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Feed-in tariffs: the new landscape
Posted by David Hunt on 14 November 2011 at 4:31 am
So the dust is settling on a truly manic few weeks. From rumour and leaks to the final announcement, we now know what the new feed-in tariff (FIT) regime will be. Of course there is ongoing lobbying and campaigning to fight the depth of the tariff cut, and we’ll be playing our part in that campaign.
However, we know that the ‘consultation’ ends two weeks AFTER the tariff rate cuts, and we know that the likelihood of DECC and the Government listening to reason is slim. So, what does that mean to those that have missed the opportunity to get installed before the 12th December deadline (6th in reality as the system has to be registered with your energy supplier by 12th).
A good analogy would be this; if you heard you’d won £2million on the lottery you’d be jumping for joy. If you then found out you had to share that with another winner you’d be disappointed for a few minutes, then you’d realise you’re still £1million better off. Well that is how it is with solar Feed in tariffs. You may not have won the full jackpot (43.3p), but you’ll still get a far better return than any ISA, bank or savings account, or any other investment. And it will still be tax-free, index-linked and fixed for 25 years.
Feed in tariffs have been very successful at achieving their aim of encouraging installation of solar panels, increasing volumes installed and therefore bringing down installation costs. Panel prices have dropped dramatically in the last year. Ignoring cheap and nasty products (and there are plenty about so beware) you could recently get a good quality 4kwp system fully installed for £12,500 including VAT.
However, one consequence of the new tariff rate, and it having been brought forward is that there is a lot of product heading for these shores that won’t arrive until after the tariff changes. The manufacturers know that to sell this they will need to discount. They also know that to sell systems in the new landscape prices will have to be kept low. These facts should mean further reduced installation costs, and a healthy return on investment even on the new tariffs.
As an example, post 12th December we are able to offer a 3.92kwp system based on leading Hyundai panels and an SMA inverter for under £9,500 including VAT. On a south facing roof that system would generate 3,258kWh a year (in the Midlands). If you use 70% of that and export 30% you would benefit each year from
FIT payment = £684.18
Energy Saving= £322.77 (based on 13p import price)
Combined benefit=£1,036.75 or 10.67% return on investment.
Once you add feed-in tariff increases (they are index linked) and electricity price increases then this return goes up year on year. So, go back to our lottery analogy. It is not as good as the returns before 12 December, but I challenge anyone to find a better investment out there.
Clearly these figures will vary according to your location and orientation, but not by a great deal.
An amusing anecdote from this week from our Yorkshire office illustrates the point. A customer had been ‘mugged’ by an installer selling 4kWp (on unbranded panels) for £21,000. The customer was happy as he would get the 43.3p tariff rate. Once we pointed out this was a 7.88% return on investment, and we could get him a 10% return on investment on the 21p tariff rate, he was less than happy and cancelled his installation with the cowboys.
It always cheers me up when a cowboy in our industry comes unstuck, and I think the new tariff changes will mean a few of those cowboys will go elsewhere to find their quick money.
So solar panels still make sense, they address your energy costs, address your carbon output, and provide an exceptional investment opportunity. Our advice is this; if you have missed the boat on the 43.3p tariff you could share the jackpot, choose your product and installer wisely, and get proper advice, use YouGen and customer recommendations to select your installer. The long and short of it is that solar panels are here to stay, and that can only be good news for the environment, and bad news for the big six energy companies, and that makes me smile!
About the author: David Hunt was Head of Commercial for Renewable Solutions UK Ltd. He no longer works in the renewable energy sector.
If you have a question about anything in the above blog, please ask it in the comments section below.
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