Solar as an Investment

[Ent319]

I've been thinking about getting solar PV as an investment.

Wondering if there's anyone here who's done much thinking about the financials of it recently?

Key factors that determine rate of return would appear to be: (1) Price Paid for Kit / Installation; (2) Potential Output from Solar on Installation Site; (3) Direct Consumption from Panels; (4) Use of Excess from Panels; (5) Cost of Electricity; (6) Maintenance Costs.

1. Price Paid for Kit / Installation can be via upfront investment, finance or with solar as a service. Solar as a service seems like a v good option: it's essentially an interest free loan and the real cost of repayments decreases with inflation. You can invest the capital you otherwise would have spent buying the kit upfront on something else, making it even more profitable.
2. Potential Output from Solar on Premises - Not much you can do about this. Determined by house orientation / space on roof. Hidden perk of having a south / south-west facing garden I guess?
3. Direct Consumption from Panels - Total output from the panels that you can use throughout the year. More the better.
4. Consumption of excess from Panels - Excess energy can be (i) stored in a battery vs. (ii) exported and sold via the Clean Export Guarantee to either save or make money, respectively.
5. Cost of Electricity is obviously key too. This seems to only be going one way.
6. Maintenance and Miscellaneous Costs. Not likely to be significant.

This is a long term investment so you probably want to measure your overall rate of return over twenty years. Basic equation might be:

(A) = (B) + (C) - (D) - (E) + (F)

Where:

(A) = Return over Twenty Years Discounted to Present
(B) = Total cost of electricity over twenty year period without solar panels, discounted to present
(C) = Either ...
If Kit paid in lump sum: Upfront Cost of Kit + Installation
If Kit paid over time: Sum total regular payments over payment term discounted to present
(D) = Cost of units consumed via solar over twenty years at rate otherwise would have paid buying from grid discounted to present
(E) = Either ...
If Battery: Cost of units consumed via solar at rate otherwise would have paid buying from grid discounted to present - Battery Deterioration and Replacement Costs
If No Battery: € made exporting energy YOY discounted to present
(F) = Maintenance / Misc Costs

That's where I get stuck. To go further i'd need detailed info about units consumed, unit prices etc ...

Thinking about it I wonder is it fair to say:

• Investing in solar panels is a risk free, (mostly) tax free investment. The only thing tax needs to be paid on is energy exported via CEG above a certain amount.
• The value of your investment in solar increases proportionately to energy price inflation. In other words, by investing in solar you save yourself money you otherwise would have spent buying energy from the market at a premium.
• Solar adds to the capital value of your house in the event of it being sold? Does this happen in practice?
• Buying a battery insulates you from inflation in the energy market by increasing energy consumed directly from your panels i.e. a greater proportion of the total energy you consume will be self-generated. However, if CEG rates increase in line with energy inflation rates, this might be a better option because you don’t have to pay for battery kit. Also, you could invest the money you might spend on a battery on more panels and export it?
• Solar as a Service seems like a v good option because (i) you effectively get the kit at a discounted rate because you're paying for it over time at 0% interest and (ii) you could invest the money you otherwise would have spent on kit on something else.

 

[Leo]

Wondering if there's anyone here who's done much thinking about the financials of it recently?

I was speaking to a guy recently who owns a retrofit company and he was saying price rises for the kit are making PV a much less appealing option.

Choosing to installing PV solely as an investment vehicle would be a poor choice. Most people invest to see the value of that investment grow over time. The components of a solar system will degrade and fail over time, rendering them entirely worthless.

Best case scenario, if you have the right size roof, facing in the right direction, and at the right angle in the south east, you break even after about 6 years, and you're just back where you started. You have other investment options that should return more than 0% after 6 years.

Solar as a service seems like a v good option: it's essentially an interest free loan and the real cost of repayments decreases with inflation.

No such thing as a free lunch, no company is going to offer a pricing model that would see them take in less revenue over time for an 'as a service' offering. They need a return on fronting the capital.

The economics of battery systems was tenuous before feed in tariffs, now they make even less sense.

Solar adds to the capital value of your house in the event of it being sold? Does this happen in practice?

All the installers will tell you it does, but I've yet to see any real evidence to support that. Condition and condition play a much smaller part than location and number of bedrooms in setting the price.

 

[AJAM]

Solar has been an excellent financial investment for me. I can't speak for everyone, as a few unusual items happened during my PV time that have upped the returns (e.g. massive price rises in gas, electricity etc.)

My 3.5 KWp system (with a diverter) cost 4,600 after the grant. It saves me ~570 a year (between elec and gas for hot water)
So payback is 8 years. Which is a 12% annual return (570/4600) tax free and basically risk free.
To put that in context with a 33% CGT you would need a 19% annual return to deliver the same after tax return

There are also a number of studies that show that the value of your house goes up when you add solar panels. This is important as it show you don't lose the value of the initial investment.

With High Inflation, you are better off buying now and reaping the rewards later.

Agree with Leo on batteries, they no longer make sense with the introduction of the feed in tariff.

So in my case it has been an excellent financial decision. However, finances are not the only reason that I got them. We all need to do what we can to help out the environment.

 

[Leo]

So payback is 8 years. Which is a 12% annual return (570/4600) tax free and basically risk free.

A 12% annual return implies you can get your entire investment cost back at any time, which of course you can't.

Yield remains negative until after year 8 when your overall return on that €4,600 is zero. Any spend on maintenance or repairs in that time will push out the payback period further and that assumes you spend zero on maintenance or repairs in that time.

Of course if the system lasts maintenance free for much longer, then you get into the realm of decent returns.

 

[huskerdu]

If you save €570 a year for 12 years, then the total saving is €6840 - €4600 = €2240 which roughly equates to 4% over 12 years.
All this assumes no repair or maintenance costs over the 12 years.

 

[Ent319]

Hi folks, thanks for sharing your views / experiences on this, very interesting.

@Leo - I've also heard that the price of solar kit / installation has gone up (30% in some cases). But the price of energy has gone up even more, so any increase in kit / installation prices would be offset surely? It may actually be even more advantageous to get solar now, relatively speaking, despite the fact you're not getting quite as good a deal as someone who bought a few years ago?

In terms of the depreciation point, I understand that modern solar systems (excluding batteries) should last for circa. 30 years or more, so there's an awfully long time to get an ROI for an initial upfront cost, and also a long time for someone buying your house to get an ROI as well.

In terms of your point about solar vs. other investments - I think I'd agree but for the fact that there is solar out there on long-term 0% financing. So it's not correct to paint the choice as I invest €10,000 in solar vs. I invest €10,000 in [investment X}, [investment X] has a higher average rate of return so it's likely to be a better option. You can get a solar system interest free for €50-€100 a month for ten years without any upfront capital payment. So you get the benefit of the value of the upfront capital payment without having to actually make a payment, and of course the cost is distributed over a longer period of time, freeing up your money to invest in something else and reducing real costs because of inflation.

 

[Leo]

@Leo - I've also heard that the price of solar kit / installation has gone up (30% in some cases). But the price of energy has gone up even more, so any increase in kit / installation prices would be offset surely?

That all depends on the long term prospects of energy prices. The circumstances that have driven prices up this year are unlikely to persist for 8+ years.

In terms of the depreciation point, I understand that modern solar systems (excluding batteries) should last for circa. 30 years or more,

What supplier is offering that kind of guarantee? I've seen up to 15 years on the panels themselves, with the inverters typically 5.

In terms of your point about solar vs. other investments - I think I'd agree but for the fact that there is solar out there on long-term 0% financing.

Any time you buy anything on 0% interest, you need to be aware that the list price already includes a loading to cover the cost of credit.

 

[Alkers86]

We are "Solar as a Service" customers and our system generates enough electricity, so that even if we don't use any of it and it all goes to FIT @ 9c per kWh, we are already breaking even. In reality, we use a good proportion of what we use (I can't measure this until we get a smart meter) and the actual FIT rates have been significantly more than 18c

2021 total energy produced = 2,665.9 kWh, @9c per kWh FIT = €239.93, total paid to SAAS provider = €239.88
2022 energy produced to date = 2,490.9 kWh @9c per kWh FIT = €224.18, total paid to SAAS provider = €199.90

Any self consumption of electricty would improve on the figures above, as would increases in either FIT rates or unit tarrifs.

So in my experience, it is a very viable "investment" albeit at a small level. It is important to find the sweet spot for installs and get a smaller cheaper system rather then spending thousands putting up as many panels as you can - although not all agree with me on this.

Batteries do not make financial sense currently, even the cheaper DIY battery options are questionalbe economically.

 

[Mousehelp]

For Me or has worked out v well.

Got 16 panels and battery in at the start of the summer. Have all Power covered during the day and battery charged. Battery then gets us to 10-1030pm nearly every night. Large chunk going to FIT also.
Between FIt and the 3 x €200 Towards bills, our Electricity bills Will Be minimal this year. Gas Saving here also as Not using gas to heat the water as had been previously.
Getting electric car shortly so savings there also.