assume the worst case of exporting it all and using none, though obviously that is slightly unrealistic.

Martyn1981

Ed. Slapped those details into;

http://re.jrc.ec.europa.eu/pvgis/apps4/pvest.php#

first picked Leicester, needed to put something in, so why not, then went for Minehead as you gave location of company (possibly?).

Anyway, for 3kWp system at exactly 225deg SW, that gives;

2,350kWh's or 2,580kWh's

for 3.36 you get

2,640kWh's or 2,890kWh's

Minehead is obviously nearer the sweet spot for generation.

So depends where you are in the country, but those initial estimates / quotes look reasonable. From them the numbers for income and savings are correct, but only if you think you'll use 50% of consumption. That's a big ask, and will need the house in use during the day. Otherwise you'll need to revise the electricity savings down, maybe to 25% or so.

Also, is there any shading, especially during April to September, when you get the big generation.

I'd play it pessimistic and look to worse case numbers, but from what I'm reading and hearing, people seem to find PVGIS fair or slightly low.

As to borrowing money. Ouch, this is really getting personal, but if you've just taken on lots of financial responsibilities then you need to be ultra careful before going £4k+ further into debt today.

As John White pointed out, you also need to think about when you'll get the FITs payments, and when you'll be making debt payments. Assume you do this now, and it's takes some time to complete registration, so first claim is June / July, and you don't get paid till September, will that work for you.

I can see that FITs could cover a low rate loan on £4k but am extremely wary of suggesting you go for it, as I don't know what concerns, pressures, stress this might cause. Any rate nearer 10% (£400pa plus repayments) could break you, and you'd just be chasing interest circles.

If you can't take a punt with next to free interest, I'd suggest hanging back for 3 to 6 months and having a think about it, whilst saving up a few more pounds.

Additional thought, would the company offer an interest free loan for a couple of years, they may be very quiet and desperate for business?

Sorry to caveat this so much, but really don't want to encourage debt.

Mart.

ed110220

Thanks Mart,

I'm in Bath so nearer to Minehead than Leicester and the roof orientation is about 210 degrees (closer to south than west). The house is on a north facing slope so there is some shading in winter when the sun is low, but when the sun is so low and weak I presume there is little generation anyway. Opposite, one of the rent-a-roof companies have just installed, and I understand they only pick the best sites. There is a conifer tree in the garden that gives some shading at this time of year, I have not been here long enough to know whether it shades in the summer but I doubt it. I was thinking of removing it as it will be a pain to keep clipped as the previous owners did due to height (about 6m) and I'd certainly get rid of it if it hit me in the pocket.

As I said, I probably wouldn't go for it at the reduced FIT rate in the short term if I had to borrow - if I had the money in the bank it would be a different matter- , I was thinking more about if it remained higher. I imagined if that happened, there would be a rush and it would be easy to make a poor decision because of the time limit, so I thought I'd think about the possibility in advance.

Martyn1981

Ed, that helps, especially the 210, I was entering 225.

So estimates are 2,590 & 2,900 for 3 & 3.36 respectively.

Shading in winter is hard to avoid, but a percentage loss on lower generation isn't as bad as summer losses. If you use PVGIS, then when you click calculate you could manually knock some off the winter months and see what you get.

Also, forgot to say, at 20deg, your roof is heavily optimised for summer not winter when the sun to panel angle will be way off 90deg, so you'll have a slightly more biased sunny months system.

Unfortunately you may have to go down the EPC route if you wait, but the green deal should help - have a read and see what it says about boilers.

Regarding 43p rate, the govt is currently appealing, so it may stay till 1st of April or change on court decision, or even be backdated to 12/12 on court decision. If that's your gamble, think oh so carefully before you leap.

Mart.

ed110220

I'm not planning on risking gambling on what the FIT will be, I was going to wait and see what happens first as I can't afford to gamble. The installers seem to think that the higher rate will be brought back, but I guess they would say that.

As for the Green Deal, do you know where I can find more about it? It's actual website didn't seem very useful. However, even with a new boiler, energy efficient lighting and topped up loft insulation, the house is unlikely to make a grade C.

Martyn1981

Ed, hello again, thanks for the piece of mind regarding gambling, I was scared I might have mislead you.

I don't know much about the green deal, so this may be a long way off, but I'll take a punt:

An energy assessor (you may have had one done when buying the house) will class the house as is, and it's potential with recommendations. These will include energy bulbs, loft insulation etc, and steadily build up through thermostatic radiator valves (TRV's), house thermostats, and even a better boiler.

Most houses in Britain can't reach C, even with improvements, in fact I think I read 86% can't reach C. The FITs reduction (the lower of the new lower tariff) however won't apply if the house reaches C or if all recommendations have been / are being carried out. Lots of these will be available under the green deal (I think?).

Try taking a look at some of the renewables forums, such as the Green Building Forum, or Navitron. As a guest you won't have to join, but can have a read of the threads.

Is any of this helping, or just boring you to tears!

Martyn.

ed110220

Thanks again Martyn, just to reassure you my thinking is very much if the higher rate FIT is kept rather than chancing it might be.

I have had an energy report done on the house when I bought it. To be honest it wasn't especially useful I don't think as its findings were either obvious (double glazing present, fit energy saving lighting etc) or it couldn't really answer the things I didn't know, eg the assessor assumed the walls had no additional insulation but could not tell for sure (same as my assessment).

It estimated that with its recommendations it could be improved from its original E 49 to a potential D 62.

Don't be worried about boring me, I'm interested in all sorts of insulation and energy efficiency hence my interest in DIY internal wall insulation etc. I'm on the Navitron forum as bath_ed where I was asking about fitting solar PV to an asbestos roof (another tricky issue).