Friday, 2 April 2010

Can you make money from Green Energy Feed-In-Tariffs? – The Truth

So you’ve seen the headlines - ‘making money from installing renewables’ or ‘being paid for producing energy’ some even quote higher returns than other investments. On 1 April 2010 the Feed-In-Tariffs (FITs) came into force for electricity generation.

I took a closer look to see if it is really as good as the headlines make out.

Taking a typical 2.1kw per hour solar PV station retrospectively installed on a South facing roof (they do work on daylight so Southerly aspect not essential)

Install the PV station before April 2012 and if the installation meets the scheme’s requirements (Microgeneration Certification Scheme approved installation) then your energy supply company will pay you 41.3 pence per unit produced, irrespective of units used – measured by a smart meter they install. They will also pay 3p per unit exported to the Main Grid – units generated but not used.

Money is also saved on the energy produced by panels and used.

Confused? Well I was at the beginning but it’s sunk in now.

To put this in financial terms:-
You pay approximately £12500 for the PV station
You receive approx £750 per year from the energy company for the energy your panels produce – like a grant for generating your own electricity but based on units produced.
You receive approx £25 per year for exporting energy your panels produced that you didn’t use and you save approximately £110 on the electricity your panels produced that you did use and therefore didn’t need to buy from the grid.

Total money received/saved = £885 or 7% return on investment – this is the figure the government and other ‘interested’ parties like to quote.

But where did the initial £12500 come from? Well you either pay cash or borrow it. Either way there’s an additional cost in interest lost on savings or interest paid on the loan – can’t ignore that cost. And whilst the PV panels may last many years and are guaranteed for approx 20 of them, they do actually depreciate. If someone is buying your house they’re unlikely to give you the full £12500 extra if your PV panels have been up there for a few years – like any other plant or equipment they lose value and are not entirely maintenance free. So your £12500 plus interest costs and maintenance should be added to the equation.

Over the 20 years the cost pa is £625. Add finance costs or the income you deprived yourself by putting your £12500 into PV panels and the whole deal looks to just break even.

BUT – I will give you three very good reasons why I believe you have no choice but to embrace the scheme sooner rather than later:-

1. Where are the energy companies getting the money to pay you to generate electricity? Well, apparently the Government has agreed to them charging higher tariffs to people who don’t install MCS renewable technologies. So if you don’t get on the band wagon prepare to pay the price in years to come.
2. The tariff you start on is fixed for 25 years and increased with RPI, but the ‘Start’ tariff is set to drop in 2012 – for the example above the tariff will be 37.8p per unit from April 2012.
3. We all have to take responsibility for our massive consumption of electricity and the impact we are having on our own planet.

So the Truth, using the PV scenario – you are unlikely to make much money but under the right circumstances you will probably at least break even and in my view it will be well worth the effort.

More information on the Schemes and Tariffs available can be found here

2 comments:

sharky sparky said...

Interesting Blog. I was wondering how much the set up costs compared to the actual benefits of installing. I don't yet own my own home, but as and when I do going green would be quite important to me. Cost permitting!

Jo King said...

Hi Manda - thanks for reading the blog. I think it will also be interesting to see what is on offer in the 'Green Deal' to be released in June 2011.

I think I will wait just a little bit longer before I make a decision.