Solar is still not economic

An Inspector Calls · Post by **An Inspector Calls** » 26 May 2011, 17:10

MikeTV has drawn attention to a marked fall in PV installation prices: he quotes a 3.95 kW scheme for just over £11,200. A few months back this might have been £15,000. This is unlikely to be due to any breakthrough in PV manufacture - zone refining semiconductors is still just zone refining semiconductors. It's more like the installers reacting to competition and covering company set-up costs.

But is this now attractive? I checked a similar scheme: 3.95 kW, cost £11,200, yearly production 3392 kWh. I assume a 1 % decline in PV output per annum, 100 % inverter efficiency, 25 year life with no problems, FITs payments at 43.3 p/kWh, export at 3.1 p/kWh, in-house consumption of 0 % (see below), no provision for DCF as the FITs payments are index linked, and are also tax free.

The scheme recovers the capital cost after 7.5 years, and produces a cumulative return after 25 years of £17,500. That's a real return of 3.83 % free of tax.

Previously, the returns had been around the level of 2 %.

Staying with this 'no domestic consumption' scenario, what you've done is exactly the same as becoming a generation company. The project is not without significant risks which you cannot share across a larger or diverse generation portfolio. The risks are both 'mechanical' and political - if you think the political risks are small, consider that the ESI has suffered two major overhauls of the electricity market in the last 25 years and is about to be worked over again. The government is quite capable of mauling FITs, the indexing, and the taxation status of these schemes any time it likes.

So is 3.83 % (real, tax free) a good rate of return. Well, not really. Why not just invest in NGT: yield (indexed, standard corporation tax paid) is 5.8 %? That's a typical/traditional rate of return for a utility. Or for that matter, spread around more than one utility. And if you invest in that way, you can move around in the future, whereas your PV is a millstone for the next 25 years.

But hey, what about ensuring that you use all your local generation in-house? Pockpower is trying to do this.

Suppose we assume 100 % local consumption, electricity prices to rise by 10 % this year, and then a further 50 % by 2030 (i.e. 2 %/annum) - Ofgem. This improves the return to 4.44 %. Still doesn't light my lamp I'm afraid. I'd need the capital cost to fall to £8,000 before I see returns similar to NGT.

And that also begs the question: can I get my utilisation up to 100 % of the PV output? There seems little point in using your PV generation to heat water. You can kid yourself that you've heated it by electricity and thus have earned the standard rate for electricity, but if you have any nous at all you'll already be heating your water far cheaper than that. My heat pump gives me hot water at 0.3 p/kWh - lower than the export tariff.

So what load can I find in the house for my PV?

The average electricity bill in the UK suggests an annual consumption of 3,650 kWh/a, i.e. 10 kW/day. There's some variation during the year (lighting).

Looking at the variation of PV output over the year:
http://www.transitioncambridge.org/thew ... AQ#shading
you can derive the monthly variation of daily output for the scheme I was considering. I make this to be:
Jan 3.8
Feb 4.7
Mar 7.7
Apr 12.6
May 15
Jun 14
Jul 15
Aug 14.5
Sep 10.5
Oct 7.5
Nov 3.9
Dec 2.1

This tells us immediately that a scheme this large must spill power between April and Septmber. In fact, it's forced to spill 23 % of its production. In other words, it's over-sized for the average household. To avoid any spillage, you'd need to limit the installation to 2,000 kWh annual production.

So where do you find any large load? Well, there's only dishwashing, fridge/freezer/washing machine. RGR's EV sounds like a damn good idea. Power to the heat pump? No, that's useless because just when PV fires up, the heat pump turns off and just does hot water - see above.

2 As and a B · Post by **2 As and a B** » 26 May 2011, 18:09

Depends how you define economic. Nuclear certainly isn't.

An Inspector Calls · Post by **An Inspector Calls** » 26 May 2011, 18:31

I have made the basis of my economic assessment quite clear.

Hunting rabbits with ferrets is not economic.

Pepperman · Post by **Pepperman** » 27 May 2011, 08:00

The FiT revenue doesn't need to be discounted but your 5.8% investment should be discounted. Also if making money is your aim (and most PV buyers who put considerable value in a low carbon footprint), then try running the numbers with the FIT revenue going into your investment returning 5.8%.

biffvernon · Post by **biffvernon** » 27 May 2011, 08:24

Solar power may be cheaper than electricity generated by fossil fuels and nuclear reactors within three to five years because of innovations, said Mark M. Little, the global research director for General Electric Co. (GE)
“If we can get solar at 15 cents a kilowatt-hour or lower, which I’m hopeful that we will do, you’re going to have a lot of people that are going to want to have solar at home,” Little said yesterday in an interview in Bloomberg’s Washington office. The 2009 average U.S. retail rate per kilowatt-hour for electricity ranges from 6.1 cents in Wyoming to 18.1 cents in Connecticut, according to Energy Information Administration data released in April.

the rest: http://www.bloomberg.com/news/2011-05-2 ... -says.html

An Inspector Calls · Post by **An Inspector Calls** » 27 May 2011, 08:53

Pepperman wrote:The FiT revenue doesn't need to be discounted but your 5.8% investment should be discounted. Also if making money is your aim (and most PV buyers who put considerable value in a low carbon footprint), then try running the numbers with the FIT revenue going into your investment returning 5.8%.

The FIT return was not disconted in my workings.
"no provision for DCF as the FITs payments are index linked"

The NGT return quoted was an index-included assessment and therefore does not require DCF.
"Why not just invest in NGT: yield (indexed, standard corporation tax paid) is 5.8 %?"

The stock market, over terms of 25 years, out-performs the usual indexation measures. It is commonplace to achieve income returns of 4-6 % on investments (tax sheltered, of course).

I don't get any sense that the people here investing in PV are motivated by concerns for their carbon footprint. It seems like good old greed is ubiquitous to me. I might be wrong. But that is why the assessment I've done focuses entirely on personal returns. In any event, even if there is some hidden (misplaced) altruism here, it is useful to know how far that extends.

I don't quite see what you're saying with: "then try running the numbers with the FIT revenue going into your investment returning 5.8%." You want me to return the income from the FITs scheme into an NGT investment? Why not just invest the original capital NGT? Or even better, a portfolio of generators? Or, if green is the thing, Green Energy?

Pepperman · Post by **Pepperman** » 27 May 2011, 09:04

I didn't spot the indexed bit. What is this magical investment that will yield 5.8%, index linked for 25 years? Sounds rather like what Iceland were offering...

ETA: or Madoff

biffvernon · Post by **biffvernon** » 27 May 2011, 09:06

An Inspector Calls wrote: I don't get any sense that the people here investing in PV are motivated by concerns for their carbon footprint. It seems like good old greed is ubiquitous to me. I might be wrong.

Yes you are wrong. I invested in PV because of my concern for carbon footprint. The fact that my investment in pv gives a better return than leaving the money in the bank is a nice bonus.

Good to see the General Electric think solar pv will soon be cheaper than fossil fuel even before the fossil fuel burning externalities are included.

Post by **clv101** » 27 May 2011, 09:42

An Inspector Calls wrote:I don't get any sense that the people here investing in PV are motivated by concerns for their carbon footprint.

This comment shows how little you have really 'listened' to the discussions here over the last few months.

2 As and a B · Post by **2 As and a B** » 27 May 2011, 10:30

An Inspector Calls wrote:I don't get any sense that the people here investing in PV are motivated by concerns for their carbon footprint.

There are several steps that can be followed to reduce or offset carbon emissions before considering domestic solar PV:

reduce consumption, including fuel consumption, including electricity use - many, many possibilities there
switch to a green energy supplier
invest in green energy businesses

What extra carbon emission saving could be gained by then "investing" in a domestic solar PV system? After doing all that, the decision to install grid-tied solar PV has to be on the balance of economics and altruism, or "early adopter" if you prefer.

Post by **clv101** » 27 May 2011, 10:52

foodimista wrote:
switch to a green energy supplier

I'm a little unclear how this reduces CO2 emissions? By switching supplier no additional green energy is produced, the available supply is just allocated on paper to you.

biffvernon · Post by **biffvernon** » 27 May 2011, 11:19

If the 'green supplier' you switch to has a policy of investing revenue in new renewable generation capacity, as Ecotricity does, then switching supplier does just what you intended. CO2 emissions are reduced.

I've decided to give up on the lawn mowing:

http://www.guardian.co.uk/environment/p ... aic-france

Post by **clv101** » 27 May 2011, 11:46

biffvernon wrote:If the 'green supplier' you switch to has a policy of investing revenue in new renewable generation capacity, as Ecotricity does, then switching supplier does just what you intended. CO2 emissions are reduced.

Indeed, but I call that more like investing in green energy businesses than simply switching to a 'green supplier'.

An Inspector Calls · Post by **An Inspector Calls** » 27 May 2011, 12:55

clv101 wrote:
An Inspector Calls wrote:I don't get any sense that the people here investing in PV are motivated by concerns for their carbon footprint.
This comment shows how little you have really 'listened' to the discussions here over the last few months.

Rubbish. The solar pages are littered with gleeful claims of rates of return.

clv101 wrote: In my opinion, AIC has demonstrated an ideological opposition to renewables.

This comment shows how little you have really read of what I've said.

2 As and a B · Post by **2 As and a B** » 27 May 2011, 13:02

Bypassing the troll...

clv101 wrote:
biffvernon wrote:If the 'green supplier' you switch to has a policy of investing revenue in new renewable generation capacity, as Ecotricity does, then switching supplier does just what you intended. CO2 emissions are reduced.
Indeed, but I call that more like investing in green energy businesses than simply switching to a 'green supplier'.

Yes, Ecotricity would be one such green supplier. There are two parts to the switching: one is indeed investing in a green energy business since Ecotricity's revenues are used to install more renewables capacity - that is a given; the other is purchasing green energy from the supplier - here there are two levels and two corresponding tariff rates, which used to be called 'old energy' (a mix of electricity sources but with a bias to renewables) and 'new energy' (sourced 100% from renewables).

ETA: I see that the tariffs are now 'new energy' and 'new energy plus', the difference from the old tariffs being that the core renewables electricity is now generated by Ecotricity rather than sourced on the market.