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SolarPV: generating electricity at home

WARNING: Since writing this article, the UK Government has recently announced a review of FIT payments and are proposing to reduce them from 43.3p to 21p per kWh generated. This has a very significant negative effect on the attractiveness of Solar PV systems and this described at the end of this article.

solarpvinstallationInspired by the energy consumption research of a neighbour, Chris Gare, I started recording my electricity (and gas) consumption daily - by simply reading the meter each day - at the start of 2010. I had moved into a new, larger house and I was curious to know how much more expensive its energy costs would be.

Tracking energy consumption daily helped me to reduce my overall electricity consumption and also prompted me to consider and then buy solarPV panels. I have continued data collection after the panels were installed and I hope my findings are of interest to you if you're considering a similar investment.

How do you make money from solarPV?

Once you have invested in solarPV panels, the return on your investment comes from three components:
  1. The feed-in tariff (FiT payments) that you receive from the government for each 'unit' of electricity you produce - supposedly guaranteed to rise in line with RPI for the next 25 years
  2. The savings you make on your electricity bill by not having to buy all the electricity that you consume (since you generate some of it yourself). This saving will increase as electricity prices increase
  3. The income you receive for any electricity you generate that is exported to the national grid for other people to use. Since I don't have a 'smart meter', in my case, this is assumed to be 50% of the electricity I generate.
FiT payments, at least, are index-linked - supposedly to RPI but we'll have to wait to see whether the government changes this in favour of CPI - and electricity bills are expected to go up at least in line with inflation.

In addition to the inflation proofing of the investment, the FiT payments are currently tax free (as are the savings I can make on my electricity bill). For mid-rate and higher-rate tax payers this can make solarPV very much more attractive.

The extent to which you are able to make savings on your electricity bill will determine whether solarPV is a good investment for you. In essence, this means minimising your electricity consumption at night (when you're not generating electricity) and ensuring that your periods of highest consumption coincide with the period when you are generating the maximum electricity - typically around mid-day on bright sunny days. Achieving this will probably require your family to change its behaviour somewhat - this doesn't suit all families.

Could solarPV be for you?

Here's a simple check-list to start you off:
  • Do you have a south-facing roof? South-facing roofs are optimal but East or West-facing roofs are said to be able to generate about 80% of the electricity generated by a South-facing roof. [Note: You may need planning permission if you are in a conservation area and/or your roof faces the public highway.]
  • Is your roof mainly unshaded throughout the day and throughout the year? (Look for trees, neighbouring buildings, chimney stacks, etc. Are the trees deciduous?)
  • Is your property in the South of the UK? Bright skies tend to be more frequent in the South and South West of the UK so energy generation will be higher. SolarPV is still viable in the North but it provides a lower financial return the further North you are
  • Do you have (or can you arrange to have) a significant proportion of your electricity consumption occurring during daylight? (e.g. do you work from home, are you retired, are you staying at home to look after children?)
  • Do you have, say £8,000 to £12,000 to invest?

How much can you generate?

The size and shape of your roof and your choice of solarPV panels will determine how much electricity you can generate.

I received three quotes, all relating to the same roof area:

Supplier No. of panels kWp kWh p.a. Price (£) First year return (£)
A 16 2.96 2,408 9,880 1,171
B 12 3 2,455 12,476 1,247
C 11 2.36 1,989 8,619 1,150

Some panels are smaller than others and they can be more suitable for certain shapes of roof.

The detail in the quotes provided by these three suppliers varied quite considerably. Only supplier A appeared to have considered a variety of panel options to find the optimal choice, and included very comprehensive supporting information and contractual terms.

Supplier B provided the least detail, seemed to care less about winning the work, and I was left with the impression they had calculated a price based on ensuring I would get a first year return of 10% (as if this is some sort of magic figure).

Relative to the other two suppliers, Supplier C seemed to have missed an opportunity to allow me to generate significantly more electricity each year. Since I am at home during the day, having a low kWh per annum did not seem that appealing. Were they simply trying to win on price I'm left to wonder.

As a general principle, you probably want to generate the most electricity that you can - up to the limits permitted by the FiT payments - and pay as little as you can (within reason) for your solarPV system. However, if you are generating far more electricity than you can consume - during daylight hours - then your return on investment will be lower than if you have a smaller solarPV system. Your excess generation capacity (i.e. extra panels) will cost you more but the return that you make on them comes only from FiT payments and not from consumption savings. So, as an extreme example, installing a 4kWp system on a static caravan used as a holiday home is unlikely to provide an attractive return on investment.

Assuming you have solarPV panels - and I selected supplier A - electricity generation will vary from day-to-day and from month-to-month, with the winter months being the poorest because the sun is lower in the sky, the days are shorter and you are perhaps more likely to have cloudy days. Here's the data I recorded over the first few days of operation. There is a clear difference of about 9 units (9 kWh) between the sunny, cloud-free days and the gloomy days and on the worst days no recordable units are generated. Without question, solarPV panels work best when the sun is out and the skies are clear.

kwh generated October2012

Average Solarpv generation October 2012
For my 2.96 kWp system, the average daily generation I should expect is between 6 and 7 units. In the days following installation I was lucky. However, as winter draws closer, generation levels are definitely declining.

Apart from the time of year and weather, another critical consideration that affects how much electricity you can generate is whether your solarPV panels are likely to suffer any shading from trees, neighbouring buildings etc.

I investigated the effects of the shading I have (from trees) on a bright sunny day when there was no chance of interference from cloud cover. This entailed taking a generation meter reading every half an hour (an alarm helps).

The following data illustrates just what a clear and sunny day Monday 3rd of October 2011 was like in my part of the world.

Temperature (°C) and weather

© Crown copyright, 2011, the Met Office

KW generated by time of day

In the chart above, the red line illustrates the theoretical level of electricity generation for the day I took my recordings. The blue line reflects the recordings I made.

In the early part of the day, electricity generation was very much lower than "theory" because my solarPV panels suffer some shading from a neighbour's trees, particularly in low autumnal light. I estimate that this shading reduced the amount of electricity I generated on this day by about 2 units. If every day in the year was the same as this (highly unlikely I have to say), the morning shading would cost me over £300 per year in lost FiT payments (where's my axe?), illustrating how shading of solarPV panels needs to be avoided.

As an aside, if every day of the year was as sunny as this measurement day, I would have paid for the solarPV system in less than two years!

Given the shading I suffer, I estimate my solarPV system to be only 86% efficient. Supplier B, mentioned above, judged shading of my roof to be "slight/none". My measurements suggest this was an understatement and shows how important it is to consider shading before you invest in solarPV. Only you can see your roof at most hours of the day - don't rely on a supplier's guess.

Of course most days are not sunny all day, so I took measurements on a subsequent overcast day, October 5th, 2011. The chart below compares the two days. The blue denotes October 3rd, when it was sunny all day, and the red line represents a dull day. The contrast is stark. On the dull day my solarPV system generated only 3 units, compared to 12 on the sunny day. On very dark winter days (or when the panels are covered in snow) the system generates no recordable units.

kwh generation on a cloudy day

temperature on cloudy days
© Crown copyright, 2011, the Met Office

Can you match consumption to generation?

Matching your peak in electricity consumption to your period of maximum electricity generation is what will deliver the highest savings in your electricity bill and therefore shortens the time in which your investment pays for itself.

electricity consumption and time of day

In the illustration above, two householders, without solarPV, consume the same amount of electricity. Householder B will not benefit so greatly from an investment in solarPV as Householder A because less of B's electricity consumption occurs during full daylight hours.

But if you think you are like householder 'B' do not despair. If you have a solarPV system but are not at home during the day, setting the start time for your dishwasher, washing machine, bread machine and anything else with high power consumption to operate sequentially around mid-day should deliver a huge saving in electricity consumption if you usually turn these items on first thing in the morning, at the end of the day or overnight.

In the illustrative chart below, the red curve is the electricity generated, the colour bars represent electricity consumption from equipment that is on all the time like freezers (light blue), equipment that is on for only part of the day (e.g. TV in green), and equipment that could perhaps be timed to come on in the middle of the day, like washing machines (in purple).

matching consumption to generation

However, we don't have sunny days every day. So a cloudy day might look more like the chart below. This assumes the same consumption levels but only 3 units of electricity are generated rather than the 14 shown in the chart above. Nevertheless, matching your consumption to your generation as best you can will deliver the greatest return on investment over the long term.

consumption to generation

What effect can it have on your electricity bill?

The impact on your bill will be highest if you consume most electricity during daylight hours. I do and here are the results so far:

I used to consume about 10 to 12 units per day (the national average is 9). I am probably still consuming this figure but the units I have to buy have dropped to about 4 to 5 - assuming the skies are overcast or clear.

energy bought by time of day

The electricity I am still buying during daylight hours is mainly because freezers, fridges, computers etc together consume more electricity than I can generate when the sun is low in the sky - and particularly in the morning when my solarPV panels suffer shading from nearby trees.

The drop in the amount of electricity I have to buy has been quite considerable. If it averages 5 units per day over the year will reduce my bill from £1.30 per day to about 57p per day, delivering potential savings over a year of £266.

Electricity bought before and after solarpv

When will it pay for itself?

Many quotations provided by solarPV suppliers seem to emphasise the 'total return' you might expect from their systems over 25 years (the duration of the FiT payments). This is generally a "big number" and, presumably, some suppliers will hope that this encourages you to invest in a large, expensive system. However, many of these systems don't 'break-even' (i.e. pay for themselves) for at least 10 years.

We can't predict the future so waiting for over 10 years before an investment starts to pay off doesn't make sense to me:
  • SolarPV manufacturers' equipment warranties last only 5 to 10 years.
  • I may not be living in the same property in 10 years time.
  • Having solarPV might help to sell the property but I very much doubt that a buyer will pay 'fair value' for a solarPV system that is out of warranty.
  • Who knows what changes the government will make over the next 25 years to FiT payments, how they are taxed, and whether property council tax revaluations are increased due to solarPV.
Given this uncertainty, what's needed is a solarPV system that pays for itself as fast as possible. This is achieved by maximising savings and not necessarily by buying the largest, most expensive solarPV system.

Given the FiT payments, the export tariff payments and the savings on my bill, when do I expect my solarPV system to pay for itself and start delivering a return on my investment?

The blue line in the following chart illustrates my predicted cash flow. It's a negative number initially because of the investment in the system but this number becomes more positive over the years as the income and savings flow in.

cash flow figure

If I ignore inflation (and therefore both the increases in the FiT payments and savings) the system should pay for itself within 7 years.

If I compare the solarPV system with an investment paying me 3% per year (represented by the red line), the solarPV system becomes a more attractive investment after nine years.

What about if I take inflation into account?

The chart below compares a zero inflation scenario with a 4% inflation scenario. The increasing FiT payments and savings accelarates payback by almost 12 months. This is attractive but not dramatic. The big difference is over the very long term. 25 years out the difference between 0% and 4% inflation is huge.

43.3p fit payment

Some solarPV installers base their calculations on much higher rates of inflation, eg 9%. I believe this is unwise. Consistently high inflation rates in the UK are unlikely because they are unsustainable and the government would take action to lower them. Very high inflation for short periods is likely, but not for 25 years.

If you're a mid-rate or higher-rate tax payer then these figures are very attractive as the solarPV figures are (currently) tax free. (Although an equity investment might also be attractive if held in a tax efficient 'wrapper' such as an ISA.). As the chart below illustrates, the payback period for a mid-rate taxpayer (40%), for example, could reduce to 2.5 years!

cash flow with 40 percent tax relief

In addition to the financial return, there is also an environmental benefit in the form of reduced CO2 emissions - at least that's what we're told.

What other considerations are there?

invertorYou'll need an 'inverter'. This converts the DC electricity generated by the solarPV panels into the AC electricity you can use in the house.

The photograph is of my inverter, a Fronius IG Plus. Another popular brand is the SMA 'Sunny Boy'.
1 is the inverter
2 is the meter that displays the kWh generated
3 is the isolation switch

Ideally don't put your inverter in the loft - it will get too hot. Inverters prefer being cool and will be much more efficient when they are cool. On a hot summer's day, you don't want your inverter getting hot in the loft, you'll end up with less electricity being generated and the chances of the inverter failing prematurely will be increased. However, you may not have many choices as to where you can place the inverter so it may be tempting for installers to place it in the loft.

An inverter that starts up in low light will start generating electricity earlier in the day (and finish later in the day) and will allow you to maximise your savings. An inverter that starts later and finishes earlier but permits higher peak generation is not so attractive. Here's why. An early starting inverter saves you, say, 13p/kWh, whereas a later starting one with higher peak generation only produces 3.1p/kWh from the export tariff. So of two inverters offering the same potential kWh in a day, the early starting one will provide the greatest return on investment.

Think about your roof:
  • Is it strong enough to support the panels? They are light in weight but they may cause more snow to build up on the roof which will add weight. My insurance company has increased my storm damage excess by £250 so they obviously think that solar panels pose an increased risk of structural damage.
  • Are you happy with the visual effect of the panels? Have a look at others that neighbours have.
  • Do you have a chimney stack that needs to be taken down to reduce shading? Are you using the chimney for a fire or boiler? Do you have TV aerials on the stack?
  • Will people be able to erect scaffolding easily so the roofers can reach your roof?
  • How might a cable run from your loft, adjacent to the panels, down to your consumer unit (fuse box)? How much of a disruption will this cause?
Installers seem to suggest that it takes about 2 days to install a solarPV system. In my experience this does not include erecting and dismantling the scaffolding and a larger system may take 3 days to fit and commission. Flat roofs, I understand, are much quicker.

What if I don't invest in solarPV?

There's another factor to consider. The FiT payments have to come from somewhere and, if a significant number of people and businesses generate their own electricity, the electricity companies will have less revenue from which to extract a profit. It seems to me that, over the long term, there's a high risk that people without solarPV will have to pay higher prices to pay for those who do have solarPV. Whilst this might not seem particularly fair, I know which side of this equation I would prefer to be on.

Written October 2011 with subsequent updates.

Since writing this article, the government has proposed changes to the level of FiT payments. They plan to cut the FiT payment from 43.3p/kWh to 21p/kWh for installations after 12th December 2011. At a stroke, this has drastically altered the attractiveness of SolarPV.

As the chart below illustrates, for basic rate tax payers, solarPV no longer represents an attractive financial investment relative to, say an investment yielding a 3% return until such time that capital costs halve to about £5k. However, for mid-rate and higher-rate tax payers, solarPV remains competitive relative to other investments.

21p fit payments

Footnote: Until the proposed change in FiT payments, there had been an increasing number of "rent a roof" schemes. These allowed home owners to rent their roofs to third parties who installed solar panels, typically for a 25 year term. The home owner would receive free electricity (i.e. savings on their electricity bill) while the third parties would pay for the solarPV system and receive the FiT payments.

While the FiT payments were 43.3p/kWh index-linked, this was a very attractive proposition for the third parties and the schemes were being activity marketed as a consequence. For the homeowner, the attractiveness was less compelling. Agreements lasting 25 years may make house sales much more complicated and very expensive to terminate. Also, the house owner could only benefit from electricity savings if they are consuming electricity during daylight hours.

The reduction in FiT payments to 21p has made these "rent a roof" schemes much less attractive to the third parties and many, if not most, have been withdrawn from the market. The fact that so many have been withdrawn confirms the drastic reduction in the overall financial attractiveness of solarPV.