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The feed-in tariff still offers good rates of return - so why have solar PV installations dried up?

Posted by Cathy Debenham on 24 April 2012 at 11:02 am

Since the beginning of April solar PV installations have fallen off a cliff. The only time they have been lower over the past 15 months was after the Christmas 2011 feed-in tariff deadline.

In this time five companies have resigned their YouGen membership - two going into liquidation, one ceased trading, one changing direction. Others find that the phone isn't ringing. One company I spoke to this week says they have had no enquiries for the past two weeks - before that the phone was ringing "all the time". Another reports enquiries have dropped from an average 50 a week to just 11. A third is snowed under with CVs from people being laid off by both small and large companies.

This is truly bizarre, because at 21p generation tariff for installations up to and including 4kWp solar PV is still a really attractive proposition. I installed solar PV in the early days of the feed-in tariff, and because costs have fallen radically since then, people installing today can get a better return on investment than I did back then.

The trouble seems to be that people think that the feed-in tariff ended on the first of April . That is not true. It's still there. It still gives rates of return much higher than you'll get from a bank. And the capital costs of installation have more or less halved, making it accessible to more people.

To illustrate that I'd like to compare what you get today with my installation - which was done right at the beginning of the feed-in tariff. I have a 2.1kW system, predicted to generate 1,672kWh (although it actually produces more, so for ease of rounding I'll use 1,700 in the calculations below).

Cost of installation: £9,000 (this included panels at cost, so most people installing then paid more)
Annual output: 1,700 kWh
Feed-in tariff generation rate @41.3p/kWh: £702.10
Used in the home: 850 kWh
Savings from electricity bill @12p/kWh: £102
Exported: 850 kWh
Income from export @3p/kWh: £25.50
Annual return: £829.60
Return on investment: 9.2%

Now you can get a 4kWp system for less than I paid for my 2.1kW system. So here are the same calculations run again for a bigger system.

Cost of installation: £8,500
Annual output: 3,400 kWh
Feed-in tariff generation rate @21p/kWh: £714
Used in the home: 1,700 kWh
Savings from electricity bill @14p/kWh: £238
Exported: 850 kWh
Income from export @3p/kWh: £51
Annual return: £1003
Return on investment: 11.8%

These calculations are very rough guides only, as they do not allow for any maintenance costs, and do not annualise or levelise the capital expenditure. Click here to see the Department of Energy and Climate Change's method of calculating rate of return.

The assumption on generation is based on a SAP calculation for Sheffield, and is an under estimate many systems. The electricity cost of the first example is based on prices in early 2010, and the second is based on prices now. Both workings assume that you use half of what is generated, and export the rest. This is probably not the case, and most domestic installations are likely to export more than half. However, commercial installations with heavy daytime on-site electricity use will bet a better rate of return as they will use more than half, and save more on their electricity costs.

Even so, these calculations demonstrate that solar PV is still attractive, and as electricity prices continue to rise, it will become more attractive, so why have enquiries ground to a halt?

Since 1 April, the government has introduced a requirement for all buildings to have an Energy Performance Certificate (EPC) of level D or above to claim the feed-in tariff. For many people this shouldn't put them off, as about half the housing stock already meets the criterion, and for many others it is easily achievable - the solar PV counts towards the improvement.

So there is a two month window of opportunity to still get solar PV before the rates reduce again. It's not as attractive as it was pre 12 December last year when the returns were getting on for silly money, but it's still a good insurance against the steadily increasing energy prices.

Don't leave it until the last two weeks of June to ring an installer. They've proved that they are good at reacting to deadlines, but if you leave it too late, they may have laid off their staff. Click here to find a recommended solar PV installer near you.


If you have a question about anything in the above blog, please ask it in the comments section below.

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1 comments - read them below or add one


capybaraComment left on: 24 April 2012 at 2:15 pm

We have just installed a 3.75 KW system and the cost was £7,800 including a new high efficiency consumer unit. This is probably half the installation costs of 2 years ago and still gives a return of 8 to 10% annually which is much better than any savings account will offer.The only thing you do need is an Energy efficiency certificate of band D or above to qualify for the 21p rate. This cost us £50, but some Solar PV installers are now offering this as part of the package.I think it is still a great Investment and will undoubtedly make the property more valuable and desirable to any would be purchaser if we ever wanted to sell.

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