Does size matter?

ka7e

Looking for advice/views from the hive mind - 

I'm considering the viability of solar panels, but only have room for a small array - 6 panels on a S-facing roof with no shading. 2 person household, home all day, all-electric except for GCH. Current usage is 4000 kWh pa. Location Somerset.

I'm assuming some panels are more efficient than others and that would be reflected in the price. I'm not particularly concerned with the time for return on investment, more future-proofing myself against rising annual bills, but not sure such a small array will have much impact.

Thoughts on the financial viability of a small installation?

QrizB

Current generation panels are at least 400 watts each, so six panels will give you at least 2.4kW of panel.

That's not much smaller than my 2012 install of 11 panels, totalling 2.7kW.

You might expect to generate 2000-2500kWh a year, using 800-1000 of them yourself and exporting the rest. At current prices that might reduce your energy bill by £200-250 a year and earn you a similar amount from export.

Screwdriva

Assuming you generate 2500 kWh and export/consume 50% of this, you are looking at:

1250 X .20p per kWh + 1250 X .25p per kWh = ~£550 per annum at current Flux tariffs.

A 2.5kW (6 X 420W) Panel system paired with a 2.2kW SolarEdge inverter will cost ~ £4K installed. At that price, your return is still an impressive ~14% on your investment. Few instruments I know can deliver this high a return, tax and hassle free, for 30 years.

If I were you, I'd be looking to fit 6 of the larger 570W bifacial panels if the roof space allowed for it (they're ~50cm longer than a standard panel but just as wide).

Reed_Richards

I think a Return on Investment calculation assumes that the investment itself is redeemable for cash, which isn't the case for solar panels. 

If the solar panels cost £4k, and in 10 years they make you £5.5k but then your inverter fails and you have to buy a new one for £1k then you will have made £500 in 10 years.  If the new inverter runs for another 10 years then you will have made £6000 in 20 years.  That would be about the same as if you invested your £4000 at 4.69% annual interest and allowed the interest to compound over the 20 year span.

If you assume that the panels last 30 years with one more change of inverter then you would make £10.5k in 30 years.  That's equivalent to a rate of return of 4.62% compounded.

Of course, you can do better if you invest the money generated by the solar panels once you have paid off their initial cost.     

Screwdriva

Reed_Richards said:

If the solar panels cost £4k, and in 10 years they make you £5.5k but then your inverter fails and you have to buy a new one for £1k then you will have made £500 in 10 years.

That's one of the many reasons why I prefer and recommend SolarEdge spec'd with the 20 year warranty...takes the uncertainty out of the equation.

QrizB

Reed_Richards said:

I think a Return on Investment calculation assumes that the investment itself is redeemable for cash, which isn't the case for solar panels.

No, you just use IRR and assign a zero future value to the PV system.

I'm not firing up Excel at this time of night but the calculation is quite straightforward.

Reed_Richards

I stand by my calculations, over 20 or 30 years the return will be equivalent to investing the same £4000 at an annual interest rate of around 4.65%, compounded.  You'll do better if the lifespan of your inverter is 20 years rather than the 10 years I assumed.

You can buy a UK Government bond  that matures on 31/7/51.  My calculation (which could very easily be wrong) is that you would get back about £10.1k in total by the time it matures if you bought now for £4k.   

pensionpawn

Reed_Richards said:

I stand by my calculations, over 20 or 30 years the return will be equivalent to investing the same £4000 at an annual interest rate of around 4.65%, compounded.  You'll do better if the lifespan of your inverter is 20 years rather than the 10 years I assumed.

You can buy a UK Government bond  that matures on 31/7/51.  My calculation (which could very easily be wrong) is that you would get back about £10.1k in total by the time it matures if you bought now for £4k.   

The toughest test I put the "business case" for panels through was dumping the £10k5 I coughed up 8 years ago into my pension. That would have instantly grown to £13125 before hopefully increasing year on year. However it would be 5 years before I could access any of that cash and after the 25% TFLS the remainder would then be taxed at 20% as I already had decent size pension pots. So I decided to "invest" in a future income instead. My panels were paid for after 7.5 years by FiT and energy import savings. With the launch of metered export payments and moving to Octopus Flux in the Spring my panels are covering my energy costs to date, however I'll have a better picture after 12 months on metered export in May. All that is tax free. So, £10k5 has bought me free energy over at least the remainder of my FiT scheme (another 12.5 years). Of course, add an "island mode" battery (for additional cost, that also needs to be fiscally justified) and I acquire energy security too. Back to the original question, yes size does matter as with a due  east - west house I decided to cover both sides with panels, 4kWs due east and 3.12 kWs due west. Although this meant I moved into the lower FiT band I was thinking long term which has proved to be a very good decision.

Martyn1981

Reed_Richards said:

I think a Return on Investment calculation assumes that the investment itself is redeemable for cash, which isn't the case for solar panels. 

If the solar panels cost £4k, and in 10 years they make you £5.5k but then your inverter fails and you have to buy a new one for £1k then you will have made £500 in 10 years.  If the new inverter runs for another 10 years then you will have made £6000 in 20 years.  That would be about the same as if you invested your £4000 at 4.69% annual interest and allowed the interest to compound over the 20 year span.

If you assume that the panels last 30 years with one more change of inverter then you would make £10.5k in 30 years.  That's equivalent to a rate of return of 4.62% compounded.

Of course, you can do better if you invest the money generated by the solar panels once you have paid off their initial cost.     

Hi. You are compounding the interest in the 4.69% example.

So you need to do the same for the £550 annual returns.

I used a simple spreadsheet, and only added 4.69% interest to the starting balance each year (so zero in yr 1). This gave me an end of year figure for yr10 of £6,818. So even with a new inverter at £1k, you'd 'make' £1,818 after 10yrs.

After 20yrs (with the £1k deduction at the end of yr10), I get a grand total £16,020.

After 30yrs (again a £1k deduction at the end of yr20), I get a grand total of £30,572. So an increase of £26.5k.

Of course, there's a very good chance I've mucked up the calcs, but it does look to be much higher than the £10.5k figure you gave.

[Note - I've assumed no residual value for the PV system, and invested annual returns/savings immediately, as the initial cost doesn't need to be paid off, before making annual returns for investment. That initial cost, is the opportunity cost, against which we are comparing the PV returns to the £4k invested in a simple growth fund.]

I stand by my calculations, over 20 or 30 years the return will be equivalent to investing the same £4000 at an annual interest rate of around 4.65%, compounded.  You'll do better if the lifespan of your inverter is 20 years rather than the 10 years I assumed.

For £4k at 4.65% compounded, I get a total of £9,928 after 20yrs or £15,640 after 30yrs.

For the PV investment, as previously explained, but with the earnings/savings invested at 4.65%, I get a total after 20yrs of £15,952, and after 30yrs of £30,362.

If the inverter is only replaced after the end of yr20, then I get £17,527 after 20yrs and £32,843 after 30yrs.


Edit - Bugging me whether (or not) we should account for the initial £4k or not. So for comparison, let's deduct it from the calcs to see how much was "made" on the £4k.

So the £4k invetsed at 4.65% compounded grows by £5,928 after 20yrs, and £11,640 after 30yrs.

Whilst after deducting the £4k investment from the PV earnings, it has earned £11,952 after 20yrs and £26,362 after 30yrs. [10yr inverter life example.]

Note - I'm building ever more, on top of earlier calcs, so any errors will now be significant.

zxzxzx

Your key question is…?

“future-proofing myself against rising annual bills, but not sure such a small array will have much impact.”

As said above you will be able to cover a percentage of your use across the year, in the summer selling surplus you can leave profits with your supplier to reduce your winter bills. 

If you are staying long term in the house (10years ish) look at adding batteries and then using time of use tariffs to reduce costs summer and particularly winter. 

As an example Octopus Agile, at the moment, occasionally pays you to use electricity or has it available for several pence a kWh in the early hours - not often and with no certainty AND you need to put work in to gain from this by shifting charging and using high energy appliances on timers at night.

Doing so has reduced my bills considerably now and potentially for the future but it may not work for everyone.  

At the risk of starting the bleeding obvious no one can know for certain what will happen to electric pricing, but my money is on it not becoming free any time soon. If you are producing (even a bit) you ain’t buying!!

Good luck with your decision, and Happy New Year.

PS Seek solid advice from a good installer. Most should give you forecast cost/profit analysis …. but treat with a splash of salt!

Exiled_Tyke

QrizB said:

Reed_Richards said:

I think a Return on Investment calculation assumes that the investment itself is redeemable for cash, which isn't the case for solar panels.

No, you just use IRR and assign a zero future value to the PV system.

I'm not firing up Excel at this time of night but the calculation is quite straightforward.

I fired up Excel!  £4k investment and 20 Years of £550 returns:  IRR = 12.4% 
Add a new investment at the end of year 10 (for £1k) then I make the IRR = 11.1%
If we go for thirty years and news inverters after years 10 and 20 then IRR = 12.0% 

Happy to be corrected if there are errors in these. 



Martyn: I haven't tried to get to the bottom of your calculations: sorry. However, the IRR takes everything we need into account.  Essentially we consider borrowing the initial investment (of 4k).  If the actual cost of borrowing is less than the IRR then the investment is a good one: it makes (or in this case saves) money.    Or to put it another way. If the cost of borrowing was exactly equal to the IRR then the investment would have exactly paid for itself at the end of investment period.   If we are taking money from savings then the relevant interest rate is not the cost of borrowing but the interest lost on savings.  So if these figures have been reasonably assessed then they are far better than current savings rates.  The biggy is how any of the the numbers may change during the investment period (particularly income).