Solar Panel Installation Part 1 – The Purchasing Decision

This is a follow-on article from a previous report where I was advising immediate installation of solar panels due to a change in government incentives. I got my system installed in time and so will be rewarded with healthy feed-in tariffs, but this article will not be of use to potential purchasers if I effectively report on out-of-date figures. Therefore when commenting on earnings, I shall endeavour not to ‘rub it in’ by describing my anticipated earnings, but I will detail the latest expected earnings for my system. Only where I am justifying decisions will I record my actual earnings, but here I will also provide the latest figures.

I originally intended on reporting on the entire purchase process, from ordering to installation,but I have now decided to split it up into two parts as, frankly, I could not stop waffling

Depending on when you read this article, and if you can find an installer available, you might still get an installation in time for the ‘old’ tariff. It needs to be completed by 14th February 2016, but only takes a day or so (plus scaffold-erection time) so there may still be time to react and virtually double your income. You can read the previous article here:

http://www.tcdluk.com/Hybrid/solar-panel-funding-cuts-2/

I did make some minor mistake in the formula which are corrected, or at least improved, in this article.

The Chosen Solar Panel Installation

The company I decided to go with was a recommendation from a work colleague and goes by the name of Red Electrical. I was told that the proprietor, Stuart Reid, did an excellent and conscientious job, on time. Happily, even with this reference, I was pleasantly surprised.

Together we decided on fourteen 285 Watt panels, which would provide a maximum rated 3.99 kilowatts.

As there are 1,000 watts per kilowatt, the formula is simply:

watts / 1000 * number of panels = kilowatts.

In the chosen case, this works out as:

285 / 1000 * 14

= 0.285 * 14

= 3.99 Kw

A slightly cheaper option would have been the same number of 270w panels to provide 3.78kW. I chose the 285w option because the extra income more than made up for the extra cost.

The total quote for the options were, including scaffolding and vat:

  • 270w £5924.93

  • 285w £6259.67

So the 285w option is £334.74 or 5.3% more expensive, which is not a great deal. If this money was put in a bank account with 1% interest rates, after twenty years this investment would be worth £408.67. At 4% it would be worth £734.65. But by spending the extra money on the solar panels, this is the equivalent of an interest rate of 5.26% over the same twenty years. To be honest, bearing in mind that this money cannot be withdrawn from the bank, it is not that much, but neither is the original additional investment.

Another option that was never considered was fourteen 290w panels, as this would produce 4.06kW. There is a feed-in limit of 4.00kW, above which the tariff is reduced for the whole amount. As a result, when compared to the 285w panels, the cost of the installation is higher and the subsequent income is lower. I shall discuss the 290w option no further in this article.

The formula to be used is:

Electricity produced = kWp * Kk * SF

Where

kWp is the peak power of the solar PV system

Kk is the kWh per kWp for the postcode, pitch and orientation of the system

SF is the shading factor

I have found a web page that goes into great detail with the technical aspects and explains the above formula:

http://old.easy-pv.co.uk/documents/MCS-energy-output-method.pdf

I may produce a separate article that drags this information down to my level of understanding, but in the meantime I shall go no further.

The formula for Electricity Produced for my house is as follows

Using the 270w panels: 3.78 x 792 x 1.0 = 2993.76 kWh per year

Using the 285w panels: 3.99 x 792 x 1.0 = 3106.08 kWh per year

This gives potential first year earnings of:

Using the 270w panels: 2993.76 * (12.03 + 4.85 * 0.5) * 0.01 = £432.75

Using the 285w panels: 3160.08 * (12.03 + 4.85 * 0.5) * 0.01 = £456.78

The combination of feed-in tariff and export payment meant that the 285w panels would generate a potential first year income £456.79 against the 270w panel’s potential first year income of £432.75. So my chosen installation’s potential income is 5.26% greater than the 270w option.

So, whilst it is true that there is a 0.08% difference in favour of the 270w, when comparing the differences between the two options cost, against the differences between the two options potential income, that is a negligible amount when considering that the income will be over twenty years.

I have created a spreadsheet that compares the potential twenty year earnings with various RPI values from 0% to 5% and allowing a customised input. It was originally created just to help me work out my purchasing decision, but I have tried to tidy it up and make it a little more presentable. It also details the new tariffs and so is well worth a read. Here it is:

SolarPanelCostComparison

Over twenty years, with an RPI of 3% throughout, the 270w panels are estimated to return £11,628.10, whereas the 285w panels are estimated to return £12,274.11. This is a difference of £646.01. But don’t forget that you can also use this electricity, so there is the potential for additional savings.

If the difference in purchase costs was put into a current account, earning an amazing 2%, it would be worth £497.89 at the end of the same period. To get the same return as the installation, an interest rate of 3.3345% would be required.

If I had decided to put the whole installation cost into the same 2% bank account, at the end of the twenty years I would have £9,302.03 instead of the predicted £12,274.11, a difference of £2,972.08. The interest rate required to match this investment would be 3.423737%.

The Original Choices, With the New Tariffs

I will now repeat the above figures with the latest government incentive payments. I will try to cut down on the waffle and just give the figures. I will compare the 270w and 285w options as they would work out for my home, and state which option I would prefer.

A quick summary or old and new tariffs

Pre 15th January 2016 installation:

The generation tariff rate is 12.03p per kWh generated.

A further 2.43p is paid for export.

This works out at 14.46p per kW.

Post 15th January 2016 installations to 8th February 2016:

The generation tariff rate will be 4.39p per kWh generated.

A further 2.43p will be paid for export.

This works out at 6.82p per kW.

The purchase cost would be the same as before:

  • 270w £5924.93

  • 285w £6259.67

So, as already explained, the 285w option is £334.74 or 5.35% more expensive.

The formula for Electricity Produced for my house is also the same as before:

Using the 270w panels: 3.78 x 792 x 1.0 = 2993.76 kWh per year

Using the 285w panels: 3.99 x 792 x 1.0 = 3106.08 kWh per year

The potential first year earnings are reduced and are now:

Using the 270w panels: 2993.76 * (4.39 + 4.85 * 0.5) * 0.01 = £204.02

Using the 285w panels: 3160.08 * (4.39 + 4.85 * 0.5) * 0.01 = £215.36

The combination of feed-in tariff and export payment meant that the 285w panels would generate a potential first year income £215.36 against the 270w panel’s potential first year income of £204.02. So, as before, my chosen installation’s potential income is 5.26% greater than the 270w option.

Again, there is a 0.08% in favour of the 270w, when comparing the differences between the two options cost, against the differences between the two options potential income.

Over twenty years, with an RPI of 3% throughout, the 270w panels are estimated to return £5,482.22, whereas the 285w panels are estimated to return £5,786.79. This is a difference of £304.57. Again, you can also use this electricity, so there is the potential for additional savings.

If the difference in purchase costs was put into a current account, earning an amazing 2%, it would be worth £453.06 at the end of the same period. At a more realistic one percent, you would get £371.85. Even stuffing the money under a mattress would return more, but this is forgetting to take into account inflation.

So far, aside from a cursory mention, I have not covered the savings from a reduced electricity bill. This is because, so far, the government incentive figures alone have more than justified the installation costs. Now, they don’t! And I cannot really advise until I have at least a full year’s worth of bills in which to compare. After all, if I am at work when the energy is being generated, and at home in the evenings when it is dark, I will still have to pay for most of my energy. For now, I will report that the estimate of the savings for my property over twenty years is £11,764.58. That is based on a first year saving of £205.41 and energy bill increases of a doubtful 10% per year. I’m sorry to whimp-out, but you will have to work this out for yourself. All I’ll say is that, even at 3% inflation, £5,519.44 will be saved, so a profit will be incurred.

Other Considerations

One big question is how long the purchaser will remain in their current home. I personally do not expect to move for at least five years, if not ten, although I cannot see myself remaining indefinitely. I do believe that the installation will, while putting off a small percentage of potential purchasers, be attractive to far more, and may even push the final agreed price up, more than covering the costs.

A detrimental effect of moving will be a lack of solar panels at the new home, unless I am very lucky, and so any future installation will have to be at whatever price and feed-in tariff that is then current.

It is not just the generation of an income via the government incentives that need to be considered. Don’t forget that you can also use the power generated and so electricity bills will be reduced.

It is possible to set up a battery storage system so that the energy produced can be stored for later use. While there is not yet a commercial set-up available, I know of one person who has created his own storage unit, and another who is planning it for the future.


No Comments

Leave a Reply

Your email address will not be published. Required fields are marked *