Are solar panels pointless?

Exiled_Tyke

This has become rather confused with lots of issues flying around.   A few thoughts: 

1. Stock market returns are generally strong because of risk. Yes, in the long term there are often great gains but as the last year has shown you have to ride the rough times out.  PV provides a more predictable cash return as well as energy savings.  At the moment my electricity bill is around £25 a month which is considerably less than what it would be without my PV system.  
2. It's not just about investment returns. It's also about hedging. My PV system acts as a buffer against changes in the electricity prices.
3. Yes renewables benefit from economies of scale but that doesn't mean that small PV systems are not worthwhile.  They still perform adequately for the benefits raised above. 
4. Wind turbines as gazapc mentioned are not practical for the vast majority of domestic consumers. As wind increases significantly and turbulence decreases with height above ground, productivity improves vastly with larger turbines. Hence the continued push for bigger turbines with each new farm construction. 

2nd_time_buyer

For "fun" let's look at a comparison for my solar panel installation. In Scenario 1, I re-invest annual solar savings into my pension (this is reasonable as I have increased my contributions accordingly). This can be compared to Scenario 2, where I didn't install panels and I invested the install cost directly in my pension.

To recap my system cost £7200 to install and this years annual saving are £1300.

Scenario 1: solar - re-investing solar savings in pensions
Annual savings £1300
Assumptions: money is invested in world tracker with return 2.5% above inflation, annual savings go up with inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £1300 saving results in £1954 into my pension)
Pension savings after 20 years : £50,059
Minus solar installation cost of £7,200 = £42,859 (in today's money) 

Scenario 2: No-solar - investing solar installation cost into pension (£7200)  
Assumptions: money is invested in world tracker with return 2.5% above inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £7200 saving results in £10827 into my pension)
Pensions savings after 20 years = £17841 (in today's money)

(don't take the above too seriously )

Exiled_Tyke

2nd_time_buyer said:

For "fun" let's look at a comparison for my solar panel installation. In Scenario 1, I re-invest annual solar savings into my pension (this is reasonable as I have increased my contributions accordingly). This can be compared to Scenario 2, where I didn't install panels and I invested the install cost directly in my pension.

To recap my system cost £7200 to install and this years annual saving are £1300.

Scenario 1: solar - re-investing solar savings in pensions
Annual savings £1300
Assumptions: money is invested in world tracker with return 2.5% above inflation, annual savings go up with inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £1300 saving results in £1954 into my pension)
Pension savings after 20 years : £50,059
Minus solar installation cost of £7,200 = £42,859 (in today's money) 

Scenario 2: No-solar - investing solar installation cost into pension (£7200)  
Assumptions: money is invested in world tracker with return 2.5% above inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £7200 saving results in £10827 into my pension)
Pensions savings after 20 years = £17841 (in today's money)

(don't take the above too seriously )

Yep. I can concur using your gross numbers (I don't understand the pension contribution rate which seems to based on an income tax rate of about 33%) with this (although my numbers come out slightly different).  For scenario 2 I got £17,741 I'm not sure what's caused the difference there. 

For scenario one I'm lower with £42,714. Here I've assume the savings come in at the year end. So yr one savings are only compounded over 19 years and yr 20 savings don't get compounded at all.   

However the differences are small.   

What you may find interesting (or not) is that for Scenario 2 to get to the same (£43k) return as scenario 1 the pension fund would need to return 7.1% but obviously in this case then the scenario 1 returns (of £1954) would also increase in this case to £73k! 

Finally for scenario 2 to equal scenario 1 then your pension returns would need to be 16.7% p.a. (In both cases the investments return £238k).  

2nd_time_buyer

Exiled_Tyke said:

2nd_time_buyer said:

For "fun" let's look at a comparison for my solar panel installation. In Scenario 1, I re-invest annual solar savings into my pension (this is reasonable as I have increased my contributions accordingly). This can be compared to Scenario 2, where I didn't install panels and I invested the install cost directly in my pension.

To recap my system cost £7200 to install and this years annual saving are £1300.

Scenario 1: solar - re-investing solar savings in pensions
Annual savings £1300
Assumptions: money is invested in world tracker with return 2.5% above inflation, annual savings go up with inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £1300 saving results in £1954 into my pension)
Pension savings after 20 years : £50,059
Minus solar installation cost of £7,200 = £42,859 (in today's money) 

Scenario 2: No-solar - investing solar installation cost into pension (£7200)  
Assumptions: money is invested in world tracker with return 2.5% above inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £7200 saving results in £10827 into my pension)
Pensions savings after 20 years = £17841 (in today's money)

(don't take the above too seriously )

Yep. I can concur with this (although my numbers come out slightly different).  For scenario 2 I got £17,741 I'm not sure what's caused the difference there. 

For scenario one I'm lower with £42,714. Here I've assume the savings come in at the year end. So yr one savings are only compounded over 19 years and yr 20 savings don't get compounded at all.   

However the differences are small.   

What you may find interesting (or not) is that for Scenario 2 to get to the same (£43k) return as scenario 1 the pension fund would need to return 7.1% but obviously in this case then the scenario 1 returns (of £1954) would also increase in this case to £73k! 

Finally for scenario 2 to equal scenario 1 then your pension returns would need to be 16.7% p.a. (In both cases the investments return £238k).  

I believe your maths over mine.

It is a good illustration of pension tax relief, compound interest, and that decisions on solar can be made with the head as well as the heart.

2nd_time_buyer

Exiled_Tyke said:

2nd_time_buyer said:

For "fun" let's look at a comparison for my solar panel installation. In Scenario 1, I re-invest annual solar savings into my pension (this is reasonable as I have increased my contributions accordingly). This can be compared to Scenario 2, where I didn't install panels and I invested the install cost directly in my pension.

To recap my system cost £7200 to install and this years annual saving are £1300.

Scenario 1: solar - re-investing solar savings in pensions
Annual savings £1300
Assumptions: money is invested in world tracker with return 2.5% above inflation, annual savings go up with inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £1300 saving results in £1954 into my pension)
Pension savings after 20 years : £50,059
Minus solar installation cost of £7,200 = £42,859 (in today's money) 

Scenario 2: No-solar - investing solar installation cost into pension (£7200)  
Assumptions: money is invested in world tracker with return 2.5% above inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £7200 saving results in £10827 into my pension)
Pensions savings after 20 years = £17841 (in today's money)

(don't take the above too seriously )

Yep. I can concur using your gross numbers (I don't understand the pension contribution rate which seems to based on an income tax rate of about 33%) with this (although my numbers come out slightly different).  For scenario 2 I got £17,741 I'm not sure what's caused the difference there. 

Basic rate tax relief is at 20%. However, I can pay my pension through salary sacrifice, effectively saving the NI as well. That makes the total saving 33.25% (43.25% for higher rate tax payers)

Rather unjustly, particularly for basic rate tax payers, making pension contributions through salary sacrifice is not available to all. 

Exiled_Tyke

2nd_time_buyer said:

Exiled_Tyke said:

2nd_time_buyer said:

For "fun" let's look at a comparison for my solar panel installation. In Scenario 1, I re-invest annual solar savings into my pension (this is reasonable as I have increased my contributions accordingly). This can be compared to Scenario 2, where I didn't install panels and I invested the install cost directly in my pension.

To recap my system cost £7200 to install and this years annual saving are £1300.

Scenario 1: solar - re-investing solar savings in pensions
Annual savings £1300
Assumptions: money is invested in world tracker with return 2.5% above inflation, annual savings go up with inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £1300 saving results in £1954 into my pension)
Pension savings after 20 years : £50,059
Minus solar installation cost of £7,200 = £42,859 (in today's money) 

Scenario 2: No-solar - investing solar installation cost into pension (£7200)  
Assumptions: money is invested in world tracker with return 2.5% above inflation. Savings go in to my pension via salary sacrifice as a basic rate tax payer (i.e. £7200 saving results in £10827 into my pension)
Pensions savings after 20 years = £17841 (in today's money)

(don't take the above too seriously )

Yep. I can concur using your gross numbers (I don't understand the pension contribution rate which seems to based on an income tax rate of about 33%) with this (although my numbers come out slightly different).  For scenario 2 I got £17,741 I'm not sure what's caused the difference there. 

Basic rate tax relief is at 20%. However, I can pay my pension through salary sacrifice, effectively saving the NI as well. That makes the total saving 33.25% (43.25% for higher rate tax payers)

Rather unjustly, particularly for basic rate tax payers, making pension contributions through salary sacrifice is not available to all. 

Of course. I thought it might be NI but the way you described it sounded like a simple personal contribution with tax reclaim,  Have to agree with you on how unjust this is. I can't see why any tax payer contributing to their pension can't also get the NI back. 

Spies

My system has saved/earned me £500 since 22nd Nov 2021, total install cost was 4
£4795, expected ROI was 7 years but it was also done for ethical reasons. 

Hexane

jamesmorgan said:

In the same way as early energy saving lightbulbs were sold on the basis of extremely long lives, in real world conditions many turned out not to last as long as was originally assumed.  

wait what? I bought a bunch of early energy saving lightbulbs about 20 years ago, most of them are still occupying spots in less-used rooms (frequently used rooms now have LED instead).

as for "too early to know", you do realise that many solar PV systems owned by people on this forum have been in use for more than ten years? Do you imagine that they will suddenly start exploding once they reach 15 years old, like human teenagers?

jamesmorgan said:

If I had a spare £5-10K sitting around and wanted to invest it for optimum payback, solar panels wouldn't be very close to the top of the list. 

Really??? I have a large sum in global multi-asset funds through an ISA, and even larger sums in pension schemes that mainly invest in things like the FTSE100, but the only reason I wouldn't have invested more money in solar panels on my roof, is that my roof is only so big and I would eventually run into official opposition as the installed power passed 10kWp. Your investment priorities seem out of whack.

jamesmorgan said:

My broad thoughts are that energy generation is much better when economies of scale are used to drive efficiency.  Solar farms are a much better long term option than the cottage industry of having a generator on everyone's house.

That's exactly why I bought solar panels when I could buy 315W panels cheaply, instead of similar-sized 200W panels for a lot more. Unfortunately for me - fortunately for some others - the government took the opposite view and subsidised people who bought the 200W panels. Still a topic for merry debates to this day, but both sets of people made the right decision.

You can buy a share in a solar farm if you want to. But you might be better off signing up to Ripple Energy.

70sbudgie

Hexane said:

You can buy a share in a solar farm if you want to. But you might be better off signing up to Ripple Energy.

The next Ripple project might be a solar farm!

prowla

They're not yet at the point where I would buy.