Misleading Sunday Times Article on PV

[Steve_rutland]

Not sure anyone around my area reads the paper ;-) because since I've installed mine, 4 of the guys at work have had there's done by local companies. Before doing mine I simply spoke to someone who had had it done and would take most things I read in the paper with a bucket of salt!

 

[The Solar King]

Yet another update:

"It seems a long time since last week’s damaging Sunday Times article. Many of our members have written in to complain, and have also contacted the Sunday Times directly and the Energy Savings Trust asking for an opportunity to rectify the inaccurate report. Ian Cuthbert at the EST has taken the paper to task and as a result, they will update the online version and also add an amendment to this Sunday edition. Meanwhile Alasdair Grainger from DECC has written a blog, and Greg Barker has written a letter to the letters section which we hope will be published. As well as DECC and the EST contacting the Sunday Times directly, we wanted to give the STA the opportunity to publish the article/blog below, and felt you, the members would like to see it. The Sunday Times did not want to publish another detailed article.

Solar’s still a great investment – and a great industry too!


You may have heard recently that complaints are rising in the solar industry, and that solar is no longer a financially attractive proposition. This was the subject of a recent article in The Sunday Times.

Well, the fact is that you can install solar with as much confidence now, if not more, than when the Feed-in Tariff first started in 2010.

Let’s start with the first point. It is true that the number of complaints about solar panels have increased in recent years (see the first chart on this page of the RECC website). More people are doing solar now, so it is fair that this industry is open to the same scrutiny as any other (which is why the REA set up the Renewable Energy Consumer Code in the first place). But this increase is entirely to be expected because the number of solar companies has increased (see Fig 3.1 in the RECC 2012 Annual Report), and the number of installations has soared (see the latest Ofgem FITs Newsletter). Note that not all RECC members are solar companies, but solar PV does account for roughly 90% of the Feed-in Tariff market.

In 2010, solar was a cottage industry. It was the launch of the Feed-in Tariff in 2010 and ongoing cost reductions which enabled it to breakthrough into the mainstream in 2011/2012. Ofgem’s Newsletter shows that more solar PV systems were installed in the first six months of 2011 than in all of 2010, and the same again the following year, more installations in the first half of 2012 than in all of 2011.

Of course the number of complaints will increase as the industry grows. The pertinent question is: Has the proportion of solar installs leading to complaints increased over that period? The answer is: very minimally, and it is extremely misleading to simply assume that things are getting worse in the solar industry – they aren’t.

The RECC Annual Report for 2012 makes clear that there has been virtually no increase in the proportion of solar installs leading to complaints:

• in 2012 0.5% of all domestic solar PV installations were the subject of a complaint registered with REAL (1,051 out of a total of 201,178 (687MW));
• in 2011 0.4% of all domestic solar PV installations were the subject of a complaint registered with REAL (439 out of a total of 124,385 (381MW)).

So the increase here is approximately 0.1%, or 1 more complaint per 1,000 installs in 2012 than 2011. What might have caused this (very small) increase? One likely factor is increased awareness of the Consumer Code and the complaints process. Another is the fact that often problems don’t arise until some months after the installation of the system (e.g. disappointing output figures).

Another crucial factor is the increased complexity of buying and selling solar PV during the ‘boom-and-bust’/‘beat-the-deadline’ cycles in 2011/12, caused by reductions to the Feed-in Tariff. Companies operating entirely in good faith may have found themselves subject to complaints because of the frequent tariff changes. The tariff is much more stable now though thanks to changes in Government policy – see Alasdair Grainger’s blog for DECC for more information on this.
Finally on this point, take a look at the consumer satisfaction surveys which RECC administers. Consumer satisfaction for the majority of factors that RECC screens for is 90% or above.

I hope this has restored your faith in the moral fibre of the solar industry! Now, turning to the question of financial attractiveness…

Solar PV is no more a “gamble” now when it was in 2010, and indeed Ian Cuthbert of the Energy Saving Trust was misquoted in that Sunday Times article. In fact, improvements and cost reductions in the technology and installation more than outweigh the drop in the Feed-in Tariff, and anyone installing eight solar panels today could actually be better off than if they had installed in 2010!

Here are the different elements going into our calculation:

System size
Improvements in the technology mean that eight typical solar panels today will deliver more power than eight typical panels in 2010.
2010: 1.8kW
2013: 2kW

Installation cost
Solar PV has achieved exceptional cost reductions in recent years
2010: £10,000
2013: £4,500

Replacing the inverter
Inverter costs have also dropped. Note that we are using 2010 and 2013 prices rather than trying to play Mystic Meg and guess when the inverter will fail and how much it will cost then, but signs are that there are still more cost reductions to come on inverters. The best inverters today won’t even need replacing, just some cheaper remedial service work.
2010: £1,500
2013: £675

Electricity cost
Electricity prices are going up, mainly due to volatility in international fossil fuel markets. This is bad news for electricity consumers, but it does increase the benefits of solar, because the more expensive grid electricity is, the more savings the consumer makes with their panels.
2010: 14p/kWh
2013: 16.4p/kWh

Feed-in Tariff: generation tariff
Yes, the Feed-in Tariff has been reduced. But will this reduction be outweighed by other factors? Read on…
2010: 43.3p/kWh
2013: 15.4p/kWh

Feed-in Tariff: export tariff
The export tariff has actually been increased since 2010…
2010: 3p
2013: 4.64p

Feed-in Tariff: tariff duration
The tariff duration has decreased…
2010: 25 years
2013: 20 years

Additionally, most people have seen their systems exceed estimated output by up to 15%, because the old methodology for estimating output from solar panels has been found to be overly conservative. The recently updated MCS PV Guide uses a new, more accurate methodology, showing higher yields across the country.

Other assumptions
2.6% annual increase over inflation on electricity price (consistent with DECC projections)

50% deemed export
30% assumed on-site electricity use (a conservative estimate)
The result
Taking all these factors together and running them through the STA’s Solar Calculator, the results are:

2010: 5.9% ROI/13 year payback
2013: 7% ROI/12 year payback

So there you have it – now is a better time than ever to go solar! Indeed, a 4kW system only costs around £6,500, so there the returns are even better.

To conclude, consumer satisfaction in the solar sector is very high, and remains high. The financial appeal of solar remains very strong too.

I’m delighted to report that I have spoken to Pippa Allen, whose home was used as a case study in The Sunday Times article. She actually still feels very positively about solar power, and was also delighted when I told her that she will probably be able to apply for the Renewable Heat Incentive for her solar thermal system when it launches in spring next year!

Paul Barwell, CEO, Solar Trade Association


NB - RECC would like to outline that the “insurance-backed warranty scheme” phrasing in the article is misleading. Warranties are not automatically guaranteed because a company is a member of the Consumer Code. It is a Code requirement that members protect Installer Warranties so they will be honoured if the company is no longer in business. This is usually achieved through an Insurance Backed Guarantee.

RECC regularly audits and mystery shops members for compliance with the Code but RECC membership per se does not guarantee that an insurance backed warranty will be included with the installation. If the installer does not outline how their Installer Warranty is protected the consumer should contact RECC before completing the purchase of the system. For more advice, see the RECC website."

Ends.

So we have done what we can including wheeling out some big guns. Importantly, if you Google Sunday Times PV, this thread is top or very near the top of the list on the first page of results, so it is there for posterity. Never forget today's news is tomorrow's chip paper.

 

[Gavin A]

An article about solar panel schemes ("Has the sun set on solar power?", Money, May 19) incorrectly stated that a 2.7 kilowatts peak solar panel system would cost £7,000 to install and that customers would therefore have to wait 16-and-a-half years to recover the cost of the original investment, based on a total income and energy bill savings of £550 a year minus maintenance costs of £1,000 every eight years. In fact, a system of this size would cost about £5,400 to install and therefore customers would have to wait 12-and-a-half years to recover their original costs, according to the Energy Saving Trust.

apparently this is the correction going in to the sunday times.

What this highlights to me is that this isn't a sunday times problem, it's an ongoing problem with the Energy Saving Trust and the way that they work up their pay back calculations - THIS is what STA, BPVA etc need to address, not an individual article, as these are the base figures that all journalists us when writing articles on solar, so it's not surprising that they come to false conclusions - it's exactly the same problem as with the Which article last year.

The problem is that EST refuse to include any allowance for RPI inflation increases in the FIT and Export payments, or any allowance for rising electricity costs in their pay back calculations, which then gives an entirely misleading impression about the pay back times.

THeir justification I believe is that they can't predict what RPI and energy price rises will be, but in excluding them what they're actually doing is giving figures that are based on 0% RPI, and 0% rise in energy costs over a 20 year period, which is completely misleading.

So thanks to the STA for their efforts, but please can you retarget your efforts against the real underlying cause of the problem, which is the Energy Saving Trust calculation method.

ps I know there have been heated arguments in EST about this, and can only assume that as head of microgeneration, it must be Ian Cuthbert who is responsible for deciding to provide the calculations carried out in this misleading manor against strong arguments to the contrary from others within EST. Maybe now will be a good time to point out the problems that he is causing to the industry by misleading the public in this way.

 

[Gavin A]

btw, in case it's not obvious, my problem with that correction is that it a 12.5 year payback is still completely misleading.

 

[SibertSolar]

Well said Gavin, focused attention is good, so long as its focused on the right object. From what you say, the EST needs to get its story straight, ASAP

 

[Gavin A]

this is ongoing with EST, they've had this problem with their calcs for over a year now, we discussed it with them after which used their figures last year to condemn solar, and they changed the pricing they used, but not the way they calculated the payback.

Problem is that people trust the EST and WHich a hell of a lot more than the sunday times, so I'm a little baffled why the sunday times article has caused such a commotion. Surely the STA hadn't missed the way EST have been calculating their payback estimates for the last year to 18 months have they?

ps Solar King, you may be right, maybe I should get involved with STA, I'm just so narked with the general shoddy performance of all our supposedly representative bodies on a large number of issues over the last 2 years that I've lost all confidence in all of them.

 

[jerriais]

EST have to realise that the argument, "we can't predict inflation so we won't include it" is not correct. They are just predicting it at 0%

Anyway, the same argument could be used for almost any variable in a future payback scenario, system performance, climate data etc. So they could just as well say, "we don't know the annual irradiance figures for the next 20 years so we'll just assume the sun won't shine".

 

[BruceB]

I might be in a minority of one here because I think we have discussed it before, but I think it is correct NOT to include rpi inflation in the payback calculations. By leaving it out you get a reasonable approximation of the net present value of an installation when you look at it in discounted cash flow terms.

When you increase a return by rpi for a future payment you are giving it an inflated value which does not reflect its actual worth in today's money.

If rpi is at a steady 5%, so FIT rates are steadily increasing by 5% and say for example electricity prices are increasing by 5%, then your apparently increasing profit in future years is not an increase in real terms because the cash will be worth less because of inflation. The increase in prices that should be factored in is the expected increase in electricity prices ABOVE inflation, not the absolute increase.

This of course makes returns look worse and many customers will not have heard of net present value or discounted cash flow, but it is the way your accountant would look at it if you were considering a business investment.

 

[Gavin A]

I might be in a minority of one here because I think we have discussed it before, but I think it is correct NOT to include rpi inflation in the payback calculations. By leaving it out you get a reasonable approximation of the net present value of an installation when you look at it in discounted cash flow terms.

When you increase a return by rpi for a future payment you are giving it an inflated value which does not reflect its actual worth in today's money.

If rpi is at a steady 5%, so FIT rates are steadily increasing by 5% and say for example electricity prices are increasing by 5%, then your apparently increasing profit in future years is not an increase in real terms because the cash will be worth less because of inflation. The increase in prices that should be factored in is the expected increase in electricity prices ABOVE inflation, not the absolute increase.

This of course makes returns look worse and many customers will not have heard of net present value or discounted cash flow, but it is the way your accountant would look at it if you were considering a business investment.

Bruce, one question for you on this.

Can you point me in the direction of any other financial products available to most domestic customers that provide their financial estimates on an RPI inflation + x% rate of return basis?

If not, then the flaw in your method should be pretty obvious as you're asking customers to compare the investment potential of different options on 2 entirely different basis.

A bank that offers a bond with an interest rate of 3% doesn't mean 3% in real terms after inflation adjustment, it means 3%, and if inflation happens to be 3.5% then you've lost money in real terms and that's just how it works. Solar PV on the other hand, gets an inflation linked return, so why not spell this difference out to people in the figures?

 

[BruceB]

My pension from the government is always expressed in current day numbers. Future years payments will be increased by cpi.
Many annuities are index linked.
Index linked bonds are available Why I?m buying index-linked bonds - MoneyWeek

So, I do understand the point you are making by asking the question. Mostly, the cost of inflation is not pointed out to punters. But I have always felt that investment in pv is quite like buying an indexed linked annuity: you put a lump sum in and get an index linked income for 20 years, perhaps slightly ahead of index if energy prices rise.

 

[Gavin A]

My pension from the government is always expressed in current day numbers. Future years payments will be increased by cpi.
Many annuities are index linked.
Index linked bonds are available Why I?m buying index-linked bonds - MoneyWeek

So, I do understand the point you are making by asking the question. Mostly, the cost of inflation is not pointed out to punters. But I have always felt that investment in pv is quite like buying an indexed linked annuity: you put a lump sum in and get an index linked income for 20 years, perhaps slightly ahead of index if energy prices rise.

lol - ok, so I'll agree that if we were to also include the returns shown in this graph for inflation linked bonds as the comparison with solar PV then it could be a fair point to give the investment return for PV without the RPI inflation linking in it.

So the inflation linked bonds you mention are currently achieving negative real money yields of around -1% + inflation.

But the vast majority of the public have no clue at all about that sort of thing, and the articles such as the sunday times one above don't compare the 2 products, they compare the headline rates of return only and ignore the inflation linked aspect entirely.

 

[BruceB]

I think you are right that the vast majority of the public do not understand that sort of thing, which I appreciate undermines my point a bit. But most of my PV customers from a year ago who had the money sitting there available were probably comfortable using terms like NPV and DCF as they would have come across them in their professional lives. The accountant of one doctors surgery I quoted for did go through the figures in detail so I was glad I had not made the proposal any more glowing than I had.

 

[Gavin A]

the other point being that it's not just inflation linked, it's also linked to the rise in energy prices, which has been running at around 9% a year for the last 7 years or so.

So even if you compare solar on an inflation linked basis it's still underselling it, as no other product is linked to the energy price rises as well.

The only way I can see that you can fairly reflect the likely value of a solar PV investment is by directly incorporating reasonable estimates of RPI inflation and energy price rises into the projections.