Wednesday, 18 November 2015

How much is reasonable for a PV Feed in Tariff?

The government says that the Feed in Tariffs for renewables including PV panels are too high and must be reduced because the subsidy costs too much [1]. The new strategy is to prioritise energy security and affordability over greenhouse gas emissions [2] but in the same breath they claim that they are committed to meeting climate change targets. Leaked emails show that they know this is unlikely[3]. The question is, how far can the subsidy can be reduced without throttling the PV installations industry altogether? I have done some quick calculations to see what the generator tariff would have to be to get a reasonable return on your investment - though we may have different ideas about what is a reasonable return. To do your own calculations, download the spreadsheet from the Transition Cambridge PV advice page

As of 12th December the government announced the new tariff level for domestic PV will be 4.93p/kWh. This will give you a payback in 15 years if you use more than half of what you generate - as shown in the second table below.

My assumptions

Size of system4 kWpThis is the maximum for a normal domestic system
Installation cost£7,884This is based on the average installation price in March 2015 from
Yield3,520 kWh/yearThis depends on the size of the system and your location, direction, shading etc and the characteristics of your panels
Export tariff4.85 p/kWhThis is unlikely to change
Price you pay for your electricity14 p/kWhThis is how much I pay at the moment

I have calculated the generator tariff necessary to get payback in 10 or 15 years based on different levels of self consumption - how much of your generated power you use yourself.

The table below shows what the results of my calculations.

Generator tariff required for payback on a 4 kWp domestic system
Self consumption
Payback in 10 years p/kWh
Payback in 15 years p/kWh
33% (typical in practice)
The current rate is 12.47 p/kWh and the proposed rate is 1.63 p/kWh

These investments are high risk because it is hard to predict your self consumption rate.
The self consumption rate makes a lot of difference but it is very hard to predict because most people don't have detailed logs of their electricity consumption through the day. The deemed rate of export tariff presumes it is about half but from my analysis of typical consumption I believe it is more usually about a third. If you have a high base load or use a lot of power during the day it will be higher than average. Not knowing your self consumption rate makes the investment high risk because you can't predict your savings.

You can achieve very high levels of self consumption by using spare power to heat your hot water tank but this won't give you the full savings in the table unless you would have heated that water with electricity anyway. For most people the water would have been heated with gas which is much cheaper.

At the proposed rate you need more than 75% self consumption to get payback in 15 years.
The current level of generator tariff is 12.47p which is not quite enough to give you a 10 year payback time if you use half of our own power. The government has proposed reducing this to 1.63p/kWh. That would not quite give you payback even in 15 years unless you use more than 75% of your own power.

That goes for larger systems too - such as 50 kWp for a school.
For larger roofs, such as a school, the tariffs are lower but the installations are also cheaper. The self consumption rate is likely to be higher (though schools don't use much during the summer holidays) but also the commercial rates for electricity prices are lower so the savings are lower. The following table shows my calculations based on a 50 kWp system costing £73,850 where the building users are paying 10p/kWh for their electricity.

Generator tariff required for payback on a 50 kWh commercial system
Self consumptionPayback in 10 yearsPayback in 15 years
50%9.36 p/kWh3.761 p/kWh
75%6.86 p/kWh4.85 p/kWh
100%4.36 p/kWh-1.24 /kWh
The current rate is 11.3 p/kWh and the proposed rate is 3.69 p/kWh

Once again the proposed rate is too low for a 15 year payback even with 75% self consumption.

PV panels still need subsidy in this country.
Readers of this blog will know that I am not a great fan of PV power in general and we should be talking about wind power instead. However, anyone who tries to tell you that this industry is ready to run without subsidy in this country is not living on the same planet that I am.

[1] Consultation on a review of the Feed in Tariff Scheme DECC (Aug 2015)
[2] Energy policy shift will put tackling climate change on backburner (Guardian) 18/Nov/2015
[3] Energy Secretary Amber Rudd 'misled' MPs on renewables (BBC) 10/Nov/2015

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