Renewable energy at home. Do the numbers stack up?
The news this week that two carbon cutting Government incentive schemes have been introduced is likely to prompt many homeowners to weigh up the financial benefits of installing renewable energy devices at home.
Both schemes – the Carbon Reduction Commitment Energy Efficiency Scheme (CRC EES) for organisations and Feed in tariffs (FITs) – aim to save money on fuel bills, reduce carbon emissions and generate their own low-carbon electricity.
The CRC Energy Efficiency Scheme is aimed at businesses. It will require large public and private sector organisations like supermarkets, hotels, hospitals, local authorities and central government departments, to improve their energy efficiency.
Revenue raised from the sale of emissions allowances under the CRC EES will be recycled back to participants with those who have increased efficiency receiving more of this money.
FITs is the offering to consumers. It means that individuals, organisations or businesses in England, Wales and Scotland who install low carbon electricity generation will be paid 41.3p/kWh for every unit of energy they generate. They will get an extra 3p/kWh for every unit they do not use that is exported to the grid.
The example published by the Government is for a typical 2.5kW, well sited solar PV Installation which could offer savings of £140 a year plus earnings of £900 a year.
My real life example
Looking at my own property, a rather energy inefficient three bed detached 1960’s house, it seems relatively simple to make the financial argument for low carbon electricity generation stack up.
Looking solely at electricity, over the past year I spent £314.86 on electricity bills for the supply of 2,594kWh of power, at an average cost of 0.1214p/kWh.
Assuming that it would cost £12,500 to install a 2.5kW PV system on the roof of my house, and it generated 2,000kWh each year (at the lower end of estimates for a system this size in the UK) then the FITs scheme would pay £1,071.32 for the energy it generated, leaving me to pay £72.11 for the rest that I would still need to purchase from the grid.
This would mean a net return of £999.21 rather than spending £314.86 on electricity each year, so effectively an improvement in my financial position of £1,314.07.
On a £12,500 installation cost, that represents an annual return of around 10.51%.
Because the assumptions used in this example are all quite cautious, the actual yield achieved could be significantly higher. There is also the potential for much higher electricity prices in the future.
With a solar panel lasting for around 20 to 30 years, if prices remained the same then it would take around nine and a half years to repay to initial cost of installation, ignoring any cost of capital.
The numbers for renewable energy at home certainly stack up. In this current low interest rate environment, to be able to get a risk free return into double figures will be certain to attract many people who have capital to spare.
With no planning restrictions on home solar panel installation and the prospect of even higher electricity prices in the future, the introduction of Feed in tariffs is a very welcome move indeed.