renewables

The key word or phrase is ‘payback-period’. This is the time in years that it will take to get your money back (that you invested). The average homeowner moves home every seven years, so you’d have to take that into account. Will you move home? But also key to whether or not any scheme is financially viable is how it is funded. To pay for the installation, do you use the money you already have in your bank account, or do you borrow the money?

As poor as interest rates are right now, anyone with £10,000 should be canny enough to be getting 3.16% annual return (possibly more) after tax. That 3.16% nets them £316 a year. If you withdraw that money to ‘invest’ in something else, then you will be losing that £316. It really is that simple, yet those who promote solar panels conveniently ignore it - for obvious reasons.

Typical scenario (principle figures according to the Energy Saving Trust):

The system will cost £10,000 to install (A typical 3kW system)

You will lose £316 a year in lost interest

Replacement of the inverter in ten years, and maintenance, will cost £132 a year

You will gain £662 in ‘savings’ from your panels... (A typical 3kW system on a 40 degree sloping roof in Berkshire - south facing)

So annually, that’s £662 (return) minus £448 (lost interest & maintenance) = £214

£10,000 investment divided by £214 annual return = 47 years

Although payment rates will increase with inflation, lost interest will increase with higher interest rates. So the higher future interest rates get, the more you will lose on your ‘investment’. After the 10-year period (often quoted as the magic payback time!) you would have ‘lost’ £14,480 (£10,000 investment + £3,160 lost interest + £1,320 inverter & maintenance costs) and ‘gained’ £6,620 - so you will be £7,860 down.

This ‘lost interest’ is totally overlooked by the Energy Savings Trust, Which magazine, and every solar panel manufacturer whose ads I have seen); it is LOST INTEREST. Your savings were earning you £316 a year.

The simple fact is that all this talk of saving money on renewable schemes is almost certainly a LIE. Don’t take my word for it, do the figures yourself on whatever anyone is trying to sell you. Look at the projected savings over the lifetime of the product, then add up the cost of the product, the maintenance, and the loss of interest on the amount of money that you had sitting in your bank account. Remember, this can be considerable despite the low interest rates at the moment.

I’ll repeat: If you have £10,000 in your account then, providing you have invested it wisely, you’ll get a 3.16% return AFTER TAX. This means £316 a year. If you remove that £10,000 to spend on a renewable energy investment then you really do LOSE that £316 a year, so it MUST be included in your calculations. Some will tell you that the FiT scheme is inflation linked. That’s true, but interest rates will go up in the coming years, not down. So that money you had invested in your bank account would have earned more than £316 a year.

I would also like to draw the reader’s attention to ‘comparing investments’. In order to talk you into buying solar panels, the Energy Savings Trust and others will talk about it being a “good investment”. Let’s look at a bag of cash. And let’s look at what you’ll have in 25 years time. I’m going to assume two things here:

1, that interest rates will average 5% (not the current 3% on investments)

2, that inflation will increase year on year at 4%. This means that the FiT payments will also increase at 4%.

So you have managed to save up £10,000. If you leave it in your ISA, then after 25 years you will have earned £12,500. You’ll also still have your original £10,000 - so you’ll have £22,500 to buy a nice car.

If you spend it on solar panels, then you’ll get £662 in the first year, but you’ll have to subtract maintenance & replacement inverter costs of £132, so you’ll actually only get back £530. This amount rises with inflation (which we’ve said will average out at 4%), so after 25 years you will have got back £22,076

So as you can see, it is actually better to leave your money in an ISA rather than buy solar panels. So there it is then. You must do your own calculation, but based on a fairly good geographical location such as mine here in the south of England, and with a south-facing roof, I would be better leaving my money in an ISA!

Simply put, even with Feed-in Tariffs, renewable energy schemes are just not worth having in my opinion. Owners of such systems had better hope for high energy prices, high inflation, and low bank base rates. Otherwise their investment will prove to be a dead duck.