Payback time
There was an article in the paper the other day reporting that some erstwhile professional institution - the architects I think it was - are claiming that residential solar panel installations take 100 years to pay back their installation costs. To provide a bit of balance, the article gave Jeremy Leggett (the CEO of SolarCentury, the biggest solar installer in the land) a prod in the ribs to come up with his own figure. He obligingly opined that that was nonsense: the payback time was closer to 13 years.
Neither number was justified in any way in the article, which makes it rather hard to come to one's own conclusions. Who is right? In the absence of any decent evidence, one's judgement ends up being based simply on who one trusts most. Should it be the architects, who after all are well-educated men who shouldn't really have an agenda one way or the other in the renewable energy debate? Should it be Jeremy, who clearly does have an agenda as his salary depends on flogging lots of solar panels? I have heard Jeremy speak, and although he's obviously very intelligent, I wasn't entirely convinced of his number-crunching abilities in his assessment of the fossil fuel reserves of the world. On balance, I might be tempted to err towards the architects assessment, little though I like the implications.
Better, though, to do a few sums and actually work out a figure for myself. The numbers shouldn't be terribly hard.
Let's start with the wholesale price of solar panels, which I can currently get in for £2.58 per watt. VAT is 5% on residential renewable energy installations, and installers are going to stick on a decent chunk as a profit margin - but still, if you end up paying more than £4 per watt in total, you are getting ripped off badly.
So that's, let's see, £4K for a 1kW solar array, which is likely to produce around 900kWh per year in typical UK conditions. Electricity prices are, what, 11 or 12p per kWh at present? So the array produces around £100 of electricity per year - meaning a 40 year payback time. 5 points for Jeremy, 5 for the architects.
Really, of course, I've badly underestimated the true payback time, for the panels themselves are only part of the cost of installation. A suitable grid-tie inverter can set you back the best part of a grand or more; solar mounting systems are generally hideously overpriced; and installers charge though the nose for their work. I can see that in a bad case, your £4K of soar panels might need another £2K of ancillary equipment, and the installers might wander off with a £4K wad in their back packets. £10K divided by £100 per year: bingo for the architects, and boo-boo for Jeremy.
That is, though, definitely towards the expensive end of the market. And we've forgotten several financial benefits of bunging solar panels on your home. For example, renewable obligations certificates can generate as much - or more - cash per kWh than the electricity itself. If your 1kW array can pay you back £100 in ROCs each year, the equation looks a lot more rosy. Plus - and this is very important - solar panels are not consumables, but assets, so the money you spend on them hasn't just disappeared. 10 years on, it's still there, bound up in the panels, while the money you would have spent on fossil fueled electricity has literally gone up in smoke.
Add in a projected well-above inflation increase in wholesale electricity price and suddenly solar panels become a lot more rosy. How rosy? It's hard to say, isn't it. I think we've now got way too many variables in the equation to come to anything but a very hand-wavy conclusion that the true payback time is probably somewhere halfway between Mr Leggett's guess and that of the architects. Perhaps our simplistic 40 years wasn't too bad after all - if you want my personal stab, that's what I'm going for.
Can we take a 40 year view? Well we could. A few people are prepared to do so. But I'm pragmatic enough to realise that the hordes won't. A five year return on their money is what the masses want.
Governments, on the other hand, can take a 40-year view. Germany is subsiding PV panels to a large extent, which is hurting the taxpayers pockets at the moment no doubt, but is building an enormous base of power generation which will give free power almost indefinately for the future. In 30, 40 years time, they will be laughing and we will be crying. Lets hope our own government wakes up and begins to see solar panels for what they are - an investment for the future. A long term investment, yes, but a worthwhile one. It's the government that needs to take the initiative.