Tuesday, 24 January 2017

Is solar worth it?

Feed in tariffs, low or no electricity bills, limited reliance on the grid and ample opportunity to be a proper smug so and so to your friends! What’s not to love!

I’ve briefly looked into the possibility of solar in the past but it’s never been the slam dunk it’s advertised as, so I thought I would lay out my thinking here to try and get it straight and come to a conclusion, for now.

Previously I’ve gone so far as to have a couple of quotes put together, so the amounts below are roughly right tweaked for simplicity, and give a decent indication of the way the wind is blowing… or which way the sun is shining, to butcher a metaphor!

Assume we have a total gas and electric cost of £100, of which £70 is electricity, that’s £840 of electricity costs per year.

Against that we assume that however many panels we can cram on the roof will account for 65% of that cost, so a saving of £546, say £550 a year.

On top of that you get Feed in Tariff and export payments of maybe another £180 a year, so a total benefit of £730 per year (£550+180). Sounds good!

A couple of years ago the approximate cost was £8k to have this all installed, but a bit of a search on line shows the cost coming down to maybe £6k.

Some basic maths says £730 / £6,000 = 12% yield – again, pretty good, much better than the FTSE!

So, if you stop there, that’s all good. Money invested £6k, return 12%, lower bills, greener planet.

Reversing the maths (6000 / 730) gives 8.2, ie, just over 8yrs to get your money back on the initial outlay. However, whilst this is an investment, in that it provides a return, it is not one which can be assumed into perpetuity because this is a piece of machinery which will fail.

So, if you want perpetually low electricity costs you would need to save the money from the reduced bills for 8yrs to pay yourself back for solar kit number 1, and then wait another 8yrs until you have enough to replace the system… in theory, 16yrs until you actually realise your “free” energy…

If the system can run perfectly for 20yrs, and some give guarantees for 25yrs to match the feed in tariff contract, then you’re looking at 4-8yrs of free energy.

Is it worth it?

Maybe, but life may get in the way. You probably won’t stay in the same house for 20yrs. You could keep all the savings looking to move after 7 or 8years hoping the person buying your house will be happy to inherit an aging solar system and happy to pay for replacement kit when the time comes… but that’s not the reason why you move house is it. Ignoring general house price inflation do you get premium for having solar and cheaper energy bills… maybe… enough of a premium? Who knows. But what happens when you move to another place with no solar – do you give up and pay more or shell out again for another new system?

The alternative to subsidise your bills would be to put the same money in the market and use the dividends to pay the electric bill. But you aren’t going to get 12%, or not sustainably anyway, so to get the same reduction to your bill (£45pcm) you would need £18.2k (assuming a 3% yield and no tax), or £13.6k if you’re happy with the 4% rule. Or live in darkness in the winter…

The initial fag packet conclusion is either the cost of the panels has to drop a lot more to a pay-back period of 5yrs or less, or it’s simply better to save the extra and stick it in the markets?

I would certainly be interested to hear if anyone has looked into it more closely, or thinks any of the above is wrong. Please let me know!!!

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