The unexpectedly rapid fall in the cost of large solar PV installations means that the financial returns available to property owners have become highly attractive. Any office block, warehouse or school with a roof that can accept 50 kW of panels can expect a return of over 15% a year on its investment. (PLEASE NOTE: this article was written before the UK government made its deeply damaging decision to reduce subsidy payments from December 10th 2011. The new scale of payments will give returns of about half the figures in this note.)
The UK review of feed-in tariffs carried out in the spring effectively blocked all installations of a size greater than 50kW. But the payments for smaller systems were unchanged, meaning that the returns to people investing in medium-sized installations, covering perhaps 300 square metres, were untouched by the review.
The cheapest quotations for roof-mounted 50 kW installations are now running at around £2.30 per watt. This means that a full-sized system taking maximum advantage of the tariffs could costs as little as £115,000. In the southern half of England a south-facing installation on a sloping roof should generate at least 850 kWh per kW of panels. Assuming that all the electricity generated is used in the building, the total income from the system will be over £18,000 a year, inflating for the next 25 years at the retail price index (RPI). On a particularly sunny site on the south coast, the annual income could reach 18.5%, inflation-protected. (Although the maps show Cornwall getting the best solar radiation in the UK, data I have seen from readers of this blog strongly suggests that coastal Sussex, which has more sunshine than almost any where else in the UK although less predicted total insolation than the South West, is almost as good).
These are exceptional returns. Compare them to the recently withdrawn index-linked bond from UK National Savings offering RPI + 0.5%. Although the National Savings offer is government guaranteed tax free and is repaid in full at maturity, the income is still far below the rate offered by a good PV installation. There really isn’t a good reason for people owning large roofs not to be racing to install PV before the rates go down in April of next year. And if you cannot raise the money yourself, there should be no shortage of return-hungry investors eager to assist.
PS. The good financial returns available to the owners of large PV systems do NOT mean that solar is necessarily a good investment for the UK as a whole. The payments mentioned in this article amount to 42.9 pence per kilowatt hour, including 10p per kilowatt hour for the benefit of not buying grid electricity, and are about ten times the level of today’s wholesale power prices. Although the price of large-scale PV has nearly halved in the last year, it remains uncompetitive with other forms of electricity generation. And this extra cost is still loaded onto all the people in the country not lucky enough to be able to afford PV or living in accommodation without access to a good roof.