Will your solar panels bring sunshine to your savings?

In his last paragraph, Chris of Gloucester says that “if you prefer your cash fluid and you don’t like the idea of a 20 year deal …..” HOWEVER, he also points out that after 8-10 years you have recovered your initial investment. This would mean that further years are pure profit – for a 4pkW system in the midlands this means FREE income of over £2,000 pa. (I am basing this on the ACTUAL returns on my system since July 2011.)

I have assumed that the capital that I have invested in my system would otherwise have been earning 3% net of tax in a savings/deposit account. The payback period, taking into account the foregone interest on outstanding capital will be just under SEVEN years (assuming inflation of just 2%).
The inverter has a 5-year manufacturer’s warranty and an expected life of 10 years, so I don’t expect to have to replace it during the “payback” period.

Finally, if I amortize the original cost over 20 years rather than 7 years and allowing for a £1,000 inverter replacement, the income that I will get on my original investment is equivalent to 13.3% NET of tax – show me a bank account that will do that !!

Bridge Coach – I completely agree but I would add that inverters genearlly have a 12-15 year mean time to failure and you should be able to get an exchange one for under £500 fitted. £1,000 for an inverter is an urban myth – it is the cost of a new one if you dont have an old (broken) one to exchange.
Additionaly, if you factor in that electricity inflation has been running at over 6% (around twice RPI & CPI) then your 13.3% maybe a little under estimated.

I agree Jim – I hadn’t taken account of the fact that electricity price increases seem to be much higher than inflation – closer to 8%pa at the moment. Our figures so far indicate that we have been able to use just 35% of the generated power, rather than the 50% assumed by HMG and by Which?. This saved us 1200 units in the first 12 months – approx £140. An extra 5% (8% – CPI) on this amount would be £7, thus raising my amortized yield to 13.7% (as you say, “a little under-estimated”)

Nick
in principle it will be no different to any other type of roofwork and if you use a reputable installer there should be a very low risk of any problems. However I guess there are principally 2 things that could go wrong – either the roof could get overloaded and sag a bit or it might leak. Either way if you use a decent installer that knows how to calculate loads and then do a proper job then this shouldnt be a problem. For your own peace of mind I’d recommend using an installer with a decent track record and has insurance, in which case there is no difference to maybe getting a chimney or a leak fixed.

Jim,
Yes I would certainly go with a reputable installer (in fact they won the Industry award for 2011) and the risk would be very low but conveyancing, solicitors and title deeds are another matter entirely. My justifiable concern is to cover the eventuality of being asked by a buyer’s solicitor (either of my own property or one or both of my 2 neighbour’s) or even a future owner who sees what the title deeds say and is the type who goes by the letter (as opposed to the spirit) of the law for paperwork given that the roof is a party repairable roof.
I have a solicitor looking into it but who hadn’t yet come across this issue before but I also have an estimate sitting on my desk with the prospect of another 3% coming off the FIT on 1st Nov. Nick

Nick
I see your problem and I’d be grateful to hear the outcome.
With regards to your award winning installer, I dont know which award they have but my only caution would be to generally only take independent commendations as credible. A lot of the so-called trade awards operate in a way where companies get to nominate and vote for themselves. Hence these questionable ‘awards’ can make a low cost but potent marketing tool though, alternatively, well commended businesses such as Solarcentury (if I am allowed to name them?) have shelves full of genuine 3rd party business and ethical awards.
Good luck with the legal stuff and I hope you beat the FiT drop. Jim

Thanks Jim. Yes I’ll let you know what the solution is. I can’t be the first person to have this problem. Good points about awards. They state they are recommended by Which? and moneysavingsexpert. They say won 3 awards last year.at various Renewable functions.
Nick

Jim, I agree with the first part of your comments.
However, ” And if you reinvested the benefits . . . . .” is misleading – I have calculated that with a starting return of 10%, the 16% or17% rates would not be reached until years 10 and 12 respectively (assuming notional amortization of 99 years).
On the other hand, if you amortize over the 25 year term of the government payment, the 16-17% rates are not reached until year 18/19.
The big caveat here is that these rates will ONLY apply if there is no degradation of the system performance – most unlikely.

Hi Bridge Coach. You didn’t comment whether your amended figures take into account the reduced inverter replacement cost?
Amortising & capex write off is always a personal view but I dont think my figures are misleading & are certainly not intended to be. I simply added up the 20 year benefits, subtracted the capex and divided the result by 20. I applied some reasonable figures for degradation, inflation, etc but I kept the energy inflation way below this year’s 13% (which? figures out today).
BTW performance degradation from high quality panels is virtually zero but an ‘average’ is 0.4% per year over 20 years although it isn’t linear. The average is also dragged down by poorly constructed panels that let moisture in after a few years.
One more point is that good quality panels have a positive output tolerance which means that the initial output is actually slightly higher than the rated output. This means that it can take several years for the degradation to reduce the output to the rated value. In other words, buyers of good quality systems can get a ‘freebie’ of higher than expected initial output (and bad systems can be lower). My figures didn’t take this into account. The magnitude of this is that a ‘good’ system may have an initial output 5% higher than rated. And at 0.4% degradation it will take 12 years to drop to the rated output. I was about to say it is an interesting subject, but that might sound a little geeky…

Anmar. This is a situation that I haven’t heard of before. Do you mean your houshold insurance wants £240 to insure the PV? I believe they normally just include it on the bricks & mortar insurance – I haven’t heard of that kind of premium before. I have had pv for over 8 years and have had cover on household insurance at very little extra cost. I think it just counts as a fixed electrical appliance?
did you buy your PV or is it a rent a roof scheme? I bought my PV so that might possibly be the difference?

Rob Roy. I dont know how far North you are but your figures dont look a million miles out. and I believe the EST figures are that the average home only uses 20% of the generated energy unless you modify the way use electricity (e.g. I put dishwasher/washing machine on when I leave for work in the morning). Some people use EMMA type immersion heater controls?
However, as Which? (Richard Lloyd) have said, energy inflation is at around 13% and this links to the export tariff and also to bill savings, and I am unsure if you have taken this into account?
and also as Which? suggest, you can take your PV income and reinvest it in a savings account for further benefits. so in other words, I think that good earnings can be made but payback is normally around 7 years. and of course, the money comes trickling back in as soon as the PV is installed so you do start getting access to it before year 7.
So it is possible to get double digit returns with PV but if you have other ways to get better returns then it makes sense to do that.

I havent seen your spreadsheet but it needs to factor in the bill savings and export tariff at energy inflation, and the FiT at RPI. Then if you pay your installer, say £5,500 for 4kWp, you should then have around £800(ish) back at the end of your first year. so if you chose to invest that £800, you would get a (say 4%) return at the end of year 2.
So, no, I dont think it is premature to talk about investing savings before year 8. but clearly it is a matter of personal circumstances and perspective. And did you see British Gas & Ofgem are preparing us for another round of energy price increases?

Ahh. I think I get it. I think we are talking at cross purposes on 2 levels. firstly, I am assuming that you have £5,500 sitting in a bank account earning very little interest (the bank of England is talking about negative interest rates!!). If you were to spend it on PV, you would have some lucre in your hand at end of year 1 that you could reinvest.
If, however, you plan to borrow off the bank to finance the deal, it is not going to work.
My view is based on you having the £5.5k and you can either put it in a bank or spend it on PV.
For clarity, I am not suggesting that the PV would generate £5,500 + £800 at end of year 1. And if you were to have a FiT cheque in your hand and smaller fuel bills it wouldnt seem like smoke & mirrors.

Agreed. If you need access to the money then dont tie it up in PV.

For myself, I figured there are 3 certainties in life; death, taxes and rising fuel bills. When I put solar on my roof, my combined fuel bills dropped to £30/month for my 4 bed house. the feed in tariff pays me just about the same so I no longer have to worry about household energy bills. So for me it was a no brainer. But I do live in SE England and have an unshaded south facing roof.

And if I’d left it with my ISA or NS&I? I’d have just a few quid more than I started with but I would have easy access to the pot that was, in reality, dwindling in relation to the RPI.

It isnt classified info but I havent kept a record since I happily realised the FiT covered my energy bills. But I should point out that my energy consumption is low and my house is fairly modern and low cost to heat.