How does an investment in PV today compare financially to 2 years ago?
After the Feed in Tariff cuts is it still worth investing in solar PV?
Ever since the coalition government announced the cuts in the Feed in Tariff subsidies for renewable electricity generation there has been widespread belief that somehow solar PV investments no longer make financial sense. This couldn’t be further from the truth! Yes the Feed in Tariff rates have been reduced and will continue to be reduced incrementally but the global energy and solar markets look very different to what they did in 2011.
What has changed?
Installation costs – between 2009 and 2011 low-cost Chinese solar panel production quadrupled and now represents 80% of the European market. This forced a competitive price drop of around 60% on all solar panels in less than three years.
UK Feed in Tariff – prior to the initial Feed in Tariff cuts in 2011 the rate for a 50kWp system was 32.9p/kWh. Today the same sized system would receive 12.6p/kWh and it is anticipated that Feed in Tariff subsidies will be phased out completely over the next four years.
UK energy prices – electricity prices have increased dramatically in the UK in recent years, in many cases by as much as 20% or more. This increases the self-use savings (savings by not purchasing grid electricity) from a solar PV system.
Financed options – there are numerous lenders who now recognise the benefits of investing in PV offering a range of financed options today that may not have been available two years ago. A lease purchase is the most attractive of these options because it often requires little or no investment from the client. This opens the door for more businesses to invest in renewables.
In many cases the returns on a PV system are the same now as they were in 2011, if not higher...
Example – 50kWp system 2011 versus 2013
We have taken two similar 50kWp roof mounted appraisals located in Yorkshire; one was created in 2011 and one was created in 2013. A comparison enables us to see what effect the above changes have had on the finances of a PV system. The comparison is not exact because the sites are not completely identical but the use of acutual data gives us a very realistic idea of how the financial returns have changed in the last two years.
System 1 (2011) – 50kWp, 6 degree tilt, orientation 10 degrees south, anticipated average yield over 25 years (including panel degradation) 39,391 kWh / year, 90% of electricity used on site
System 2 (2013) – 50kWp, 10 degree tilt, orientation -35 degrees south, anticipated average yield over 25 years (including panel degradation) 38,774 kWh / year, 95% of electricity used on site
What about the future?
It is likely that electricity prices will continue to rise for at least the next 7 years before levelling off sometime after 2020. This means it makes more financial sense to invest in on-site generation now, when electricity prices are set to rise rapidly and there is potential to save more.
Government subsidies offer a generous income for renewable energy generation but these subsidies are likely to be phased out in the next few years. At present only the large-scale schemes will be eligible to claim the new CfD subsidies, due to be launched next year.
The cost of solar panels has fallen dramatically since 2011 but this trend is unlikely to continue. The introduction of import duties on low-cost Chinese panels could actually result in an increase in European panel prices but the details of such duties have not yet been finalised.
Solar PV is far from dead. In fact, the number of worldwide installations has increased almost exponentially since 2006. According to GTM Research 2/3 of all global solar PV has been installed in the last 2.5 years and they predict this trend to continue.