Crazy returns are back

[Somecamel]

Ok so now we're back to crazy returns on Investment (17-18%) how long is it going to be before we have an emergency cut again?

Are they even allowed to deviate from the 'rules' that they themselves have decreed?

 

[Gavin A]

I don't see that they can or should, not now they've set up a legal framework for determining cuts, and the install rate is well below their minimum threshold.

besides, so much more of these returns is now based on high energy consumption on site that all further FIT cuts would do is to prevent all but the highest energy users from installing solar.

 

[Eco Deal]

why are CRAZY returns back? system prices have been the same for about 3 mths or more?

 

[Somecamel]

Yes but energy prices have increased

 

[Gavin A]

I don't particularly think they are other than a few extreme situations.

decent returns are definitely available to most, certainly a lot higher than deccs target of 5%, but then very few people are prepared to even consider it at 5% returns, which is largely the miscalculation at the heart of decc's screwing us all over this year.

 

[Eco Deal]

what price per kilo watt are you all using for SAP .

 

[SRE]

Haven't been on for a while - what crazy returns? Have I missed something I've priced 3 in the last fortnight and they were all at about 8%.

 

[Gavin A]

We're not really seeing crazy returns either, just fairly reasonable returns for a 20 year investment, and a lot more difference between high and low energy users. It obviously depends a lot on pricing though, and the assumptions made in the payback figures.

I think there are some big returns to be had from commercial systems with very high onsite energy use who use 95% or so of the energy produced on site

 

[SolarCity]

I don't know about crazy returns but our figures do seem to suggest that they're maybe a little too generous again. Which is despressing as it is a struggle to convince the public of this fact.

 

[Somecamel]

I just ran a quick quote through the solar guide calculator based on our cheapest 4kW

Our Assumptions:

• My daytime electricity rate: £ 0.144per kWh (inc VAT)
• Use Standard Export Tariff (4.5p/kWh from August 2012) ... OR ...
  My energy supplier has agreed to buy back at £ per kWh
• The install type is: Retrofit to existing building (Band D or better) Retrofit to existing building (not Band D or better) Fit as part of New Build (or built but not yet occupied) Standalone / Separate (not supplying electricity to a building)
• 50% of the energy generated will be used in my home
• I will have an export meter: No Yes
• I want to assess the benefits over a year period
• Assume RPI of 3.584% and annual energy price inflation of %
• The roof angle is 30° (or panel mounting angle if standalone)
• Assume panel degradation to 80% of year 1 output after 30 years
• Assume inverter lifetime of years 10
• Assume cable/inverter system losses of 10% of output

» Hide our assumptions

Based on the details above we estimate your annual income and overall investment payback to be as follows:

Investment in 3.99kWp System: *	£ 6,779.00
First Year:	Income from Feed-In Generation Tariff @ 15.44p/kWh:	£ 579.39
	Income from exporting energy @ 4.50p/kWh:	£ 84.43
	Electricity Saving:	£ 270.18
	Total Benefit:	£ 934.00
Payback Time:	6y 4m
Total Profit Over 20 years:	£ 24,975.30 18.42 % per year (7.72% AER)

 

[Gavin A]

what's the annual electricity price inflation figure that's used there?

Ah - I've just remembered why we took those calculators off the website, I think they calculate the percentage return as an annualised average of the 20 year figure without taking account of the depreciation in value of the system / the initial cost, which gives a much higher percentage than is realistic.

We now use the internal rate of return method, which is based on the actual total profit over 20 years (total income and savings minus cost of installation), divide by 20 years, then divide by cost of the installation to get a percentage which actually relates to the cash position as opposed to the cash plus valuing the solar system at it's initial installed price for the life of the system as solarguide do. I really don't like the way they calculate it, I think it's highly misleading, and the only thing it's going to do is result in DECC kicking off again, plus sensible customers just don't believe it and think you must be a bunch of con artists for using it.

The AER figure in brackets might well be the same as the IRR figure we use, and seems more realistic for that price.

 

[Somecamel]

Do you build any value into them actually having the system? For example if they were to sell their house would it not 'add' money on?

How do you work out the total profit over the 20 year term? Do you add the inflationary increases in the FIT and Energy Prices?

I have a bit of a numbers dyslexia so get completely mucked up when I concentrate on something for too long but want to create a spreadsheet that will give SAP and say PVGIS figures in a nice and understandable way.

Always liked the Solar Guide calculator for that reason.

What is everyone else doing?

 

[Gavin A]

Do you build any value into them actually having the system? For example if they were to sell their house would it not 'add' money on?

not at the 20 year point no. It's worked on the cash profit only, with the added benefit that they'll also have a system installed that should still be saving them significant money in 20 years time. We could attempt to assess the value at that point in time, but IMO it's too complex to try to work out, and more importantly too complex to explain.

How do you work out the total profit over the 20 year term? Do you add the inflationary increases in the FIT and Energy Prices?

yes. We use 2.5% average RPI, and for energy price rises we use 8% per year first 5 years, then 5% after that - first 5 years is higher because that's the average for the last few years, plus we know that half the coal plants are closing down in 2016, so that generation will definitely be replaced by more expensive gas generation (and gas prices will also rise due to reduced north sea output). Beyond that point it's harder to say other than it will continue to rise above the rate of inflation, so we reduce it to 5%.

We used to just use a 5% increase in energy prices throughout, but there's absolutely no chance of the rise being limited to that over the next few years, and it's averaged 7-9% ever since we became a net importer of gas. This does remind me I intended to do a blog post to explain our rationale.

I have a bit of a numbers dyslexia so get completely mucked up when I concentrate on something for too long but want to create a spreadsheet that will give SAP and say PVGIS figures in a nice and understandable way.

Always liked the Solar Guide calculator for that reason.

What is everyone else doing?

We present an overview of the figures in the quote, then a detailed spreadsheet showing the expected payback, total income and overall profit each year for 20 years along with the assumed FIT, Export, and electricity price used.

 

[finchy]

Hmmm, if we need to make it this over worked then you will lose customers. We're not financial advisers yes compaired to a financial product it does give good returns. However the savy investor already has it. You need to sell it on the grounds that it produces free energy, the payback and longer term return is good. But I think to explain that the system just keeps giving, as energy prices and consumption increase is better. Unless your financial advisers as well as electricians....

 

[Gavin A]

we've actually asked both registered financial advisers and our chartered accountant to work up payback calculations / write a report on it for us, and both have stated that it wouldn't be allowed for any financial advisor or chartered accountant to offer such advice as they're no longer allowed to offer financial advise on investments that return over a longer period than 5 years outside of pensions etc.

We offer our figures as a guide for customers only, as I don't see that our customers should be expected to just try to guess the returns themselves, or be expected to invest that much money with no idea what the returns should be. IMO it's a bit nuts that there isn't a standard format for calculating these figures given all the reams of regulations there are that we have to comply with on pretty much everything up to how many sugars to put in our coffees. Then again, if they did regulate it then it'd probably end up using the EST format which doesn't make any allowance at all for RPI or energy cost rises, so maybe I should keep my gob shut on that.