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Why were the Dragons in the Den so surprised by solar PV?

Dragons' Den c/o BBC

Solar PV got an airing on Dragons’ Den last night, but given its growing popularity, I was surprised that the Dragons thought it was a new idea! So here’s a recap for the Dragons on solar and the Feed-in Tariff.

At last! Summer seems to have arrived and some are thinking about whether they can cash in on sunny days. There has been an increase of 400% in solar sales since this time last year as more people decide to invest in this new technology.

Perhaps it could only be a matter of time before a solar entrepreneur walked into the Dragons’ Den – and last night it finally happened. He explained how a fortune can be made by selling panels to homeowners looking to get cheaper bills, earn money via the government Feed-in-Tariff (FIT) scheme, and reduce their carbon footprint.

Deborah Meaden was keen to invest in the business mainly because she’d already invested in another – clearly she can spot a growing market! By the end of the pitch, tha Dragons were doing battle for the opportunity to invest in the idea.

Don’t be blinded by solar promises

No doubt some people will really benefit from it with cheaper bills, a lower carbon footprint, and the chance to earn money back from the FIT scheme. But I’m not sure the business warranted such unqualified love from our Dragons.

There are two types of solar technology – solar hot water or thermal and solar photovoltaic (solar PV). Solar thermal uses the sun’s energy to heat up a home’s hot water. Solar PV transforms energy from the sun into electricity that is used in our homes – this was what the entrepreneur was offering.

The systems are expensive – around £10-12,000 – but the government’s ‘Feed-in Tariff’ (FIT) scheme is helping people make money from solar PV (solar thermal is not eligible). It was this that had our Dragons reaching for the chequebooks. Why? FIT pays money to homeowners for generating electricity, at a premium rate, meaning that many are falling over themselves to have panels installed and get some of this cash.

How fit is the Feed-in Tariff?

This may seem like a win-win scenario but remember that this is not ‘free’ money. Everyone pays for FIT through their electricity bills, and the Government is going to review the level of tariffs from April 2012 onwards – a fact the Dragons would have been wise to ask about. Although panels installed this year won’t be affected, if the level of FIT drops next year then solar PV might not look like such a great investment, and sales of the systems could start to decrease.

A recent change to FIT meant that large-scale solar farms were no longer eligible for such high subsidies. We supported this change partly because the amount of subsidy needs to be kept under control. When many people are already struggling with their energy bills, it’s important that the Government has a clear idea of the impact of schemes such as FIT.

Shiny happy salespeople

You also need to watch out for companies making claims that can’t be backed up. Our undercover investigation into solar panels showed up some clear problems with misselling. Some of the solar PV salespeople offered discounts that were only valid for 24 hours, for example. We were also worried by quotes made by salespeople who were not qualified surveyors.

Of course, that’s not to say all salespeople are unscrupulous, but it is important to highlight that solar PV is a technology that will be relatively new to most people. Not only that, but the returns generated can vary greatly depending on the type of property you have, which way your roof faces, etc. Because of this it is really important to make sure that consumers aren’t blinded by sharp sales patter, ending up stuck in a deal that gives poor returns, or doesn’t live up to their expectations.

Sunday’s Dragons’ Den would have been a great opportunity to highlight the pros and cons of solar PV and encourage people to look around before buying. The fact is that although it looks like a good investment, the returns will vary greatly between households – and this could prove a problem for future sales, if the Dragons haven’t done their research.

We advise anyone who is looking to get solar PV to have a thorough look round and do their homework. Perhaps the next time a solar entrepreneur walks into the Den our Dragons won’t be so surprised by this ‘new idea’ that’s been around for a while…

Comments
Guest
Anna @ Solatricity says:
2 August 2011

It’s great to see Solar PV getting some air time and encouraging discussion out there about it. Obviously the Dragons just need to catch up a bit!

Guest
Moneyclams4u.com says:
2 August 2011

I have solar panels installed in my house. Saving electricity/gas from heating water for 5mths of year is estimated to save me £400. Maintenance cost are roughly £500 per year. That is purely servicing. If you have a breakdown, these are expensive systems to fix.

Having had solar panels fitted for heating water, I hold the view they are not economically viable for the UK market. Med weather, different story.

Guest

Hi Moneyclaims – that’s a shame, although the sun is shining today so maybe you’ll have a bit more luck…?! I can see why our really poor summer this year would be even more frustrating for people with solar thermal panels. Your experience does reinforce how important it is to make sure that your property is right for solar – if anyone is thinking about it, make sure the company does a proper survey to give you estimates of the return.

Should also point out (for those who aren’t sure of the difference) that there is a big difference between solar PV and solar thermal – thermal heats the water (as in Moneyclaims’ example) and PV provides electricity that powers your home appliances. It was PV that the entrepreneur was talking about on Dragons’ Den, but if you’re interested in thermal, here’s our handy guide to solar thermal panels:

http://www.which.co.uk/environment-and-saving-energy/energy/guides/how-to-buy-solar-panels/solar-water-heating/

Guest
Family Man says:
3 August 2011

Why on earth would you pay £500 a year to have a system serviced that saves you £400 a year? I am sure that better systems are available but even then the payback is way too long. Forget about Solar Water heating unless the RHI scheme looks attractive when introduced next year.

Guest
Moneyclaims4u.com says:
2 August 2011

At moneyclaims4u.com we have issued proceedings against one builder who refused to ensure water tank fitted was compatible with the solar panels fitted. They eventually played ball before a judical decision was necessary.

My neighbour has had the PV panels fitted. He is 70. He reckons it will take 20 years to get his investment back through cost savings. Also, he has had problems getting paid for the electricity he has generated.

Guest

I think the applicant on Dragons’ Den suggested that an income of £1600 p.a. [nett presumably and taking FIT plus savings through reduced supply from the grid] could be obtained from a 16-panel PV installation on a south-facing roof with all other factors being ideal. This struck me as being a very attractive estimate – but possibly too good to be true – and I could see how eager people would be to install PV. This is what excited the Dragons – while there are so few companies on this bandwagon installation remains very profitable – although I don’t think they asked what percentage of the installation cost was clear profit for the installer. With interest on savings currently at abysmal levels it looks like a no-brainer for anyone who has a spare £16,000 available to spend it on some roof panels and the inverter etc, sit back and watch the cash roll in [remembering to run the dishwasher, washing machine, and other high-load appliances, while the sun is shining of course]. So why are there so few roof panels going up? And why are new houses not orientated to catch the sun and fitted with PV panels as a matter of course? Obviously, the more energy fed into the grid from our roof-tops the lower the feed-in tariff is likely to fall each year, but equally the higher electricity prices rise in real terms the greater the value of the home-produced energy substituting for grid supplies. Will this balance out? People are being very cautious – not wanting to risk their savings and lose the flexibility of access to their money should an urgent necessity arise, not sure how it will affect their selling prospects if they wish to move house [at a stroke it cuts them out of the Buy-to-Let landlord market which is about the only ‘sale of last resort’ available today]. Will property with large south-facing roofs command a premium? Or will prospective purchasers be put off by the uncertainties and choose a house without panels instead? Indeed – how transferable is the feed-in contract? Unlike your savings, this might not be something for a rainy day.

Guest

I agree with some of your points.
£1600 per year feed in tarrif is optimistic, more like £1000 I think.
And yes the feed in tarrif will reduce as more systems get installed.
However some I’m not so much in agreement with.
There is no profit until your investment is paid back which might be 12 years plus, so hardly a “watch the money roll in no brainer”
And actually you’d be better off running the dish washer etc at night paying about 12p a Kwh rather than using the daytime 43p Kwh you could sell.

Guest

@Chris

FIT is paid on all generated electricity, whether you use it or feed it back to the grid,
the power you use can be valued at your tariff rate (11p in my case), and finally the power you export to the grid is valued at the wholesale rate (3.1p in my case).

So John is correct to run his high usage kit in the day time to use generated power. The FIT is paid anyway.

Guest
FINSBURYPARKER says:
21 June 2012

Good Morning John.
______________________________________________________________
I think the applicant on Dragons’ Den suggested that an income of £1600 p.a. [nett presumably and taking FIT plus savings through reduced supply from the grid] could be obtained from a 16-panel PV installation on a south-facing roof with all other factors being ideal.
————————————————————————————
Is it possible that some of these ‘Dragons’ have a vested interest in Solar PV Panels?
…………………Just a thought, they seem to have a finger in every other pie!

Regards.

Guest
Family Man says:
2 August 2011

Just signed up for a 16 panel 3.84KWp system. Roof is almost due south facing and I work from home. Cost is £13,100 and annual benefit works out at about £1600 per year. The company I choose was Which Local recommended and includes a survey of the roof structure and a 10year warranty. Installation starts in 2 weeks time. I am looking at an approximate Payback of @8 years but maybe even quicker if energy prices continue to rise (read something suggesting 60% increase by 2015). FIT is guaranteed for 25 years, index linked and tax free. Better than 12% per annum! Can’t think of a better investment. It’s even possible to take the FIT with you if you sell the house, Check the SAP calcualtion and the EST website calculator if you are worried about possible misselling. What are you waiting for?

Guest

Good luck Family man.
But I think the figures you’ve been given are a little optimistic.
Don’t think you’ll get to £1600 feed in per year.
I think the payback will be more like 10 to 12 years.
Don’t see, even with your figures how you make it a 12% return, you have to get your outlay back before there is any real return remember. Like money in the bank you can take out anytime? except you are locked in arn’t you?

But not wanting to rain on your parade you won’t do too badly over the 25 year life of the system, just not quite as well as the salesman has clearly convinced you.

Guest
Dave says:
5 August 2011

Take the FIT with you if you sell the house? How does that work?

Guest
john_at_gen says:
5 August 2011

Dave – personally I don’t think it does but we are having a debate about this at http://www.greenenergynet.com/communities/articles/solar-pv-sound-financial-investment (see discussion at bottom of page). We hope to come back with further clarification.

Guest

@Chris

“locked in”?

So no long term investments for you? Not everyone keeps all there investments in a deposit account.

Guest

@Chris

Sorry finger trouble, consider a continuation with my post above.

Lets compare investing in PV panels vs a conventional retirement investment.

I just checked the tables and £100k invested in an annuity (joint life, with RPI) pays less than £4000 per year. So I take some of my tax free (up to 25%) and use that to put PV panels on the roof. The income is RPIed and tax free and beats the crap out of the annuity return. Plus as a retiree you are at home in the day time using power so you get the best benefit of the panels.
This makes me think this is one of the best ways for someone retiring to invest the smaller chunks of pension money that must be crystalised with retirement.

Return on all of the conventional capital investments are very low, even on long term bonds (unless you want to buy Greek) and equity investments are currently in negative return.

Look at your pension arrangements and see what your options are at retirement.

Guest
Family Man says:
9 August 2011

Got at least 6 years before I can retire and potentally up to 17 years but I had also came to the same conclusion. It makes perfect sense for somebody approaching retirement. Also did a stint as a pension trustee and investment returns and annuity rates were frequently discussed. Somehow, annuity rates discussions always caused a dark cloud to decend on the room!

Guest
john_at_gen says:
9 August 2011

MrBeck – we’d agree. Our article “Is solar PV a sound financial investment?” (http://www.greenenergynet.com/communities/articles/solar-pv-sound-financial-investment) suggests that it is a decent option for retirees (for the reasons you state) with some key provisos about staying in your house for the next 20+ years and, unless you are passing your property on to family, it may not be ideal for those over 70-75 years old. This is a broad generalisation based on likely health and other potential financial commitments.

There are other investments that (based on AER) might compare if you move within the first 15 years of a solar PV project. Long-term investments on the stock exchange have offered somewhere near 10% annual returns (so could be comparable) and investments in property renovation like loft conversions and house extensions are (according to published research) also likely to be more lucrative as they add value to your house.

But 25 years is a long time and what seems like a good return right now may not be as attractive in 5 or 10 years time eg. if interest rates go up significantly.

The critical ‘unknowns’ with solar PV are:
(1) What will it do to the price of your house if you decide to sell it within the 25 year period? We don’t have enough evidence yet.
(2) What are your savings likely to be over 25 years? These are largely guesstimated by solar PV calculators. But right now there is widespread disagreement about how high energy prices may go and how fast they will get there! Some experts are saying one thing while the government is saying something quite different.

Guest
KYLIC says:
20 July 2012

I suggest Family Man has his facts wrong!
To continue to get the FIT payments, it is necessary to continue to supply the Quarterly Readings from the ‘Output Meter.’
How many house purchasers will permit a vendor to invade their privacy every 13 weeks to read their output meter?
A 16 panel array should be able to produce 4KW per hour in optimum conditions however for some reasons some installations are deliberately ‘MUZZLED’ at 25% less than the stated capability. I wonder how this can be justified under the ‘Sale of Goods Act? KYLIC.

Guest
Damn Young says:
2 August 2011

I plan to go on Dragon’s Den with my idea for a business collecting all the PV solar panels that will be blown off people’s roofs during storms. Remember 1986?

Guest
Family Man says:
3 August 2011

Nice idea. The company I am using also include structural calculations for the weight of the panels and possible wind lift. Not all companies offer this so buyer beware.

Guest

Excellent point. Check your home insurance too. My Halifax policy covers PV panels but not many do.

Guest
Family Man says:
9 August 2011

Already checked with my insurance company (Also Halifax). I will be covered.

Guest

I was interested in solar, both hot water and PV, so I did some research.
I found that when installed correctly on a south facing unobstructed roof both systems will indeed produce hot water and electricity respectively, so they do work.
However unless you install these systems purely to do your bit in reducing Co2 emmissions the economics need looking at very carefully.
Take PV generation of electricity. The average domestic installation will consist of an array rated at 2.5 Kw to 3.5 Kw, it will currently cost you around £10,000 to £12,000 and have an operational life of perhaps 25 years. The feed in tarrif at 43p or so per Kwh will net you a realistic income of circa £1000 per year tax free. So on the face of it the deal is you give me £12,000 and I’ll give you £1000 per year for 25 years. Doesn’t sound a bad deal but remember you are locked in for at least 12 years before you get your initial investment back, maybe a little less if you reinvest the £1000 feed in tarrif from year one. This compares reasonably with an alternative £12,000 investment but it’s not outstanding especially not with the “lock in”.
Most people with £12,000 to spare will probably be perhaps recently retired, and a 12 year payback coupled to a 25 year investment might not be something they will want to embark upon, but perhaps some will? Perhaps some will opt for more conventional investments?
As for the free installations being offered, well no £12,000 outlay, but no feed in tarrif either. You only get free electricity when the sun shines, the very time you won’t be needing much. So I see little advantage in these except perhaps for people using immersion hot water.

But what about solar hot water? Well, economically I don’t think this is very good at all. An installation will cost pergaps £3000 to £4000 and might provide all your hot water needs for 6 months of the year (maybe). So what are you saving? My natural gas combination boiler provides 6 months hot water for around £10 to £12 per month, say £70?
I make that a payback for solar hot water of around 42 years. Perhaps a few years less if gas prices continue to rise at the currently alarming rates but still a long long time. Conventional investment of your £3000 or £4000 will do much better.

My conclusions are Solar hot water is pointless but Solar PV might be a goer, however I’d like to see the up front cost reduce a lot more before I take the plunge. The numbers arn’t quite good enough just yet, perhaps in a year or two if the feed in tarrif remains at current levels.
And my last word is if you borrow to install the interest will put your whole deal well into the red, and I suspect that will also be the case if you go for the forthcoming the “green deal” loan scheme..

Guest
Damn Young says:
3 August 2011

What about a nice cheap black water butt, in a sunny spot? Or perhaps one of those 5 metre black sewage pipes from B&Q, with the ends sealed up. Solar hot water doesn’t have to cost.

Guest
John MACMILLAN says:
6 August 2011

Remember that in addition to the FIT you will receive income from selling any electricity you don’t use. I have seen panels on a grey February day generating electricity.

Guest
Family Man says:
3 August 2011

Hi Chris,
You raise a good point about recovering your investment first before getting a real return. I will admit I hadn’t considered that in the calculation as I was looking at a 25 year investment and selling the system at a later date could still be an option for recovering some of the money (not without some problems I admit). With regard to the annual benefit of @£1600 (FIT + Personal use + feed into grid) and the payback period this is backed up by the EST website calculations. I didn’t just take the suppliers word for it, I got 3 quotes and checked all assumptions. However the EST website is also pessimistic because it works on SAP calculation instead of the more relevant PVGIS assumption. It also ignores the Index linking to RPI and potential increased energy costs in the future. Check it for yourself on the EST website.(http://www.energysavingtrust.org.uk/Generate-your-own-energy/Cashback-Calculator) Investment is £13,100, SAP value is 3161KWh/y

Guest

Family man, like I said good luck and I hope it works out for you.
I’m still however not convinced the FiT will provide the return you expect. Suppose it really depends on who’s crystal ball you believe in the most. I’m also not totally convinced the system will really have an operational life of 25 years, there are no existing examples to prove this. There is a school of thought that as the system gets older it will lose efficiency and that the inverter might need replacing after a much shorter time, perhaps 10 years (and that won’t be cheap), but who knows?
To be honest the only thing I am sure about is that you will find out over the next 25 years just how well your installed system really works, and how the economics pan out. I hope the concerns I have read about and that I’ve expressed here turn out to be unfounded.
I would agree with many other comments that an independant study needs to be conducted. This might go some way to confirm or deny all or at least some of the concerns the varying opinions we read about are giving rise to.

Guest
Family Man says:
3 August 2011

Hi Chris,
Its true the system will slowly lose efficiency but PV panels all come with a guarantee of at least 80% of year 1 perfomance after 25 years. The basic technology has been understood for years so there should not be any surprises.You are also correct about the invertor may need replacing after @ 10 years. There is another Solar PV payback calculator at http://www.solarguide.co.uk/solar-pv-calculator . This one allows you to change assumptions about RPI, Energy price inflation, invertor life etc. Definately worth a look. I regularly visit Germany which has had a similar government program. Its impressive how many Solar PV systems are installed in Germany. If you are looking for a field trial there is plenty of evidence from Germany. Everything in life carries some risks. In the case of solar PV and the FIT, I have concluded the risk is minimal and the potential ROI is very good. As you say, only time will tell and whatever the outcome I am commited to it. Will post messages again when the system is installed and running.

Guest
john_at_gen says:
3 August 2011

Chris,
On point 1, will the FiT provide the return, right now (in the early days of projects) many people are exceeding the yield expectations of their installers because the calculations installers do are pre-set by government. Actual yields are often better than expected. Solar PV panels have no moving parts making them a lot more robust than many other bits of kit. Our top tip is to get your solar PV modules from a recognised manufacturer that is likely to be around for the next 25 years so they can support the 25 year warranty. In terms of output they are not that much different – those in the industry use manufacturers that they trust and have been around for a long time. So pick your kit manufacturer with care – based on their likely longevity and the ease by which you can contact them – not necessarily their promised output and cost. Your installer should give you a choice and, if they don’t, then maybe they are not the right installer.

I think the main worry that many people raise is whether the UK Government would try and wriggle out of the commitment to honour these payments over 25 years in the way, as I understand, the Spanish government has done. FiT is paid by energy companies from revenue on our energy bills and the ‘big six’ energy companies are mandated to honour the 25 year term. It’s unclear what would happen if they tried to get out of this? We think it’s unlikely. However, as our Legal Guide to FiT (http://www.greenenergynet.com/anaerobic-digesters/articles/summarising-legal-guide-feed-tariff-scheme) highlights, there is no legislation in place to compensate people should this happen!

Point 2 about efficiency – yes, an efficiency loss is likely although there are things you can do to your panels to maintain them and minimise this annually. The solar calculator we like (http://www.solarguide.co.uk/solar-pv-calculator) builds in an efficiency loss over the 25 years of 80% over the lifetime of the project (you can change these parameters if you want which is why we like this calculator).

Point 3 – replacing the inverter. I have had a mixed response from engineers in the industry on this one. Some engineers say they should last this duration, others that they may only last 10 years, others that they certainly do malfunction but it’s more likely in the first few years than after that. I take from this a conservative attitude that it’s best to build in costs into your calculations for a replacement inverter. How much do they cost? It depends on your system but it could be as much as £1000. You should be offered an option to take out a 25 year warranty on the inverter malfunctioning. This is well worth considering. You can again build in a replacement inverter using custom settings on the SolarGuide calculator mentioned above.

Final point – always bear in mind that Germany is probably 10 years ahead of us and they have a huge number of installations based on the same technology. They also have rigorous test centres doing independent PV module testing. I think it’s fair to say they have a pretty strong reputation when it comes to product engineering – and their consumers are unlikely to tolerate poor quality products.

Guest
john_at_gen says:
3 August 2011

We share many of these financial concerns – many of the technologies in a significant proportion of UK houses are going to break the ‘Golden Rule’ that the government is basing their flagship Green Deal policy on.

John Ward > We agree with your concerns and address them directly in our 2 articles – “Why would you not invest in solar PV” (http://www.greenenergynet.com/households/articles/when-does-solar-pv-not-make-sense) and “Is there a sound business case for solar PV”? (http://www.greenenergynet.com/communities/articles/solar-pv-sound-financial-investment)

We also try to answer Peter Jones’ question on Dragons Den about the potential size of the domestic PV market in Britain on our blog post – this is the one Chris couldn’t answer..
http://www.greenenergynet.com/blog/future-uk-solar-pv-market-answering-dragons

Guest

john_at_gen,
That’s because Chris doen’t know.
I’m not a market reasearcher.