On-grid domestic battery storage

Exiled_Tyke

EricMears said:

Exiled_Tyke said:

EricMears said:

QrizB said:

Early FITs were priced to give a ~5% IRR over the duration of the scheme. It was not meant to be a way of transferring money from billpayers to middle-class homeowners and rent-a-roof companies.

I don't think so !    Our panels were fitted in 2011 - before prices started dropping - but I was calculating that I should get initial annual payments of around 10%.  In fact first year payments were more like 15% and have continued to rise in line with inflation ever since.

I first looked at fitting solar panels when planning our new build in 1996.  At that point,  it would have taken 400 years (yes : four hundred years !)  to recoup the investment.  From 2011 it was less than eight years.

Be careful here. IRR and annual percentage returns are not the same thing.  Annual payments of 10% for a 25 year programme equate to an IRR of around 8.7%. IRR takes into account the fact that the initial investment is not redeemable at the end of the project. Annual percentage returns are relevant when the initial investment is recovered as with the case of a savings account.   If the aim was for 5% IRR with some margin for error in favour of the PV owner then 10% annual payments isn't too far off. In fact annual percentage returns of 7.1% would equate to 5% IRR (again over 25 years) 

Indeed,  but my 15% of investment returned within the first year is a lot more than 7.1%

I'm guessing that is because the estimates on PV production in the early days were way to low. When I got my quotes I was told by more than one supplier that my production would be far higher than the estimates. It appears by that time the algorithm had been tweaked to be a lot more accurate was actually comparable to what I produce. 

Martyn1981

Exiled_Tyke said:

EricMears said:

Exiled_Tyke said:

EricMears said:

QrizB said:

Early FITs were priced to give a ~5% IRR over the duration of the scheme. It was not meant to be a way of transferring money from billpayers to middle-class homeowners and rent-a-roof companies.

I don't think so !    Our panels were fitted in 2011 - before prices started dropping - but I was calculating that I should get initial annual payments of around 10%.  In fact first year payments were more like 15% and have continued to rise in line with inflation ever since.

I first looked at fitting solar panels when planning our new build in 1996.  At that point,  it would have taken 400 years (yes : four hundred years !)  to recoup the investment.  From 2011 it was less than eight years.

Be careful here. IRR and annual percentage returns are not the same thing.  Annual payments of 10% for a 25 year programme equate to an IRR of around 8.7%. IRR takes into account the fact that the initial investment is not redeemable at the end of the project. Annual percentage returns are relevant when the initial investment is recovered as with the case of a savings account.   If the aim was for 5% IRR with some margin for error in favour of the PV owner then 10% annual payments isn't too far off. In fact annual percentage returns of 7.1% would equate to 5% IRR (again over 25 years) 

Indeed,  but my 15% of investment returned within the first year is a lot more than 7.1%

I'm guessing that is because the estimates on PV production in the early days were way to low. When I got my quotes I was told by more than one supplier that my production would be far higher than the estimates. It appears by that time the algorithm had been tweaked to be a lot more accurate was actually comparable to what I produce. 

Yep, way too low. I may be misremembering, but I think the SAP figure (based around Sheffield), may also have included degradation in the estimate. If not, I think the Gov built it into the return somewhere, so estimates were an average, taking account of falling generation across the 25 or 20 year FiT period. So estimates would appear low at the start.

As we've seen, the SAP figure was too low, the range of regional SAP figures later introduced were also low, and expectations for degradation, maintenance (and possibly shading impact) were also too high. My rough calcs for my 2011 ESE system were for ~8.5% gross income, with a 12yr payback (ignoring lost int / cost of capital). In reality those numbers flipped with a ~12.5% gross income, and an 8yr payback.

My 2012 WNW had an estimated 20yr payback (again just on a simple basis), but looks like it will breakeven in the summer of 2025.

Being index linked is extremely important to all these calcs and returns.

zeupater

Hi

I think everyone's missing the root issue .... the FiT scheme was designed to encourage take-up with (at the time) reasonable rates of return based on the then available fully installed prices ..... so, like a few other early adopters would be aware, quotations when we started looking were typically seen at ~£20k for a 4kWp system ... 

Quite simply a ~7.1% (assuming above figure - I remember it as 7-8%) return on ~£20K would be a FiT return of ~£1420, so a UK system receiving ~41.3p/kWh tariff would logically need to generate ~3440kWh pa (1400/0.413), which equates to 4kWp system producing 860kWh/kWp, which would likely be seen as being a pretty average figure when taking varying orientation etc into account .... 

The way I see it is that my early installation returns pretty much what was originally expected with the setup we have and those that had their systems later but still received the same tariff band were simply part of the reasoning for the schemes existence ... to drive demand up and prices down thus encouraging future unsubsidised uptake of renewable energy technologies.

Now, from memory & if anyone cares to check & read, the original consultation response document (lots of pages, long time to read, but it's probably still on the Ofgem site!) discusses many of the points recently made ... including the reluctance of the (then) generating sector to support the domestic sector receiving financial support - again, from memory, they seemed to want any support scheme to focus entirely upon themselves ... who'd have thunk it !!! ... I think that there were also a number of comments detailing tariff reduction plans and the eventual phasing out of the scheme, the overall scope/value of the scheme and details related to the administration/operation of what was (compared to Germany's and other related schemes) a scheme which was unnecessarily complicated ... but what would anyone expect of the UK Civil Service and their tendency to gold plate and overcomplicate anything they touch!

As it turned out, the UK's approach tended to encourage installers to maintain artificially high prices longer than necessary (probably still does if the truth be told!), but to be fair, it ended up sitting somewhere between many of the more successful European offerings & the highly ineffective schemes in the USA which seem to have had a much lower tendency to lower installation prices through competitive pressure .... then again, there's Spain, but no need to detail their energy sector encouraged political meddling debacle here as everyone is probably already aware!

HTH - Z         

QrizB

Here's the impact assessment from 2011, when DECC were reducing the FIT rates:

https://webarchive.nationalarchives.gov.uk/ukgwa/20121217150421/http://www.decc.gov.uk//assets/decc/Consultations/fits-review/4310-feedintariff-comprehensive-review-phase-1-impact.pdf

Lots of interesting info there, including on the rate that PV installation costsere falling.