Payback - Return on Investment

Payback is an extremely complex and often controversial subject and frequently is not even about money. Payback for you may indeed be all about environmental benefits. However, here we examine the financial payback of solar PV.

Renewable energy (particularly solar PV) has traditionally been seen as expensive, and in the past that was largely true. However, today solar PV represents a solid financial investment with shorter and shorter payback periods. Seemingly everyday there are more funds made available or better buy back rates announced. This trend is set to continue and will further enhance the financial viability of renewable energy.

Additionally, the cost of buying energy from traditional providers is set to rise substantially. Research found that, despite the recent fall in energy prices, average household energy bills more than doubled since from 2004 to 2009, from £580 to £1,243 a year. It predicted that the continuation of this trend would result in energy bills reaching £4,185 a year by 2020, even before the huge increase in energy infrastructure costs expected over the next decade is taken into account.

A 2kW solar PV system will cost around £9,500 fully fitted including VAT and government grant. So how long will it take to get that £9,500 back? OK, here’s where we need to make some assumptions that may or may not be right in your situation and also may or may not actually happen!

Let’s assume that your electricity bill is currently £800 per year. Let’s also assume that this bill will rise 9% every year. So, in eight years time your electricity bill will be £1,594 a year, and in those eight years you will have spent £10,416 on electricity. A 2kw solar PV system will deliver say 50% of your total energy needs so this would equate to a saving of £5,208 off your current expect bill.

Next we need to add what you will get paid for the electricity you generate. With the Feed-in-Tariff confirmed from April 2010 you will receive 41.3p for every kWh your system generates. According to government SAP figures a 2.16kWp system will generate 1723 kW hours per annum. So you will receive £ 712 per year from the Feed-in-tariff. Assume that you export 50% of the amount you generate – that will pay an additional £26 per year. So after 8 years you will have been paid under the Feed-in-Tariff a total of £5,904.

This gives an eight year total of £11,112. So in this scenario payback is less than eight years. Furthermore, various studies have shown that your property will increase in value by about 50% of the initial cost of the system. So if that’s an important factor for you then payback is now only a few years. A solar PV system from Naturalwatt will easily last at least 25 years.

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