As PV Installations fall is there still a profit in putting PV on your roof?
The Feed in Tariff has been in a bit of a limbo since the Government announced a cut in the rate late last year. The cut was first due to come in to effect on the 11th December; in the final week of the old Tariff 29,510 installations were recorded (http://www.decc.gov.uk/publications/basket.aspx?filetype=4&filepath=11%2Fstats%2Fenergy%2Fenergy-source%2F3803-weekly-solar-pv-installation-and-capacity-.xls&minwidth=true).
The Government lost the ensuing court cases and the new rates came in to effect from early March. In the week ending 8th April the lowest number of installations were recorded, just 820.
In November and December 2011 the average number of installations was 12,986 a week, in April that had fallen to 2,629.
This fall is not a good thing for a fledgling market in a recession, the cause is obvious, many bought forward their purchasing decision to beat the cuts. Of those that did not many are disillusioned by the cut in the Tariff and therefore their income
Whilst the Government have cut the FiT the cost of installation has also fallen quite dramatically. In 2 ½ year we have seen the cost of equipment fall by over 50% which has been reflected in the retail price.
Looking at a 4kW system on a South facing roof at 30 degrees. The cost installed is now less than £9,000 (our first 4kW system 2.5 years ago was circa £16k). This system could generate 3,434kWh a year.
The generation tariff at 21p is worth £721.06, the assumed export a further £51.50 so the owner will earn £772.56 tax free. On top of that if they can use 50% of the electricity they generate saving 12p (average price) per kWh that represents a saving of £206.02. Making the system worth £978.58 in the first year, a return of nearly 11%.
Of course the return is index linked for 25 years, so all things being equal, the annual return should increase every year.
So why are they not selling?
The Government has announced another review to drop the price as from the 1st July. Normally that would encourage people to get in early; except those who have read the review. There are 4 points that jump out at me
1. Drop the Generation Tariff from 21p to, maybe as low as 14p for sub 4kW systems
2. Remove the index linking
3. Reduce the length of the contract
4. Back date the FiT to existing contracts
A potential return of 11% is very generous but let’s be realistic. This return is only for people with a South Facing Roof at a pitch of 30 degrees, change the pitch or the direction and your return falls. An 8% to 10% return is much more likely.
But, is 8% – 10% a good return, your money is tied up for 25 years and the return is based on the UK weather, yes that is taken in to account in the calculations but it remains a nagging doubt in many people’s minds.
Some might say that a fall in the tariff will lead to a corresponding fall in prices, as happened in December. No, there is not the room, when we started the “Kit” was about 70% of the price, now it is about 40% with labour, scaffolding, accessories etc making up the rest. Even if the kit prices fall I doubt we will see a significant reduction in price.
Removing the index linking is a good idea; the capital cost is a sunk cost why should the return be indexed. If you put the money in the bank you can have your interest or you can have capital growth, you can’t have both
Reducing the length of the contract. I’ll come back to this another day
Back dating the new rate to existing contracts. Hit me over the head with a large hammer. OK. This is a huge subject which I will come back to another day but for now let’s just say that if the Government were made to look incompetent by their actions of December 11th and the ensuing court cases that they lost en-mass that is nothing compared to what would happen if they changed the Tariff retrospectively for people who had paid more for their system.
Why are sales so dire? In my opinion it is because of the way the Government are making everyone too nervous to get involved