Sunday, October 06, 2013

Time to go solar?

It seems like a textbook case of investment appraisal.

It might look something like this

The 'standard installation' of photo-voltaic solar panels on your roof delivers around 4 kW peak (i.e. when the sun is shining right at them). The initial cost of such an installation, including the PV panels + electrics, putting them up and maintaining them, is around £7,000. The income is nominally £800 per year: £150 from the power saved in your own home plus £650 from the Government's inflation-proofed 'feed-in tariff' (as your roof helps to power the national grid).

Here's an analysis.

From these simple figures you deduce that:

  1. You will break even in nine years (9 * £800 = £7,200).
  2. Over the 20 years of the feed-in tariff contract you will make £16,000 = a £9,000 profit.

If the inverter breaks (that's the device which changes the DC volts from the photo-voltaic cells into 240 volt AC) you'll pay around £600 to replace it. That will come out of your profits.

  • You get electric power even if the mains supply goes down. (Update: I checked and sadly this doesn't happen - in an outage you lose power like everyone else).
  •  If you anticipate inflation - in general or specifically for energy-bills - the case looks better.
  • Psychologically you get a lift at every lower monthly power bill.

  • The aesthetics are pretty awful (PV tiles are better but twice as dear).
  • The revenues stay with the house .. but will it help resale?

No-one likes workmen around the house and there's always the risk of cowboys. This concern is substantially addressed by IKEA's entry into the market. Over the next 10 months they're rolling out a survey-install-maintain offer across the country. I somehow don't think IKEA are going to mess up, overcharge or leave you in a lurch.

I give no weight to arguments over Greenery. The cost-economics of houses as micro-solar power-plants makes little sense. Given we already have a power distribution network, generation rewards economies of scale and in a rational world it would be most economic to invest in cheap centralised generators (probably gas-fired from fracking). But we don't live in that world: the 'feed-in tariff' is a subsidy from people without solar panels to people with .. so why not side with the winners?

Most likely the investment makes most sense when you expect to stay in the house significantly beyond the break-even point. Like new cars, I believe that solar panels depreciate pretty fast - that initial £7,000 can't be counted as a durable financial asset, you're gonna lose its value.

  • If you invested £7,000 at 2.5% interest (say) for 20 years - withdrawing the interest every year as a dividend - you'd achieve £7,000 + 20 * £175 = £10,500
  • With the solar panels it's £16,000 - £7,000 = £9,000 
so the economic case is no slam dunk.

I think we'll wait until IKEA roll out their offer in Bristol (I think they have a cheaper installation generating around 3.5 kW) and we'll do the sums again.