There are many many websites explaining Financial aspects of Photovoltaic generation, but here are some links explaining it well, with a brief description of our own.
Energy Saving Trust / Solar Feed in Tariffs UK / Solar Century /
Is there a grant or subsidy? The Government have introduced a form of subsidy as an incentive to fit PV. It's called the 'Feed in Tariff' (FiT). For every kWh you generate you get paid roughly twice the cost of buying electricity: 21 p/kWh plus the additional 3p/kWh for the units you sell (compared with an import cost of 12.5 p/kWh). The amount is designed to give you a payback of about 5-8.5%, or 12.5-20 years full payback (during which time, you also enjoy a lot of free home generated electricity) depending on size and orientation. You need 4kW on a south facing roof to get the fastest payback. The Payback is calculated by combining the payment from the FiT, the savings you make by generating at home and the amount you sell to the grid. The income from the FiT is tax free, thus making it equivalent to a higher percentage, or a shorter payback. For PV, the FiT is set for 25 years from 2010, index-linked. After your payback period, it is all income!
There is no lump sum grant - with FiT, you earn continuously over 25 yrs.
The original FIT payment of 43pence/unit is unfortunately a thing that is fading rapidly into a happy memory, but it was inevitable that the change would come in December 2011-April 2012. The main reason is that the costs of a total installation nearly half the cost of the same in 2009 and the wholesale price of panels was nearly a quarter of the price in 2009.
What if you sell the building before the payback period? The feed in tariff applies to the building (passes on to the next occupant), so if you want to sell, you have the additional benefit of offering a house with reduced or zero energy bills. In future years, buyers will be anxious about gas and oil charges rising faster than other commodities and a house with 'eco' qualities has a premium value. This persuasive point should push the capital value of the house enough to provide you with an even faster payback, and will probably ALL of the cost. The evidence for this is in sales in the new eco-housing development in Green St, Meadows, Nottingham, where houses in a highly energy efficient features do not have fixed prices, they are being sold through sealed bids because there are 4 buyers for every house available.
Why is the feed in tariff so generous? It is better than a grant, and it is a 25-year continuous incentive to keep the panels clean, ensure the system runs well, and trim overhanging tree branches etc. Electricity from a power station has to travel through numerous stepping up and stepping down stages before it reaches your house and may have lost 1/2 to 2/3 of the original power - so perhaps 33-40% efficient. Electricity generated by you is immediately used by you and your neighbours within the same substation zone, making it 100% efficient.
If enough householders are generating on a sunny day, the centralised power stations can go into tickover mode (reduce the level of burning), as happens in Germany which has more than 200 times the amount of installed PV than the UK.
This does not cost the Taxpayer. The cost is paid through the electricity suppliers, through an micro-levy on existing users - if the ratio of PV houses to non PV houses is 10,000 to one, then each user is paying about 0.002p per kWhr towards your Feed in Tariff.
Are there loans? If you have a bit of capital, a legacy, or a maturing endowment, this is a great investment. PV will cost as much as a small car, but imagine a car that would give you 25 years motoring, with free fuel, insurance, servicing and tax, plus some income. Imagine an ISA where for £12,000 you can have a return of £30,000, and with index linking, perhaps £40,000 over the 25 yrs! Imagine a Kitchen conversion, following which ASDA deliver free food for the next 25 yrs.
We don't advise you take out a loan for it (or extend your mortgage) unless energy prices rise even further and the payback exceeds the interest rate of a bank loan.
Can I get it done for free? I have a really good roof! In recent months there are sources of finance offering a Roof Leasing scheme for PV in which you might have a splendid south facing roof, but cannot afford the installation. The company will install for free and their cost is paid off as a Pay as you Earn basis, meaning that it would Cost you Nothing - the Feed in Tariff would be earned by the finance source, and you enjoy a certain amount of Free Electricity for 25 years. There is an algorithm for calculating how much you would pay if you want to buy them out after a number of years, and receive the FiT earnings yourself.
Is there a maintenance / depreciation cost? Most PV panels are guaranteed for 25 years. Inverters are expensive piece of kit, usually guaranteed for 5-10 yrs. There is no maintenance required, other to check regularly that the system is still working (sometimes a circuit breaker trips if there's a grid overload). Record your generating meter daily or weekly to make sure it correlates with the weather. Check the panels visually for bird-poo (which will need to be hosed off. The PV panels will decline slightly over the years, but are good for the first 25. As the rails are already installed, panels can be swapped for more efficient ones in 25 yrs time. Panels can be cracked if kids throw heavy stones, but these should be covered by your house insurance.
Panels on low flat roofs may be stolen by thieves, so should be well locked down (and included on your insurance.) But if they are stolen it is almost impossible to resell them, as all panels are serial numbered and registered, and a buyer of second hand panels would not be able to have an MCS approved installation with panels that have already been registered. So they are not likely to be stolen, and most are too heavy to be installed on a boat or caravan.
Some installers offer a low cost annual clean and service - ask the ones you are talking to about installation.
Tell me more about Payback?
Payback chatter is a form of anxiety, we don't apply it to our car, our garden, kitchen, house extension or holidays (unless we are taxi drivers, horticulturalists, cookery writers bed and breakfast managers or travel journalists). Much of what we do is for pleasure. Even homegrown vegetables can cost more than buying if you consider the whole equation.
For the author, the PV installation is a little like a garden, I like watching it 'grow', following the seasons. I would have it even without the FiT because I like making electricity, and I like having free energy for life!
Back to investment: If we have spare cash and put it into a Building Society or interest paying bank account what do we expect? about 1.75% - it doesn't even keep up with inflation. If we put it into a 5 year account, we might get 4.5%. PV installations return in a range of of 5-8.8% depending on conditions, but after the payback period of about 12-20 years, the return is greater because it is ALL tax-free income thereafter. If you compound in the increasing cost of imported energy, the payback is 10% quicker, and after that it is sheer income (see below).
Capital return: Now and more-so in the future, there is a premium on high energy rated houses - there are plenty of people wanting a house with excellent insulation and low running cost - they want to go green, but haven't got round to it yet - and now they are house hunting, it's become an important criterion. The likelihood is that you would get your money back in full when you sell, after 4-5 years. When you sell the house, you have to have an Energy Performance Certificate, and that adds value to your house if it is a high grade.
In Rushcliffe, house prices are such that the units of currency in bargaining are equivalent to a PV installation - a house can be £10k or £20k more in value just because it is a bit nearer to Jesse Gray School, or because it's closer to Edwalton, or because your buyer wants to bid higher than another.
Compound or Simple? Explain: Another factor is that of Compound calculation. Most payback calculations are Simple, taken by the reciprocal of the Percentage return. Divide the cost by the income you get Years, divide the income by the cost you get Percentage.
The reality is that energy prices will inflate faster than other commodities, and the Feed in Tariff is to be index linked to the Retail Price Index (part of which is the energy price). So if you assume that energy prices go up 6% per annum (and we know they will go up hyperbolically after 2020) the income is expanding faster than just adding up linearly. £1000 a year for 25 years, with 4% inflation is not £25k, it accumulates to £41.5k. With 6% it would be £55k.
Anybody who thinks that energy cost inflation will be smaller than 6% should take a good look at their gas and electric bills for the last 5 yrs and think realistically. As an owner of a PV roof, you will benefit for rising energy prices by becoming a home generator.
Tax on the income?: Income from the FiT and electricity sales is tax free, thus making it equivalent to a higher percentage, or a shorter payback for taxpayers.
Energy Saving Trust / Solar Feed in Tariffs UK / Solar Century /
How much will PV cost? Rushcliffe Solar is not an installer, it is a small campaign and research group from West Bridgford Transition supported by Rushcliffe BC for the summer of 2010 and supported by solar installers thereafter. R-Solar can give you unbiased advice and budget pricing before you seek real pricing from commercial solar panel installers. We advise you ask 3 suppliers: if the prices are broadly similar, go with the installer who seems most informative and helpful. Please notify them that you found them after discussing with Rushcliffe Solar.
The smallest practical size to consider is 8 large panels, that's about 1.5 kW output. The largest practical one (under the terms of the tariff) is 16-22 panels, enough to make 4kW. That larger amount means in summer that by the time you are having breakfast you would have made more electricity than your house will use all day - the rest is all income! (Installations larger than 4kW are recommended for Schools, Businesses and Government buildings.).
Because there are unit costs involved (eg scaffolding, inverter etc) the cost is cheaper per kWatt for larger systems. As a rough guideline, an 8 panel system of 1.5kW will cost about £7,500 (£3,000/kW) , and a 22 panel system of 3.96kW about £10,500 (£2,650/kW) , including VAT and all costs except scaffolding. The recovery of this cost can be done within about 12.5-20 years depending on your roof angle and direction and size of installation. (See more about 'Payback' below)
I am on holiday a lot and don't use much electricity / I am at home a lot and use a lot of electricity
Whichever of these applies, does not affect the Feed in Tariff - FiT is calculated purely on what the panels generate. You will get paid for this. The other payment is based on 'Sales' . For this there are only two methods, either have an export meter fitted, or make an assumption of the split between Using and Selling. In some parts of the UK, energy suppliers are fitting export meters, but for the majority, there is a simple 50-50 assumption - that half of what you generate is regarded as Sales, and the other half as Use.
I am on holiday a lot and don't use much electricity / I am at home a lot and use a lot of electricity
Whichever of these applies, does not affect the Feed in Tariff - FiT is calculated purely on what the panels generate. You will get paid for this. The other payment is based on 'Sales' . For this there are only two methods, either have an export meter fitted, or make an assumption of the split between Using and Selling. In some parts of the UK, energy suppliers are fitting export meters, but for the majority, there is a simple 50-50 assumption - that half of what you generate is regarded as Sales, and the other half as Use.
Is there a grant or subsidy? The Government have introduced a form of subsidy as an incentive to fit PV. It's called the 'Feed in Tariff' (FiT). For every kWh you generate you get paid roughly twice the cost of buying electricity: 21 p/kWh plus the additional 3p/kWh for the units you sell (compared with an import cost of 12.5 p/kWh). The amount is designed to give you a payback of about 5-8.5%, or 12.5-20 years full payback (during which time, you also enjoy a lot of free home generated electricity) depending on size and orientation. You need 4kW on a south facing roof to get the fastest payback. The Payback is calculated by combining the payment from the FiT, the savings you make by generating at home and the amount you sell to the grid. The income from the FiT is tax free, thus making it equivalent to a higher percentage, or a shorter payback. For PV, the FiT is set for 25 years from 2010, index-linked. After your payback period, it is all income!
There is no lump sum grant - with FiT, you earn continuously over 25 yrs.
The original FIT payment of 43pence/unit is unfortunately a thing that is fading rapidly into a happy memory, but it was inevitable that the change would come in December 2011-April 2012. The main reason is that the costs of a total installation nearly half the cost of the same in 2009 and the wholesale price of panels was nearly a quarter of the price in 2009.
What if you sell the building before the payback period? The feed in tariff applies to the building (passes on to the next occupant), so if you want to sell, you have the additional benefit of offering a house with reduced or zero energy bills. In future years, buyers will be anxious about gas and oil charges rising faster than other commodities and a house with 'eco' qualities has a premium value. This persuasive point should push the capital value of the house enough to provide you with an even faster payback, and will probably ALL of the cost. The evidence for this is in sales in the new eco-housing development in Green St, Meadows, Nottingham, where houses in a highly energy efficient features do not have fixed prices, they are being sold through sealed bids because there are 4 buyers for every house available.
Why is the feed in tariff so generous? It is better than a grant, and it is a 25-year continuous incentive to keep the panels clean, ensure the system runs well, and trim overhanging tree branches etc. Electricity from a power station has to travel through numerous stepping up and stepping down stages before it reaches your house and may have lost 1/2 to 2/3 of the original power - so perhaps 33-40% efficient. Electricity generated by you is immediately used by you and your neighbours within the same substation zone, making it 100% efficient.
If enough householders are generating on a sunny day, the centralised power stations can go into tickover mode (reduce the level of burning), as happens in Germany which has more than 200 times the amount of installed PV than the UK.
This does not cost the Taxpayer. The cost is paid through the electricity suppliers, through an micro-levy on existing users - if the ratio of PV houses to non PV houses is 10,000 to one, then each user is paying about 0.002p per kWhr towards your Feed in Tariff.
Are there loans? If you have a bit of capital, a legacy, or a maturing endowment, this is a great investment. PV will cost as much as a small car, but imagine a car that would give you 25 years motoring, with free fuel, insurance, servicing and tax, plus some income. Imagine an ISA where for £12,000 you can have a return of £30,000, and with index linking, perhaps £40,000 over the 25 yrs! Imagine a Kitchen conversion, following which ASDA deliver free food for the next 25 yrs.
We don't advise you take out a loan for it (or extend your mortgage) unless energy prices rise even further and the payback exceeds the interest rate of a bank loan.
Can I get it done for free? I have a really good roof! In recent months there are sources of finance offering a Roof Leasing scheme for PV in which you might have a splendid south facing roof, but cannot afford the installation. The company will install for free and their cost is paid off as a Pay as you Earn basis, meaning that it would Cost you Nothing - the Feed in Tariff would be earned by the finance source, and you enjoy a certain amount of Free Electricity for 25 years. There is an algorithm for calculating how much you would pay if you want to buy them out after a number of years, and receive the FiT earnings yourself.
- For more discussion, see our article about Getting it done for Free, somewhere in the Rushcliffe Solar blog. With the new Feed in Tariff of 21pence, these schemes are likely to change, we know not how.
Is there a maintenance / depreciation cost? Most PV panels are guaranteed for 25 years. Inverters are expensive piece of kit, usually guaranteed for 5-10 yrs. There is no maintenance required, other to check regularly that the system is still working (sometimes a circuit breaker trips if there's a grid overload). Record your generating meter daily or weekly to make sure it correlates with the weather. Check the panels visually for bird-poo (which will need to be hosed off. The PV panels will decline slightly over the years, but are good for the first 25. As the rails are already installed, panels can be swapped for more efficient ones in 25 yrs time. Panels can be cracked if kids throw heavy stones, but these should be covered by your house insurance.
Panels on low flat roofs may be stolen by thieves, so should be well locked down (and included on your insurance.) But if they are stolen it is almost impossible to resell them, as all panels are serial numbered and registered, and a buyer of second hand panels would not be able to have an MCS approved installation with panels that have already been registered. So they are not likely to be stolen, and most are too heavy to be installed on a boat or caravan.
Some installers offer a low cost annual clean and service - ask the ones you are talking to about installation.
Tell me more about Payback?
Payback chatter is a form of anxiety, we don't apply it to our car, our garden, kitchen, house extension or holidays (unless we are taxi drivers, horticulturalists, cookery writers bed and breakfast managers or travel journalists). Much of what we do is for pleasure. Even homegrown vegetables can cost more than buying if you consider the whole equation.
For the author, the PV installation is a little like a garden, I like watching it 'grow', following the seasons. I would have it even without the FiT because I like making electricity, and I like having free energy for life!
Back to investment: If we have spare cash and put it into a Building Society or interest paying bank account what do we expect? about 1.75% - it doesn't even keep up with inflation. If we put it into a 5 year account, we might get 4.5%. PV installations return in a range of of 5-8.8% depending on conditions, but after the payback period of about 12-20 years, the return is greater because it is ALL tax-free income thereafter. If you compound in the increasing cost of imported energy, the payback is 10% quicker, and after that it is sheer income (see below).
Capital return: Now and more-so in the future, there is a premium on high energy rated houses - there are plenty of people wanting a house with excellent insulation and low running cost - they want to go green, but haven't got round to it yet - and now they are house hunting, it's become an important criterion. The likelihood is that you would get your money back in full when you sell, after 4-5 years. When you sell the house, you have to have an Energy Performance Certificate, and that adds value to your house if it is a high grade.
In Rushcliffe, house prices are such that the units of currency in bargaining are equivalent to a PV installation - a house can be £10k or £20k more in value just because it is a bit nearer to Jesse Gray School, or because it's closer to Edwalton, or because your buyer wants to bid higher than another.
Compound or Simple? Explain: Another factor is that of Compound calculation. Most payback calculations are Simple, taken by the reciprocal of the Percentage return. Divide the cost by the income you get Years, divide the income by the cost you get Percentage.
The reality is that energy prices will inflate faster than other commodities, and the Feed in Tariff is to be index linked to the Retail Price Index (part of which is the energy price). So if you assume that energy prices go up 6% per annum (and we know they will go up hyperbolically after 2020) the income is expanding faster than just adding up linearly. £1000 a year for 25 years, with 4% inflation is not £25k, it accumulates to £41.5k. With 6% it would be £55k.
Anybody who thinks that energy cost inflation will be smaller than 6% should take a good look at their gas and electric bills for the last 5 yrs and think realistically. As an owner of a PV roof, you will benefit for rising energy prices by becoming a home generator.
Tax on the income?: Income from the FiT and electricity sales is tax free, thus making it equivalent to a higher percentage, or a shorter payback for taxpayers.
