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YouGen press release

Solar sales slump, but it is still an attractive investment

Posted on 3 May 2012 at 9:30 am

Returns are better than they were when the feed-in tariff started – but people need to act now to benefit before they reduce on 1 July 2012.

Solar PV installations slowed down radically in April despite still offering good returns on investment. There is a belief that the feed-in tariff, the government’s incentive for solar PV (and wind and hydro), ended on 31 March 2012. This is not true. Solar PV still gives annual returns of around 10%, which is better than was available in the first year of the feed-in tariff.

The phones have stopped ringing for many solar PV companies. “This is a pity because, with a generation tariff of 21p for installations up to and including 4kWp, solar PV is still a really attractive proposition,” says Cathy Debenham, founder of independent, consumer-led website YouGen. “I installed solar PV in the early days of the feed-in tariff, and because costs have fallen radically since then, people installing today will get a better return on investment than I did in February 2010.

“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 that are significantly 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. However, the rates are due to reduce on 1 June 2012, so it’s worth acting now to get the best deal.”

To illustrate the situation, see below what you get today with Cathy’s solar PV installation - which was installed in February 2010. She has a 2.1kW system, predicted to generate 1,672kWh (it actually produces more, so for ease of rounding we have used 1,700kWh in the calculations below).

Cost of installation: £9,000 (this included panels at cost, so most people installing at that time 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
Total return: £829.60
Annual return: 9.2%
Payback: 10.9 years

Now you can get a 4kWp system for less than Cathy paid for a 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
Total return: £1003
Annual return: 11.8%
Payback: 8.5 years

These calculations are 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.

“These calculations demonstrate that solar PV is still attractive” says Cathy, “and as electricity prices continue to rise, and installation costs fall, it will get closer and closer to grid parity, and will no longer need government incentives”.

“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 ridiculously high, 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. People can find a local installer who has been recommended by their previous customers on YouGen.

Notes for Editors

* The assumption on generation is based on a SAP calculation for Sheffield, and is an under-estimate in 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 the feed-in tariff is ‘deemed’ to be half, and that is what they will receive. Commercial installations with heavy daytime on-site electricity use will get a better rate of return as they will use more than half of their generated electricity, and save more on their electricity costs.

** The feed-in tariff is designed to ‘degress’. This means that as costs fall, and electricity prices rise, the tariff rates will reduce, until the tariff is no longer needed. Planned degressions are expected to take place on 1 July 2012; 1 October 2012, and six monthly thereafter. However, these plans are still under consultation, so they may change. For the same reason, the rates that will apply in July are not yet known.

You can find the latest installation figures here:  (scroll down to the link for Weekly solar PV installation and capacity.

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