Wednesday, December 25, 2013

Solar panel financial model

Based on the quote from IKEA/Hanergy I put together the following spreadsheet to model the finances in their first quote. Based on a Google Earth view of our property, the Hanergy team suggested 24 120 watt panels producing 2.88 kW. This produces 2,601 kWh annually.

How does this translate into revenues? We are treated as a power station and those 2,601 kWh are bought from us by our power utility at the index-linked feed-in tariff of 14.9p per kWh.

In addition, it's assumed that we only use half the power domestically so half of the 2,601 kWh is assumed exported to the grid for which we are paid an additional 4.6p per kWh (the export-tariff).

Going with their assumption that we use half the power generated by the panels, we are thus saved 1,301 kWh at our supplier's rate of 14.7p per kWh. This is therefore a saving on our electricity bill of 1,301 * £0.14.7 = £191 - electricity we no longer have to buy.

Taking these three revenues into account, the net annual return comes to £638. As the first installed cost is £5,100, this is a yearly return on investment of 638/5,100 = 12.5%. Equivalently, the break-even period is 8 years.

Here's the spreadsheet.

Solar panel financial model

A more complex model (discounted cash flow) would factor in the present value of the future revenues shown above, using perhaps an annual discount factor of 0.975, together with an inflation factor for electricity costs (kWh), perhaps 1.03 per year.

To an extent, these two factors counteract each other.

When the surveyor arrives in early January, we expect the number of panels and the costs to be reviewed. Our yearly usage of electricity is (according to our supplier) around 4,100 kWh so there is ample scope - if we can - to increase the amount we get from solar, given the RoI indicated.