Solar Battery - Yes/No?

HHarry

Exiled_Tyke said:

Exiled_Tyke said:

  Finally as I've said many times before on these threads payback is not ever a suitable method for appraising an investment. 

I have to agree with Screwdriva - surely payback is the most suitable way of appraising an investment?  There may be some emotional input around saving the planet with solar investments specifically,  but otherwise why would you invest if there wasn’t a payback?

Exiled_Tyke

Screwdriva said:

Exiled_Tyke said:

And no one knows the answer to this. We all have to form our own judgement on the future of prices.   But a battery does (to some extent) hedge against this.  Finally as I've said many times before on these threads payback is not ever a suitable method for appraising an investment. 

I don't believe either of these points to be accurate. You can model average prices of 10-60p to determine the point at which an export tariff outperforms battery savings and then just follow global events to see where prices are trending.  

As far as the importance (or lack of) payback on an investment goes, I'm afraid you're in the absolute minority there.

Your first point ignores the fact that modelling requires forecasts.  The issue is that decisions have to be made with predictions of the future. And know one knows. It is not a matter of following global events but predicting them. Any everybody in this situation will have different perspectives based on the current information they have. 

Secondly being in the minority doesn't mean I'm wrong.  The problem here is that many of those supporting the use of payback as a decision making tool have never studied the subject. It is widely used because it is simple to understand and relatively easy to calculate.  I'd be happy to enter into a discussion on the various problems with payback if you wish. For now I'll quote from what is one of the most respected texts on the subject.  

"We suspect that you have often heard conversations that go something like this: “We are spending $6 a week, or around $300 a year, at the laundromat. If we bought a washing machine for $800, it would pay for itself within three years. That’s well worth it.” You have just encountered the payback rule.

A project’s payback period is found by counting the number of years it takes before the cumulative cash flow equals the initial investment. For the washing machine the payback period was just under three years. The payback rule states that a project should be accepted if its payback period is less than some specified cutoff period. For example, if the cutoff period is four years, the washing machine makes the grade; if the cutoff is two years, it doesn’t.

We have no quarrel with those who use payback as a descriptive statistic. It is perfectly fine to say that the washing machine has a three-year payback. But payback should never be a rule."

And in the context of business decision making. 

"We have had little good to say about payback. So why do many companies continue to use it? Senior managers don’t truly believe that all cash flows after the payback period are irrelevant. We suggest three explanations. First, payback may be used because it is the simplest way to communicate an idea of project profitability......... "   (Brealy, Principles of Corporate Finance, 13th Edition, 2019) 

Exiled_Tyke

HHarry said:

Exiled_Tyke said:

Exiled_Tyke said:

  Finally as I've said many times before on these threads payback is not ever a suitable method for appraising an investment. 

I have to agree with Screwdriva - surely payback is the most suitable way of appraising an investment?  There may be some emotional input around saving the planet with solar investments specifically,  but otherwise why would you invest if there wasn’t a payback?

I'm certainly not arguing the emotional case here. But over reliance on the most commonly used method of appraisal which is inherently flawed. 

Heedtheadvice

I'm in agreement with the Tyke!

Payback time is useful in that it gives one an idea of how long it might take to get one's capital back where one year is far better we would think of course than 20 years.

However that is only a small part of the consideration for an investment it does not (often) take into account inflation, depreciation, loss of gain and revenue were the capital invested elsewhere, depreciation, running costs, maintenance, insurance etc. Some of these would definately apply to solar installations.

That is why, in even basic investment calculations, formulae such as Internal Rate of Return are used.

Those things we should not ignore but we may choose to not factor into decision making?

Would we have made the same decision if inverter life rather than being 10,15 or 20 years life/warranty was just 5 or the £5k we spend required £10k of return in real terms?

Reed_Richards

Above is a calculation of the payback time for a washing machine; what is the payback time for a vacuum cleaner?

BBL70

Reed_Richards said:

Above is a calculation of the payback time for a washing machine; what is the payback time for a vacuum cleaner?

Infinite - as no one ever hoover's in my house...

BBL70

I'm happy to see my question has caused some healthy debate! (I think). Just to throw another thought in, one of the early arguments was 'why store what you can sell' however I understand Tesla and GivEnergy batteries give you the option to do both. Again I don't have a clear understanding of the economics of this and the solar calculations I've seen installers present don't clearly take into account storage, export and overnight cheap rate top-up

Alnat1

This is the only calculator I've found that seems like it could come up with numbers that make sense with batteries and SEG.

https://great-home.co.uk/solar-export-guarantee-seg-calculator/

Screwdriva

Exiled_Tyke said:

Screwdriva said:

Your first point ignores the fact that modelling requires forecasts.  The issue is that decisions have to be made with predictions of the future. And know one knows. It is not a matter of following global events but predicting them. Any everybody in this situation will have different perspectives based on the current information they have. 

Actually, I suggested that assumptions be used to determine the cost of energy/ export tariff. (vs. predictions). As far as different perspectives go, I trust yours is also that energy prices are not coming down anytime soon?

Exiled_Tyke said:

Secondly being in the minority doesn't mean I'm wrong.  The problem here is that many of those supporting the use of payback as a decision making tool have never studied the subject. It is widely used because it is simple to understand and relatively easy to calculate.  I'd be happy to enter into a discussion on the various problems with payback if you wish. For now I'll quote from what is one of the most respected texts on the subject.  

Do share when you've changed consumer behaviour on this one.

Alnat1 said:

This is the only calculator I've found that seems like it could come up with numbers that make sense with batteries and SEG.

https://great-home.co.uk/solar-export-guarantee-seg-calculator/

Impressive and new to me. According to the calculator, contrasting the use of Outgoing Agile (suggested average of 0.21p), the cheapest available 9.5 kWh battery with import tariff of 7.5p and battery arbitrage would take decades to pay for itself. 

ABrass

Screwdriva said:

Exiled_Tyke said:

And no one knows the answer to this. We all have to form our own judgement on the future of prices.   But a battery does (to some extent) hedge against this.  Finally as I've said many times before on these threads payback is not ever a suitable method for appraising an investment. 

I don't believe either of these points to be accurate. You can model average prices of 10-60p to determine the point at which an export tariff outperforms battery savings and then just follow global events to see where prices are trending.  

As far as the importance (or lack of) payback on an investment goes, I'm afraid you're in the absolute minority there.

Past performance does not guarantee future performance.

High SEG rates for Solar are not guaranteed. In Australia Solar generation is more than the grid needs during peak hours. There is negligible demand for any domestic solar power at peak times of generation. Whenever you've got spare power no one else wants it. At that stage you're going to be better off with batteries.

If we get to the same level of penetration then the SEG rates will fall. That's not going to be next year, or the one after. But if you're planning a 10 year investment then just looking at past prices is a poor guide.

It also assumes you can get Octopus Agile. Right now if you're not an octopus customer now I don't believe you can become one on Agile.