All you need to know about the economics of solar PV in Northern Ireland
Posted by Andy Baird on 15 May 2014 at 2:24 pm
For many customers, going solar has to make financial sense. A well-designed system using good quality components should provide a payback of 6-8 years depending on site conditions. This post is intended to help you fully understand how the economics of solar in Northern Ireland works.
Firstly, you need to understand how much electricity your system can produce, and the savings on your bill from producing and using your solar-generated electricity. Then there is the income you will earn by selling unused electricity (export) to PowerNI and the payment you will receive under the NIROC’s scheme. Because savings and income will always be unique to your life-style and the performance of your system, it’s important to understand these variables so you can make an informed decision to go solar.
Output from your solar panels
Under MCS, your installer must provide a projected output figure for the proposed system using a table of data specific to Northern Ireland. This factors the pitch and orientation of your roof, and the effect from shade where this applies. Ensure you look at how this has been worked out and check it corresponds to your situation. And beware of an assumed uplift from micro-inverters, optimisers or harvesters all of which are popular add-ons in Northern Ireland.
We were asked to review a design recently that used the now obsolete SAP 2009 method for projecting output, based on a 30° roof slope facing due South, with a 20% uplift applied using micro-inverters. The customer was informed in writing the 4kWp system would produce 4,120 kWh pa.
The roof was pitched at 15° and faced 70° off South to the West, so should produce 789 kWh per kWp in Northern Ireland. There was also a 3% far-shade factor from a nearby building, so the system was more likely to produce:
4kWp x 789 kWh/kWp x 0.97 = 3,061 kWh pa
This 25% overstatement of system performance would have an immediate and dramatic affect on the financial performance of the system.
Electricity saved & exported
Assessing savings from solar can be tricky, but there are some simple rules to ensure the figures are realistic. The domestic price of a unit of grid-supplied electricity in Northern Ireland ranges from 14p to 18p (depending on supplier and tariff) and you must use an accurate figure as your start point. It is usual to apply a rate of electricity price inflation to project future savings, and this is a hard one to call. Grid-supplied electricity prices in Northern Ireland have increased by 4-6% pa over the last decade (and this excludes the 2008 spike of 32%) so if you apply a rate similar to this you will get an idea of where prices may be going. If price inflation exceeds these rates then you will be ahead.
Of course, savings are ONLY accrued from using solar generated electricity when it is available. Understanding how much solar electricity you will actually use is key. A sensible approach is to apply a 50:50 split between self-use and export but even this is rather too generic. If you are advised you will use more than half of the solar generated electricity you really need to ask for some evidence of how this has been worked out or your expected savings may not materialise. There is a range of software available to installers that enable a realistic assessment of savings. Below is a very typical example of a three person household, using 5,000 units of grid-supplied electricity pa. By installing a 4kWp solar array, they will expect to use less than half the solar generated electricity.
By only using appliances during daylight hours, and when you are generating from solar panels you can reduce exported electricity and enhance savings. Many customers also install units that divert surplus electricity to an immersion heater to reduce export. This is a good idea but you will still export some electricity, typically 10-20% depending on site conditions so question projections that assume zero export.
Because a unit of grid-supplied electricity costs 14-18p, and you are paid just 5.59p (rate applies until end September 2014, and is reviewed annually) per unit for exporting, it makes sense to maximise self-use of solar generated electricity. Understanding the balance between savings and export, and how this has been worked out is essential when assessing solar economics.
Income from NIROC's
Once registered, you will be paid for every unit of solar generated electricity your system produces under the NIROC’s scheme. The scheme is administered by Power NI (who also buy your exported electricity) and you will receive payment annually for 20 years. If you are a homeowner paying for the system as an individual rather than a business, this payment is tax-free.
Because the NIROC’s payment is based on the number of units your system produces, it is essential that the projected output is worked out correctly, as described earlier. If system output is overstated you will earn less NIROC income than expected.
The value of NIROC’s you receive per unit is NOT fixed for the 20 year term and NOT index-linked (unlike FiT’s in England, Wales & Scotland). Numerous systems have been sold in N. Ireland with an assumed increase in the value of NIROC’s over time, sometimes as high as 3-5% compound pa. The value of the NIROC is reviewed every September by Power NI, who then fix the rate for that year. In 2013, the value was reduced from 17.64p to 16.96p per unit. Although this was the first, small reduction for several years it is prudent to assume a 1-2% NIROC deflation year on year. If the NIROC’s value does not fall, or even increases slightly based on market conditions, you will be ahead. But it is entirely unrealistic to assume an inflation-linked increase in NIROC’s over the next 20 years.
System lifecycle costs
Because solar has no moving parts, it is described as a fit-and-forget technology. We’ll look at the case for system monitoring and servicing in a future post. The inverter which converts DC from the modules in to AC for use in the home is a consumable item and may need replacement during the 20 year NIROC term. Ensure you factor the cost of inverter replacement in to your cash flow forecast for the system, unless you plan to take out an extended warranty of up to 25 years. You can assume 8-12% of the total system price (installed) as a safe rule of thumb.
If your roof is suitable, the economics of going solar in N. Ireland make a lot of sense and can provide an attractive return on capital invested, whilst diluting the impact of future increases in the price of grid-supplied electricity. Speak to several installers and ensure you are entirely comfortable with how system performance, and projected savings and income figures have been worked out. Ensure system lifecycle costs have been factored. You will then be able to proceed with confidence and enjoy decades of generating your own clean electricity from solar. Your questions and comments about the important issue are always welcome.
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About the author: Andy is founder and managing director of Planet Solar (NI) Ltd.
If you have a question about anything in the above blog, please ask it in the comments section below.
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