Solar Payback

[An Inspector Calls]

Looking at the PassivHaus standards, if I were to attempt to apply them to my house I doubt I could do them for a sum as low as £20,000.

But I think applying PassivHaus insulation standards to an old house in order to achieve an insulation of that standard is not a sensible engineering solution. It would be far simpler, less disruptive, and certainly far more cost effective to do two things:
(a) insulate the house so far as possible.
(b) install a heat pump and thus divide the energy consumption by between 3-4.

PassivHaus targets a U value of 0.15 W/m^2/K. With a heat pump of CoP 3, a house insulated to a U value of 0.45 W/m^2/K (easy to achieve in virtually any standard of house and age of build) performs equally well. And my heat pump cost nothing like £20,000 to install.

[kenneal - lagger]

You'll only achieve a heat pump COP of 3 in the summer, spring and autumn. The recent report said 2.5 was typical.

You are assuming that the power for the heat pump will be affordable in the future. The Chinese are buying up all the fuel that they require for the future, at premium rates, using their huge CASH reserves. As North Sea Oil and gas continue to deplete we will have to buy more and more of our fuel on the world market and with the resultant ever increasing balance of payments deficit we won't get the credit to pay for it.

Don't say we can use our own cheap coal to generate electricity because it won't be cheap because it will be have to be sold at world prices or it will be exported. The Chinese will just buy it up and take it home. If we refuse to let them have it they will stop buying our stuff and we will be in a worse position.

Insulation might cost more to install but it has absolutely no running costs; a great advantage in times of fuel price inflation. You didn't make a sensible engineering decision, you made an economic decision. You made an economic decision at a time when traditional economics are coming to an end. We are reaching the "Limits to Growth".

[kenneal - lagger]

Out of curiosity, what are their expected payback times for the money invested?

You tell me what fuel price inflation and interest rates will be for the next few years and I might be able to, sensibly, work that out.

Both clients took the view that their income was going to be reducing due to inflation; money in the bank might well be worthless in the near future; their fuel bills would be going up at an unknown high rate; and that fuel would probably be difficult to get hold of at some time in the future.

[kenneal - lagger]

If the electricity fails then my heat pump is useless (gosh, never thought of that). Well, we'll just have to fall back on our wood-burning stoves supplied from our own timber.

What's the payback on your wood burning stoves and chimney upgrade? 100 or 500 years? If your house was insulated to PassivHaus standards you could sell most of your timber to give you an income.

I agree we'll face peak oil - we may well be there already, but it's not the cliff edge that some of you seem to think.

Peak oil and Climate Change won't the the cliff edge but the economy will be. As you seem to have some sort of economic or accounting background, can you please explain to me how we can have continuous economic growth in a finite environment: finite metals, finite fuel resources, finite agricultural land and limited fresh water. Before the recession fuel, metals and food prices were rising rapidly as demand couldn't keep up with supply.

Some of that was because of the amount of money that had been printed to keep the *ankers bonus culture going was diverted into commodities as the banking system was going bust. That paper money is still sloshing around the system waiting to do its worst when the banks look dodgy again. All that money going into commodities as soon as they look in short supply will cause the next recession.

Those commodities will go into short supply as soon as the developed world comes out of recession and starts buying again. If we don't come out of recession soon the growth in the Far East will do the same thing. So another major recession is due within the next seven or so years, unless Indian and Chinese growth comes to a grinding halt before then. Another major recession will bankrupt the banks again and it's doubtful that they could be rescued again.

So what price money in the bank as against on the wall? Oh! and by the way, I can do you an engineering solution to PassivHaus insulation on a solid wall.

[JohnB]

Is a heat pump guaranteed to last your lifetime without needing any replacement parts? Manufactured products get "improved" regularly and parts for old models aren't always available indefinitely. If part of your insulation fails, it can be patched up with whatever is available, even if it results in reduced performance.

If a heat pump, or other piece of equipment fails, it could become a pile of scrap metal, and the state of your finances and the economy may not allow for a replacement. You have a backup system in place to cover for failures, but will you always be fit and active enough to cut and process firewood?

[An Inspector Calls]

You'll only achieve a heat pump COP of 3 in the summer, spring and autumn. The recent report said 2.5 was typical.

I've installed a heat output meter on the heat pump. I don't expect it to be very accurate because it has to measure flow to make the calculation. Flow is one of the most difficult paramters to measure accurately.
However, I do see CoP figures over 3 for three seasons of the year, but not winter, as you say. But not as low as 2.5.
Next, the heat pump I installed was, regrettably, one of the last of that generation from that manufacturer. It's been replaced with a new range with CoP values +1 higher than previously. They cost slightly more; in fact, they're not as cost effective over their life as the older generation, but given the choice again I'd go with one of those.
Further, with greater experience of boreholes being used as the ground loop (mine's the buried type in a field), it appears that the brine inlet temperature remains far higher throughout the year. Boreholes can now be economically drilled in quite small gardens (it requires access for a small tractor). Conversion to bore hole use would thus further improve CoP.
As for future energy prices, yes, I expect them to increase. In the near future, to meet the coming energy crisis I expect we'll have a large rebuild and increase of the gas generation fleet. And if we're sensible about nuclear power, a growing nuclear fleet on-line from 2020.
I can't predict fuel price escalation over the next few years, any more than you can.
I'm not interested in the payback period of the wood burning stoves. The wood's free, the chimneys were there, the stoves themselves were cheap. They're there more as ornament than utility. I doubt I'd get rich on re-selling my own timber!
I'm an engineer (we do do project finance, you know). Resources are finite, but what is slowly happening right now is shifting away from resources becoming scarce. The attempted switch to renewables is an example of this (which will fail in this country because we do not have sufficient hydro); nuclear is another.

JohnB
Your approach is a little hysterical. If my heat pump fails at some point in the future, and I can't get replacement parts (unlikely: the guts of the thing is standard refrigeration components) then I'll have to buy another. Yes, that's an expensive lump. But even so, that second heat pump would still be a lot cheaper than a rigorous application of PassivHaus. Are you seriously advocating that conversion to PassivHaus is a better engineering solution? There are three sections to my house:
2009 build, walls U=0.18, floor 0.14, ceiling 0.13, windows 1.1; area weighted U 0.24
1975 build, walls 0.25, floor ~0.55, ceiling 0.13, windows 1.1; area weighted U 0.39
~1820 build, walls 1.48, floor ~0.5, ceiling 0.13, windows 1.1; area weighted U 0.76.
You tell me how much it's likely to cost to convert that can of worms to PassivHaus standards. Next divide that cost by, say, £2,000 (covers capital and revenue costs of a heat pump with a huge add on for fuel inflation) and you'll have how many years the het pump installation will be cheaper that a PassivHaus installation.

[cubes]

Out of curiosity, what are their expected payback times for the money invested?

You tell me what fuel price inflation and interest rates will be for the next few years and I might be able to, sensibly, work that out.

Both clients took the view that their income was going to be reducing due to inflation; money in the bank might well be worthless in the near future; their fuel bills would be going up at an unknown high rate; and that fuel would probably be difficult to get hold of at some time in the future.

If I knew that I'd be playing the markets!

How about using the worst-case scenario for payback - prices stay the same?

[An Inspector Calls]

Even at an interest rate of 0.5 %, it's better to put your money in the bank.

That's a typo?

I think it must be, a very quick calculation gives me an interest rate of 2.5% (after tax) compounded over 25 years to end up with about £20,000.

Investing £10,000 in the BANK at 2.5 % becomes £18,539 after 25 years.
At 8 % (the return cited above) it would become £68,484. Wow!

But when you invest in PV you do not put your money in the bank, you give to a company to put PV panels on your roof. You no longer have your capital, unlike the person with the investment in the bank.
OK, your PV panels now give you an income. And after about 10 years that income has now given you back all your capital which you had in the bank.

Meanwhile, the person who kept his money in the bank now has far more than you because of the interest earned to date.

If you take both scenarios out to 25 years, you can then compare the final outcomes and also calculate an average compound interest on your PV panel.

You'll be surprised how low this turns out to be.

For example, on the £15,200 scheme I described above, the final capital holding would be £16,430. So, after 25 years your PV panels will almost certainly be trashed, and you have £16430 in the bank.

That's a compounded return rate of 0.4 %.

[biffvernon]

after 25 years your PV panels will almost certainly be trashed,

I reckon the solar panels might last longer than the banks

[RenewableCandy]

after 25 years your PV panels will almost certainly be trashed,

I reckon the solar panels might last longer than the banks

Don't be so, erm, Conservative

The PV at the CAT was taken down and tested after nearly 30 years of service: they found, iirc, that the worst-performing panel was still chucking out 83% of its rated welly. If I'm doing that in 30 years I shall be happy

[Pepperman]

Sorry I'm getting completely different numbers to you. At 0.4% interest and assuming 3% inflation, your £15,200 would be worth £8,000 in today's money in 25 years.

The FiT is index linked so inflation doesn't have much of an impact on the revenue from PV panels.

Based on:

£15,200 capital cost
3,084kWh/yr reducing at 1% per annum
75% export @ 5p/kWh assumed fixed
25% on site @ 10p/kWh increasing at 2% per annum
3% average rate of inflation

I get the net present value of the photovoltaic investment to be around £15,500 over 25 years. Your bank would need an interest rate of 3% to get that.

[cubes]

The FiT has other risks tho, i.e. not existing in 10 years time.

[An Inspector Calls]

Sorry I'm getting completely different numbers to you.

My calculation of 0.4 % is indeed wrong. I forgot that the scheme had also recovered the principal.

So after 25 years the £15200 scheme has made a return of the £15,200 principal and on top of that another £16430, a total of £31,630. Over 25 years that's a compound interest rate of 2.9 %.

There's no allowance of inflation, which is usual in calculating project returns.

That interest rate depends heavily on the panels lasting 25 years. After 12 years, the return is 0.6%, 15 years 1.8 %, 20 years 2.7%. If they fail before the 12 years, you make a loss. And that's a serious difficulty with this investment: it takes too long to get into the black, during which time it's exposed to considerable risks over which you have no control whatsoever: will the panels or the inverter fail, will the government change its mind on FITs, will someone cancel global warming?

Just to correct one of your figures, the export tariff is 3p/kWh. Personally, I reckon a domestic consumption of 25 % is optimistic given that the panels, by and large, only generate during the day, in summer, and that daytime, domestic, electricity consumption is never a steady trickle ideally matched to PV panel output, but is quite spikey - washing machine loads, and the like.

As for inflation, I think it's almost impossible to second-guess what average and particular fuel energy prices, bank interest rates, and the FTSE will do in the future. That's why I've neglected any allowance for interest - the assessment is based purely on expected performace data (with no allowance for any malfunction whatsoever).

There's also no allowance for decommissiong when the PV panels die - a common refrain of the likes of the Green Paty.

The PV at the CAT was taken down and tested after nearly 30 years of service: they found, iirc, that the worst-performing panel was still chucking out 83% of its rated welly.

Well lucky them: at work we installed a PV panel to drive a wireless transmitter for a remote monitoring site and it died after a couple of years. You might be lucky. On the other hand, you might not! I can think of less risky ways in investing than this.

[biffvernon]

I can think of less risky ways in investing than this.

For sure, but can you suggest an investment that provides the multifunctionality of being a fairly safe investment with a fairly good return on capital whilst adding marginally to the sum total of electricity generation from a low-carbon source, making you very aware of your own electricity usage, putting you deeply in tune with the weather and the seasons, providing endless conversation material for dinner parties and adding bling to your house roof and an opportunity for envy or ridicule from your neighbours. Yes, solar pv adds new threads to the warp and weft of the tapestry of life.

[An Inspector Calls]

I don't accept that your investment is low risk, giving a good return on capital. In my view the return is not matched by what I consider to be an above average risky investment. It would be a reasonable bet that most people do not get their money back on these investments.
I'm quite capable of assimilating the weather without going to your expense.
As for bling on your roof, well perhaps yes, but I'd alter your promotional, website photo before you have complaints from trading standards that your advert for a stay in a country house getting back to nature and organics turns out to be one at a power station.
Yes, people with PV arrays on their roof have a conversation topic, and I've no doubt you regale visitors with how you're saving thousands per annum. The solar thermal brigade do exactly the same - these projects are always a resounding success. I'm guilty of the same thing with my heat pump, albeit last year it produced over 20 MWh of heat. However, I have my own view of home owners when I see PV (and solar thermal for that matter) on the roof.