Can DECC keep the FiTs scheme open?

[TedM]

Ted
Are you not being a little pessimistic basing your calculations on 900kW Hrs production per kW installed. Is this not higher than the figures generally used?

Not trying to split hairs here as the figures do beg several questions. We could yet be subject to yet further Government by cock up.

The SAP figure is 850 kWh/kWp/yr which is based on average insolation for the north of England and is widely recognised as being too low with most owners reporting actual generation that beats their predicted figures.

I have some very rough figures which suggest that actual average generation for all PV systems in the first year of FiTs was over 1000 kWh/kWp. This is a part of my FiTs model that I still need to spend some time on. FiTs payments are reported by OFGEM as a lump sum so I have to find a way of spreading that across the different FiTs technologies. My present method is based purely on TIC which I know isn't good enough. But PV is such a large part of FiTs that I believe the error is small.

As a reality check the 212 UK PV systems registered with BDPV website have an average of 1109 kWh/kWp/yr. If applied to all UK systems that would represent an extra £100 million a year in FiT payments.

So I think 900 kWh/kWp/yr is arguably on the low side.

 

[FB.]

Does the 10.8/9% take into account the cost of the system and replacement inverter? After all once it's installed you can't get it out of the bank again. I can't get my payback to anything like that - I don't know what I'm doing wrong.

I agree.

As I've mentioned a few times - and supported by evidence of German power prices declining due to solar production - it would be prudent to assume that electricity prices rise in-line with inflation, to take the middle ground between rises or falls.

So.....

£9500 for a 4kWp system.
3500kWh per year is realistic for part-shaded South, or for SouthEast or SouthWest - which covers a lot ofmaxium-size installations.

43p FiT-eligible
£1650 FiT and export tariff.
£200 bill savings (40% utilisation)
£380 depreciation.
Annual "profit": £1470 = 15.5% plus inflation on top, making probably 18.5% if inflation hits the bank's target of 3%.

21p FiT-eligible
£800 FiT and export tariff.
£200 bill savings (40% of generation used in-house)
£380 depreciation.
Annual "profit": £620 = 6.5% plus inflation on top, making probably 9.5% if inflation hits the bank's target of 3%.

16.5p FiT-eligible
£650 FiT and export tariff.
£200 bill savings (40% utilisation)
£380 depreciation.
Annual "profit": £470 = 5% plus inflation on top, making probably 8% if inflation hits the bank's target of 3%.


For a 2.5kW installation (£6500) (2200kWh annual production):

43p FiT-eligible
£1000 FiT and export tariff.
£130 bill savings (40% utilisation)
£260 depreciation.
Annual "profit": £870 = 13.5% plus inflation on top, making probably 16.5% if inflation hits the bank's target of 3%.

21p FiT-eligible
£500 FiT and export tariff.
£130 bill savings (40% of generation used in-house)
£260 depreciation.
Annual "profit": £370 = 5.5% plus inflation on top, making probably 8.5% if inflation hits the bank's target of 3%.

16.5p FiT-eligible
£400 FiT and export tariff.
£130 bill savings (40% utilisation)
£260 depreciation.
Annual "profit": £270 = 4% plus inflation on top, making probably 7% if inflation hits the bank's target of 3%.

 

[saint]

Stupid thing is that my solar water heating training ticket runs out in October next year, which will be 5 years since I trained in it in anticipation of RHI...

Gavin A..... what training did you do for this? i want to get ready for the RHI. Thanks

 

[SRE]

Gavin A..... what training did you do for this? i want to get ready for the RHI. Thanks

Well you've got plenty of time lol

 

[Gavin A]

I agree.

As I've mentioned a few times - and supported by evidence of German power prices declining due to solar production - it would be prudent to assume that electricity prices rise in-line with inflation, to take the middle ground between rises or falls.

German domestic electricity prices for the last 3 years are

2010 | 0.228
2011 | 0.238 | 4.3% rise
2012 | 0.253 | 6.3% rise
[source]

the data you refer to relates to spot prices on the wholesale market only, consumer prices include the cost of the feed in tariff payments for all that solar generation, plus everything else.

The price rises involved in the UK electricity market over the next few years are largely dominated by gas price rises as the North sea gas fields are in rapid decline (25% reduction in output last year) and must be replaced with far more expensive imported LNG, which has to be bought on the world market competing against every other country with an LNG terminal. Gas now makes up around 50% of the UK generation mix, and much of the rest of it is increasingly coming from renewables sources, which for the foreseeable future are going to be more expensive than the current average generation prices.

electricity prices have gone up by something along the lines of 9% a year over the last 6-7 years since the north sea gas started declining, and I see no reason at all to think that this rate is going to reduce in the next few years.

 

[Gavin A]

£9500 for a 4kWp system.

this price is a large part of the reason your figures don't end up with reasonable rates of returns.

 

[Gavin A]

£380 depreciation.

ah.. also this. Why are you assuming the system will be worthless after 25 years?

the panels are still guarateed to be capable of producing 80% of their initial rated output at that point, and given the likely price of electricity by that stage, solar PV systems should retain a significant level of value.

plus in actual cash terms, the person invests eg £9500 in a solar system, at that point effectively that money is gone, replaced by an annual payment. The payment they actually receive each year shouldn't then also have £380 taken off it as you're then basically double counting for this side of things in your estimates.

It's really most comparable IMO to a pension or something similar that makes annual cash payments, but has a much lower value if someone tries to cash it in.

 

[FB.]

this price is a large part of the reason your figures don't end up with reasonable rates of returns.

Well, that figure is taken from a couple of companies which I asked for a guide price in recent days, on behalf of a relative (see the following topic):
http://www.electriciansforums.net/p...green-energy-forum/54676-split-pv-arrays.html

Needless to say, my relative has not hurried to proceed at that kind of price/payback for 4kWp systems in the £9000 range, but is awaiting another two guideline quotes from local-ish companies.

I am a professional investor, so I make sure that any investment has a generous margin of safety to allow for unforseen events which only time will tell were risk factors which were not taken into consideration.
With a comfortable margin of safety, or slightly pessimistic assumptions, it then virtually guarantees a very impressive rate of return on the investment.

.

 

[FB.]

ah.. also this. Why are you assuming the system will be worthless after 25 years?

the panels are still guarateed to be capable of producing 80% of their initial rated output at that point, and given the likely price of electricity by that stage, solar PV systems should retain a significant level of value.

plus in actual cash terms, the person invests eg £9500 in a solar system, at that point effectively that money is gone, replaced by an annual payment. The payment they actually receive each year shouldn't then also have £380 taken off it as you're then basically double counting for this side of things in your estimates.

It's really most comparable IMO to a pension or something similar that makes annual cash payments, but has a much lower value if someone tries to cash it in.

The depreciation charge is because if I put money in the bank (or into shares of high-quality companies), I can expect to get it back at some point in time (and the shares may well have paid cash dividends along the way).
Once I spend money on solar panels, they cannot be re-sold.

 

[FB.]

North sea gas fields are in rapid decline

That doesn't have to be the case.
As I understand it, it's largely because the government slapped a big tax hike on the oil/gas producers, so they abandoned or mothballed oil and gas fields to wait and hope for a better environment in which to operate.
Only recently, two of the big six permanently scrapped any nuclear plans due to government dithering and lack of clarity (much like the confusion and inconsistencies with solar PV and now RHI).

 

[Gavin A]

That doesn't have to be the case.
As I understand it, it's largely because the government slapped a big tax hike on the oil/gas producers, so they abandoned or mothballed oil and gas fields to wait and hope for a better environment in which to operate.

nothing to do with that, they're in decline because the fields are nearing exhaustion and they've been using every trick in the book to keep them pumping as fast as possible for as long as possible, so the decline will be even faster than it otherwise would have been.

Any new fields would barely touch the sides of the decline in the big old fields

Only recently, two of the big six permanently scrapped any nuclear plans due to government dithering and lack of clarity (much like the confusion and inconsistencies with solar PV and now RHI).

By government dithering, do you mean government refusal to sanction further massive subsidy of 4th or 5th generation nuclear?

If it can't cover it's own costs by now, 60 years down the line, then it never will. Never mind the massive hidden subsidies that would have been in place anyway in terms of the government underwriting the insurance costs to limit the companies liabilities to £120 million (iirc) in the event of an accident.

the nail in the coffin actually being the German governments decision to close german nuclear plants early, which meant the German companies no longer had the funds available to build these new plants in the UK. Not really much to do with UK government policies at all tbf.

 

[Gavin A]

The depreciation charge is because if I put money in the bank (or into shares of high-quality companies), I can expect to get it back at some point in time (and the shares may well have paid cash dividends along the way).

Whatever works for you I guess, for most people that'd confuse the hell out of them, and they prefer a simple - if I give you this much money, how much money will I get back each year, what will that be in total after 25 years, and what's the total profit over that period? Basically they're well aware they've spent the £8k or whatever up front.

Once I spend money on solar panels, they cannot be re-sold.

arguable, but even if true, then they'd still have a value as something that saves you a signficant amount of money each year.

 

[FB.]

they'd still have a value as something that saves you a signficant amount of money each year.

Yes, on that basis I would certainly ask a higher price for my house if I ever wanted to sell it, given the 3.75kWp (43pFiT).
It'll be interesting to hear what estate agents are estimating as the "value-added" by a well-designed PV solar array which didn't detract from the looks of the house.

.

 

[series530]

Yes, on that basis I would certainly ask a higher price for my house if I ever wanted to sell it, given the 3.75kWp (43pFiT).
It'll be interesting to hear what estate agents are estimating as the "value-added" by a well-designed PV solar array which didn't detract from the looks of the house.

.

I suspect that the added value is no where near as much as most would hope.

Beauty is in the eye of the beholder but so many systems are badly designed and detract from the kerb or brochure appeal of the house. With ours, we tried to add something that is sympathetic - well, as sympathetic as 14 solar panels can be. Heavens forbid if you have a rent a roof scheme!

On better designed systems it probably adds about 50% of the annual FIT payment for as long as the average home owner stays in a home. For cheaper properties the duration of ownership is probably lower as people trade up. For middle aged buyers the tennure is probably longer so the panels may add a little more.

At the end of the day though, the panels, if installed well, are probably more of a differentiator than a source of extra revenue. We certaily didn't buy them on the basis that they would be worth much come house resale time.

 

[The Solar King]

Having no standard method for calculating the worth of an installation is difficult. It also puts you in danger of mis-selling.

I extracted the Net Present Value / Internal Rate of Return model from PVSol so I could play around with it further. There are a lot of variables that should be taken into account: Assessment period (not necessarily the same as life of system) Capital Cost, , Interest Rate, Cost of Grid Electricity, Annual Consumption of electricity, output of PV system, panel degradation, level of FIT payment, export tariff, level of self use of generated electricity, inflation rate (RPI or CPI prediction), fuel price inflation (historic or DECC prediction low, high or medium), annual running cost (to include inverter replacement spread over life of system).

These are all the figures you would be using to make an investment decision in business. You can argue that this may not be the case in a domestic environment, but not taking them in to account when providing any financial calculation to a customer leaves you exposed. There is also the risk of you being in breach of the Financial Services Act if you are not a registered financial advisor.

If you honestly put all this in to a calculation you will not get the kind of returns some are mentioning in this thread. You are better providing all the variables to a customer and let them work out what they think it is worth to them. At least in that way you will not leave yourself exposed. Self use is a mine field. 40% for an average householder with a 4kW system is wishful thinking. Go in to PVSol and create a load profile that reflects this - it just isn't real.

If you think about it, it is the same reason that a SAP calculation is given in a quote; at least it is comparable. If each quote a customer receives comes with a different rate of return and payback period for basically the same system who should they believe?