#1 July 6, 2014 01:25:00

Telegram Sam
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I raised the topic of how to assess the financial performance of an investment in SV as a spin-off in a previous thread. Trying to answer my own question by using the mortgage calculator in Moneysavingexpert I have arrived at the following tentative conclusion:


I can regard my SV investment a year ago of £5850 as a “reverse mortgage”. After one year it paid me £638 in FIT = 10.9% - gross.  Sounds good. Assume that this is repeated exactly in future years and for the sake of the exercise that inflation is zero.


Assume I move house after 10 years and in the sale the premium for SV panels is zero.  And that I have had no expenses in connection with maintenance or repairs. The “mortgage” is therefore amortised over 10 years.


By my calculations the net annual interest rate works out at 1.5 - 1.8%. Granted that this is tax free, it hardly covers the “risk premium” that would normally be associated with a long term investment.


It strikes me that the SV investor is taking a gamble on being able to stay in his or her house for most if not all of the 25 year term for the sums to add up. And/or on being able to achieve a SV sale premium if he / she moves before then.


Would someone with a better understanding of finance care to verify these thoughts and calculations for me?





Edited Telegram Sam (July 6, 2014 01:25:00)

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#2 July 6, 2014 06:43:00

Dave Stevens
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The payback isnt just in fit payments, its also in reduced electricity payments.


why assume the pv install wouldnt add to the house price? Pretty sure it does provided the house owns them (ie they were payed for, not “free”)


by my own calculations, payback would be about 6-7 years for my system which  gives a greater than 10% roi which is no brainer territory.


I'm retired and therefore home during the day.


Dave. URN 6737, 3.27kwp, 174deg facing, 30deg slope, no shade, installed 15/05/2014





Edited Dave Stevens (July 6, 2014 06:43:00)

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#3 July 6, 2014 08:42:00

TerFar
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As Dave has stated, your forgetting the savings on your utility bill. Typically this time of year, we use 15-20 fewer units per day from the grid. Obviously this can be just 4-6 in the depth of winter (though that's unusual). 


But for a quick example of figures fresh in my head, in Apr,  May Jun we ‘saved’ £28, £36 £43 over the same period last year. 


That should make a dramatic difference to your forecast. Obviously, no one can predict future weather trends or the price of electricity, but using current rates (ignoring FIT increases too), my calculations point to repayment in 5-6 years and a tax free return of 13% after 10 year and 18% after 20 years. 


If you predict more sun (global warming) and higher FIT and energy prices plus the tax you're not paying on this sum, the interest rate becomes better than you could dream. Solar PV is a no brainrr for many homes. 





Edited TerFar (July 6, 2014 08:42:00)

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#4 July 6, 2014 13:10:00

Telegram Sam
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Re the “asset value” of PV on house sale:  From previous discussions I think this is speculative territory.  There are some buyers who for visual and whatever reasons are actually put off buying a PV property.  My gut feel is to be very conservative with assumptions, the more so of course the less the FIT period has to run. (“A house is worth only what the buyer is prepared to pay for it …”)


In my case the reduction of energy consumption has been marginal - because my (evenings / night-time) usage is out of sync with (daytime) generation and it is not cost effective (I am told) to invest in PV batteries.  This will obviously vary between individuals.


The point is: if you can guarantee to be in a position to benefit for of the order of 20 years you are quids in.  If fate means you have to move after c. 10 years then you are faced with the kind of net returns that I have calculated, which are way below the hype - unless I have mis-calculated and someone can put me right.









Edited Telegram Sam (July 6, 2014 13:10:00)

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#5 July 6, 2014 20:08:00

TerFar
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I can understand your concerns. Obviously there are people who are technophobes and there are those that hate the look of PV Panels.


Warning: selfish statement coming…


I hate the look of PV panels, but my installation is on the rear roof of the house and only those people living in the ‘posh road’ behind can see them. We can only see ours if you go to the end of our shortish garden and stand on a step ladder. So I'm not at all concerned!


However, if our house faced South instead of North with the PV panels going in the front, I may have rejected the idea of investing in the panels. I now know that would have been a financial mistake, but our house is at the end of a cul-de-sac and everyone turning into our road would see them immediately.


On balance, if I was going to move within 10 years and my front faced South, I don't think I'd invest. It would definitely put me off buying a house.





Edited TerFar (July 6, 2014 20:08:00)

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#6 July 7, 2014 11:37:00

Telegram Sam
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Interesting to read your comments such as you don't see that often. Granted that there are technophobes and technophiles I reckon that discounting any residual PV value especially after a number of years after installation is the prudent course.


This leaves a PV investment to stand or fall on the basis of “current” data.  I stretched my earlier calcs to correspond to me being able to enjoy the FIT's for 20 years.  Using the mortgage calculater this gave me a net return of 9.1%.  Brilliant compared with an ISA - but hardly a world shattering no-brainer for an non-refundable investment where the return is loaded towards the back end.


In defence of the hype the counter-argument must be that the coming 20 years must surely see a significant increase in inflation-linked FIT payments which - whilst unpredictable - should significantly increase the return compared with the flat rates that I have input. And that the increases outweigh maintenance and repair costs …


If the investment had been sold to me on this basis I would be more inclined to believe that the system was being level with me. Anyone who sees things in a different light please say.








Edited Telegram Sam (July 7, 2014 11:37:00)

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#7 July 7, 2014 12:16:00

TerFar
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What this proves is that the unpredictable is unpredictable!


Frankly, I think that you are being a little conservative and perhaps I am being a little optimistic.


There are just too many variables that can swing for or against PVs.


But surely the investment is good for the environment in the long term? In a few years we will find an acceptable way to store and use the solar power at times when it is needed rather than only when its bright daylight. I know there are large scale experiments that look very promising (liquified air and salts), but scaled down domestic versions may arise from this work.


The holy grail will be a breakthrough in cheap, compact, lightweight battery technology!





Edited TerFar (July 7, 2014 12:16:00)

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#8 July 7, 2014 12:45:00

Telegram Sam
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That pretty well sums up the pros and cons


There are those that go for PV on environmental grounds, others on “techie” grounds, others like me on (?) financial grounds, and no doubt others on grounds I haven't even thought of.


A low cost efficient PV energy storage solution should make quite a difference in the running economics for those whose lifestyle / consumption is out of sync.  I hope such a system will be broadcast lound and wide on this forum if and when it happens.





Edited Telegram Sam (July 7, 2014 12:45:00)

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#9 July 7, 2014 15:51:00

Capetown
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From my perspective PV storage would be an excellent idea. But if I were to save every kW that I would have exported and used it in my home at a later date (assuming no losses) I would be £136-26 better off! (last years figures). PV storage is not really a “Eureka” moment!







The gene pool has no lifeguard!

Edited Capetown (July 7, 2014 15:51:00)

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#10 July 7, 2014 16:41:00

Telegram Sam
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Penny is in the process of dropping:  I hadn't realized until now that you either saved OR exported rather than enjoying a 2-way cake!  This is where is gets really involved!





Edited Telegram Sam (July 7, 2014 16:41:00)

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