present value calculation? of renewables investment

Ainsley1

I am a bit unsure which forum area to post this on but I suspect will get best chance of an answer, or more, from the financial gurus. However as it is linked to a renewable energy investment will post a link in the Green Energy section, perhaps later if all becomes clear.

But the question you ask! So here goes:

Most sales people will give quotes, I expect, based upon a simple calculation such as for payback period using present day figures for cost of energy saved, initial outlay, any FIT payments (Feed in Tariff) and any generation payments, such as for solar. FIT is index linked but not sure if that is taken into account. However this is all probably a bit simplistic and other factors ought to be taken into account. I remember a Which article that did just that years ago. Can anyone advise what ought to be taken into account ( the financial ones) and how?

If I can take into account, perhaps with lots of guestimations of some things such as CPI, rate of return I am not getting on capital that is not invested elsewhere (or indeed cost of borrowing), cost of maintenance, repairs, probable rising cost of electricity to buy etc. - some will no doubt be able to add more factors! - then perhaps it will be clearer what the financial benefit will be (if any). Such things as Net Present Value spring to mind but I do not have the confidence on how to apply this in, say, a spreadsheet like Excel (though am very happy with Excel itself). However once onto a sheet variables can easily be manipulated to allow consideration of changes such as inflation.

Thinking laterally there may well already be such a sheet in existence or even web pages designed for exactly this purpose so please enlighten me!

Finance is, of course, not the only consideration to take into account with a potential investment in one's own renewable energy generation but this is after all a Money Saving Expert forum!

jimjames

I can't give details of what you should use but I can say what you shouldn't. You'll find some unscrupulous salespeople try to use massive inflation rates for energy based on the rate in the last 12 months. So they'll plug inflation of 15% pa for electricity for the 25 years and have no idea that they're now suggesting that the average bill will be 10x the average salary.

Ainsley1

Very good point Jim. I've already had one sales person saying "you know how much electricity has risen recently?"...... but then I was thinking 'but my bill has come down in each if the last three years �� '... hence the need to plug in variables to see what results different scenarios produce!

Martyn1981

Hiya Ainsley1, what you want to do is actually a little easier than you might realise. It should be very quick and easy for you to knock a spreadsheet together comparing PV to say an ISA.

Firstly, you need a generation estimate. PVGIS is very good, you'll find a walkthrough in section 5 of the PV FAQs.

You'll need to consider shading, as this could reduce output, or shade mitigation (such as SolarEdge) which would increase cost.

From the generation guesstimate, you can now calculate income:
FiT gen x 12.47p
Export 1/2gen x 4.85p
Leccy savings (£80 to £160) .... £120

Take your annual income from year 1 and for year 2 multiply it by RPI, whatever you think is fair 2%? so x 1.02. [I wouldn't bother using a higher figure for energy inflation, as it may not rise much more than ordinary inflation, and this way you only have to have one income figure to work on.]

Also reduce the annual figure by 0.5% for panel degradation, so multiply by 0.995. That should give you an income figure for year 2. You should also, if comparing to an ISA, add 2% of the year 1 total, to the running total (yr1 + yr2) to represent interest earned in yr 2 (on yr1 income, and so on).

You can now drag this calculation down to year 20, and compare to a simple compound interest table showing the capital expenditure growing in said ISA at 2% (or whatever you chose).

For greater realism, I'd assume an inverter replacement after 12 years. You may be fine for 20 years, but just in case, deduct a figure from the value at the start of yr13. I'd suggest £1k. Inverter prices are falling, and some of the cheaper models are around £400, but lets allow for inflation, and call out fees (even though it should be a really easy swop).

Obviously some people will be unlucky and experience maintenance costs, but hopefully the vast majority won't have to spend anything (other than the inverter), but you could if you wish, deduct an annual figure just in case, perhaps £50pa?

Hope this helps, should be very quick to knock together.

Mart.

Ainsley1

Thanks for the input Mart. Those seem like some sensible assumptions overall to me but I would still wish to hear from one of the financial wizards for a proven and accepted method.

ikorodu

I knocked up a sheet similar to the one described above to see how my quote looked. In the end I decided that savings acc were better for me. I found that the key was how long you are certain to remain in the house for .

My thread is here https://forums.moneysavingexpert.com/discussion/5326144