Saturday 16 April 2011

Solar PV investments - worth it?

Is it a good idea to invest in Solar PV?

Not from an 'environmental do-goody' point of view, nor from the simple point of view of saving a bit of your electricity cost, but from the financial investment point of view.

Let's look at some numbers



A medium sized array of 6 panels will cost about £9000, this will generate 890 kWp/year, of electricity. For this power the government currently says your electricity supplier will pay you (a FIT, feed-in.tariff) of 43p/kWh, or in this example around £382/yr, and this will increase by the RPI every year. You get this money in cash not as a rebate or credit, no tax. If you generate more than you use from your current supplier, so you export some electricity, they will buy this at an additional payment 1.5p. And of course what you generate you do not have to buy from your supplier, this not earnings on the investment but it is a saving of your living costs (never confuse the two). All in all the sums look like this

FIT @43p/kWh = £380/yr
Investment = £9000

So a return of 4.2%… not so hot. But there are a range of suppliers and some say they can increase the Solar PV yield up to £450/yr giving 5%. Plus, remember the saving you make by not having to buy some of your electricity at around 13p from an outside supplier, i.e. saving costs. And don't forget the FIT increases by the RPI every year.

But now for the arguments



1 Performance and equipment

Solar panels are very new technology and there is consequently no long term experience of how the output goes down with time, best estimates are that after 25years the output will go down to less than 80% of the original - a 20% loss in FIT income.

Guarantees on the DC-AC converters are at best only 10 years, so who knows if you will need to buy a new one after that?

2 What the government says.

I queried the reliability of the FIT legislation, critical to the decision to invest to get the 5% return. Will it really be guaranteed for 25 years as all the suppliers say?

I got a letter back from Gregory Baker, Minister of State of the Dept of Energy & Climate Change. He says:

1 The coalition is committed to FITs (whoopee).

2 There will be periodic reviews to assess how the scheme is working (for the government, not for me!)

3 They could then make changes, to see if Solar PV makes a continuing real contribution to government renewable and other targets, and that the scheme gives value for money (again for the government not for me!)

4 2010 spending review committed to save 10% of the cost of FITs in 2014-15, or earlier if too many people take up the scheme (!). But still provide "value for money" (whose money?) by keeping costs down (i.e. my FIT payments?) and giving industry certainty to invest (i.e. not costing them too much to pay my FITs)

5 FITs are supposed to give certainty to investors (I believe this means the electricity companies and solar suppliers, not me???)

6 The "intention" is that future changes to FITs will apply only to investments made after any spending review… FITs for existing installations will be maintained. THAT MAY BE THE GOOD NEWS.

But the export tariff, the 1.5p you get for supplying electricity back to your supplier, could change.

7 When the scheme was introduced it said the tariffs would be paid for 25 years for Solar PV (See www.decc.gov.uk/fits).

8 Future governments could change any/everything

Conclusions



The guarantee of 25 years FIT payments increasing by the RIP is wooly. It looks good as long as the government does not change its mind. It allows for inflation, but put this against the 20% loss of power from the panels over their 25 year life. So it depends on how much you trust the government, or future governments and how the panels perform.

The export tariff will undoubtedly change at each review.

Shaky feeling



I still have a shaky feeling about this. Especially as the government approach seems to be seeing things from the point of view of their policy and the interest of industry, and not at all from my point of view. But it is me they are asking to invest.





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