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

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/

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.

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.

@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.

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.

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.

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

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.

@Chris

“locked in”?

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

@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.

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!

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.

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.

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.

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

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

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.

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.

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.

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.

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.

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

I also work in the electronics Industry for as company that makes silicon chips including products for solar panels (although I am not directly involved in this part of the business). I have a degree in Physics & Electronics. The panels themselves may become slightly cheaper year on year due to improved manufacturing and production volume but I would expect an average of @5% per year althoiugh some years may be better depending on Silicon wafer production utilization rates in the Billion dollar factories. The efficiency of the panels is governed by the laws of physics. Currently they are limited to @14-15% efficiency with relatively minor improvements year on year. Scientists and Engineers are working on techniques to increase the effective active area at a microscopic level by creating a cone like structure inside the silicon wafers . One report suggested that this could yield up to 80% efficiency. However, I think there may be potential problems with heat dissipation so it could be IMHO at least 5 years before we see such a “quantum leap” in efficiency. Another area of improvement could be in invertor efficiency due to improved high voltage switching transistors and control circuits. This is more tangible and realistic in the short term but again will only yield a few percentage points each year. So yes, you are right the systems will get better but don’t forget the technology has already been around for some time so I would not expect massive overnight advances. If you install a system now you could also look at upgrading the panels and invertors in the future depending on the economic arguements at the time. In the meantime my energy company anounced gas and electricity price rises this week so I am not waiting. System installation starts next week!.
Very interesting point about installation and wind induced failures and rain penetration. My installer does a roof survey. We have discussed wind lift and loading but rain penetration was not discussed. I will ask them about it.

Hi Colin,
Great to see somebody confirming the real life situation which seems to be very much in line with expectations. Maybe even better! My installation start next week. Was very interested in your comment about a specially designed Imersion heater. Can you supply more info and product/manufacturer links? I also work from home and will be able to monitor the energy usage.

Hi JohnC,
Try feeding in the numbers for your system into this caculator: http://www.solarguide.co.uk/solar-pv-calculator?sc_form_type=3#factors
I think you will be pleasantly surprised with the impact of energy price rises and the effect of RPI increases. Here are the results I got for my system which was installed this week. Payback Time: 7y 5m
Total Profit Over 25 years: £ 48,818.32 14.46 % per year (6.12% AER)

We would suggest some caution using the default settings of http://www.solarguide.co.uk to calculate your returns. While we like this calculator (compared with others out there) but we would suggest tweaking its parameters as follows:
(1) A more conservative 3% annual increase in electricity prices (which is still higher than UK government projections) – if you leave it at 9% then price per unit gets to 110p in 25 years time which we believe is highly unlikely.
(2) A 13 year lifespan for your inverter – this means you are factoring in a replacement over the 25 year period.
This will significantly change your anticipated returns.
You should also bear in mind that your output will vary depending on your location so Glasgow will typically generate 13% less than Bristol according to estimates on http://re.jrc.ec.europa.eu/pvgis/apps4/pvest.php.

John (www.greenenergynet.com)

Phil,
In practice you do not get to choose if you sell the electricity to the grid or not. In most cases you do not get an export meter installed so there is no way of measuring it. Typically the energy company assumes by default that 50% is exported and pays you accordingly. Best option is (as you say) to use as much of the electricity during the day as you can by running appliances/ garden tools etc. If you can use more than 50% (Difficult in practice) you can in theory even get money twice for anything over the 50% that you use. My system is 3.92 WKp. Been installed now for 19 days and has generated 217KWh in mostly cloudy conditions according to the generation meter. Income so far should be £97.32 but I have also used a good proportion of the electricity (I work from home and have been using the domestic appliances as well during daylight hours) so I have also saved on my electricity bill (Too early to say how much yet). Please can you explain what are the £100 pa maintenance costs you refer to? I cannot understand where you get this figure from?

@Familyman

I suspect that the £100/year maintenance covers a sinking fund for inverter replacement during the life of the system. I have included this cost in my calculations on the recommendation of my installer. I’ve not been advised of any operational maintenance requirement.