Who needs the Feed In Tariff?

Wow, Parle!
 

Ok, let’s start with my figures which I thought I had explained.  A solar PV system in Canberra makes 4kW a day – that’s a fact.  Yes, solar PV systems do lose a small percentage efficiency each year, but there are documented functioning 40year old PV systems and with the improvements in new PV systems, by the time a system is a lot less efficient, a replacement panel will be as cheap as chips.  Fortunately, you don’t have to take my word for these things, the 30kW system I talk about is here:

http://pvoutput.org/list.jsp?id=390&sid=312

And what do you know, 4kW a day.

How much did the system cost?  Well, that bit I don’t know.  But that doesn’t matter because you can work out the gross annual income and then cost a system.  At 50.05c/kW, if the system cost $150k, it is returning 14.7%pa.  I don’t need to make these things up!

Now, as I’ve said gross returns of 14.7%pa (untaxed) or better are too good to be true and that’s why there was a gold rush, people don’t need to be sheep.  That’s also why the 50.05c offer was never going to last.

Working in reverse, at ActewAGL’s current electricity price of 11.1c/kW, over a 5 year period, each installed kW would need to cost no more than $1080 to return 15% gross per annum.  Solar PV’s aren’t at this price point yet, but it’s quite possible in the future.  Naturally, when this occurs, the game will change again in some way. 

I don’t need to compare this investment to other things, but I thought that would help.  It’s a great investment.  In terms of capital growth, Real Estate has been incredible in the last decade, I won’t deny that for a moment.  Hell, I’ve cashed in on it.

My example of NSW people on the 60c scheme stands.  That scheme is locked in for 7 years and for many, their systems are paid for in 4years and then the next

3 years are at 60c – clear profit.  Again, unsustainable scheme.

So, we know that we get 4kW per day per installed kW. 

The only bit of the equation that is variable is the installed cost per kW.  Luckily for all of us, this cost is reducing rapidly.
With regard to devaluation, you are quite right, this is a consideration.  Most people who purchase PV systems are in it for the long

haul.  You can of course relocate your system relatively easily.  I also think that going into the future, a solar PV system will be a desirable extra on a house and add some value, but not original PV cost, to the price of a house.

parle said :

OpenYourMind said :

In terms of ROI, some people are already cashing in on the FIT. There’s a certain linux God who is the creator of SAMBA file sharing who has installed 30kW (10kW per phase) on his Canberra roof. I don’t know what his system cost but guessing on $150k, his system is producing an average of $420 per week. That’s a hell of a lot better returns than you get out of an investment property!

regarding your investment advice, a loan of $150K/20yr is $1350 pm repayment which would leave $300 per month “yield”.

From that $300 take;

your own electricity usage @ 50 cents per kw, 20yrs of maintenance for the system (3 inverters of that size have to be worth at least $30K), a guaranteed reduction of 20% of fit payments over the first 10 years, interest rate rises, the 6 month time gap between spending the $150K and getting fit cheques, a fixed selling price per kw that is not indexed to inflation in any way over the 20 year period and to me it doesn’t sound a hell of a lot better that just about anything.

Not to mention that as an “asset” you can’t actually sell it as when someone buys the house they’re not going to pay 150K over market as they won’t get the 50 c fit deal.

As for the 1:1 deal I can’t see that paying you back, ever.

10 years @ 10% growth is 52 cents per kW

20 years @ 10% growth is 134 cents per kW

Usually growth of several percent past inflation is not tolerated in any market so I don’t think he’ll get his 10% and without it, his figures fall apart.

Parle,

I’m interested in your comment because I’ve been wondering about the return from these systems under the FIT.

You say that they would remove your own electricity costs but the Canberra scheme was a gross FIT, so it doesn’t matter how much electricity you are using, you get the 50c on whatever you produce.

Why is there a guaranteed reduction in FIT payments over 10 years? Are you talking about inflation?

Fair enough that interest rates may rise, but they may not.

And I thought that the 20 year contract goes with the system not the person, if you sell your house then the new owner can take over your contract? Not sure about this though.

If OpenYourMind’s figures are correct then your income on $150k investment would be:
$420 x 52 = $21840 per year which is a 14.5% return. Do you have to pay tax on it?
This value would be reduced by inflation yearly and I’m not sure what the maintenance costs are but the figures equate to a simple payback period of 6.8 years.
If the income is reinvested, then surely it’s a good deal.

shadow boxer said :

yeh sorry, different story if we all had it, if we added up the cost of all the failes green schemes we nearly couldv’e put one on every house in Canberra.

I’d rather see us take all the money from all the green schemes, and build a larger scale, more efficient power generation system. Buy hey, it’s just my 2 cents…

yeh sorry, different story if we all had it, if we added up the cost of all the failes green schemes we nearly couldv’e put one on every house in Canberra.

shadow boxer said :

Classified said :

Having electricity you generate sold into the grid at the same rate at which it is bought makes a lot more sense than having an artificial price point in the longer term. It’s also a self-throttling system, in that if enough people participate, there will be sufficient electricity supply to drive prices down (although we are a long way from that point at the moment).

Good to see common sense in action.

It’s funny how everyone thinks they have a mortgage on common sense, unfortunately that is not how electricity is priced, the price is calcualted so that the utility can continue to supply power and the associated infrastructure and make a reasonable profit. If less people use it the price actually goes up for those that need it. In this case those that can’t afford solar panels or don’t own a suitable house.

Same with water.

Common sense really 😉

I’ll definitely concede that utility companies will manipulate the market for profit. What I was suggesting is that if enough people generated solar power on the roof tops, eventually there would be more than enough power, so it would be more difficult to justify the price hikes the media are predicting we’ll see.

Personally, I think power prices are a storm in a teacup. Looking at the cost of running a home for a year, a few hundred extra really isn’t a lot.

Classified said :

Having electricity you generate sold into the grid at the same rate at which it is bought makes a lot more sense than having an artificial price point in the longer term. It’s also a self-throttling system, in that if enough people participate, there will be sufficient electricity supply to drive prices down (although we are a long way from that point at the moment).

Good to see common sense in action.

It’s funny how everyone thinks they have a mortgage on common sense, unfortunately that is not how electricity is priced, the price is calcualted so that the utility can continue to supply power and the associated infrastructure and make a reasonable profit. If less people use it the price actually goes up for those that need it. In this case those that can’t afford solar panels or don’t own a suitable house.

Same with water.

Common sense really 😉

OpenYourMind said :

Parle, the argument you use is based on the entire investment amount being borrowed.

I was being kind, the figures for lost opportunity cost for 150K cash are even worse, as most people don’t have $150K laying around drawing down on home equity would be the most likely way in your “example”, that’s why I picked it.

OpenYourMind said :

Using the same rationale, an investment property of $150k costing your $1350pm repayment would probably only make about $1000pm rent before expenses; and thus be making an huge loss. The only way you’ll make money out of that is by capital growth and negative gearing benefits because you are making such a loss.

I didn’t say anything about property investing, you did. But, I’d guess that if you gave 150K to a property investor the last thing they’d do is buy solar panels with it., and the obvious, 20 year old solar panels are worth nothing, houses that were originally bought in canberra for $150K are worth atleast $500k after 20 years.

OpenYourMind said :

Now lets just say you have the $150k kicking around in the bank and stick it in solar (at the original 50.05cFIT), that’s a 15% guaranteed income. You don’t deduct your electricity use, because with the FiT you are paid for your gross feed-in and buy your consumption at the normal electricity price.

no math, where did you pull the 15%?
really?, like off peak power for 8 cents too?

OpenYourMind said :

The $150k was a huge guess too. The system may have only cost $100k, thus your return is closer to 25% per annum.

well, it’s good that you’ve realised that your example doesn’t support your argument and you’ve decided to move goalposts to make it sound more convincing, thus nothing. and again 25%??, are you just making these up?, why don’t you just put 50%, that sounds more impressive.

are you factoring in 20% lower payments over 10 years?, probably not.

OpenYourMind said :

The share market may on a good year return 15% gross, but it’s sure as hell not locked in, and I’ve seen plenty of people go backward with shares.

more strawman cr@p about something I didn’t mention.

OpenYourMind said :

So, tell me a better way to take your $150k and make >15%?

I can’t do that, it’s an offence, besides, this is about your dubiuos solar spruiking.

OpenYourMind said :

About your biggest risk is that the Govt will try to change the terms of the deal. NSW tried backing out of its contracts and failed, so I don’t see that happening in ACT.

but they just did, cancelled overnight and no grandfathering on the 30 cent deal..keep up

and no, the biggest risk is that your cheap chinese inverter blows up.

OpenYourMind said :

It gets much more complicated because for smaller systems, the ATO doesn’t want to know about the ‘income’, or at least that’s been a recent ruling. Now if you had the intent of setting up your $150k solar farm as a business….

I said sell the asset, not the electricty, the panels lose most of their value when you put them on the roof, they can only be resold for a fraction of the price that they were paid for. These solar systems devalue faster than a white commodore. If you have to move house you’d lose most of your money, that was the point, argue with that.

OpenYourMind said :

Of course this is all academic. Even before solar PV systems got a lot cheaper, the 50.05c offer was too good to be true and that’s why lots of people rushed in. For some, it was never an environmental choice, but rather a financial choice. That’s also why your argument isn’t valid, if it was such a poor investment, there wouldn’t have been the ‘gold rush’.

it’s anything but academic, you’re just making figures up.

People rushed in because they said “handout”, it’s the Australian way.

and, ‘because everyone else is doing it’ is a strategy for farm animals, not money.

OpenYourMind said :

The NSW offer of 60c/kW of 7 years was even crazier. I know people whose systems will have paid themselves off in 4 or less years on that scheme and then it’s all profit from there.

3 years worth of profit and then reset back to what’s on offer which will be at best 1:1, probably less, wow, I’m so jealous, they’re going to be rich….

fact is, the solar panel roof installers are done, the business model was 100% based on subsidy and now they’ll all go back to installing leaky skylights and tastixs hooked up to the light circuit, good riddance.

Having electricity you generate sold into the grid at the same rate at which it is bought makes a lot more sense than having an artificial price point in the longer term. It’s also a self-throttling system, in that if enough people participate, there will be sufficient electricity supply to drive prices down (although we are a long way from that point at the moment).

Good to see common sense in action.

Parle, the argument you use is based on the entire investment amount being borrowed. Using the same rationale, an investment property of $150k costing your $1350pm repayment would probably only make about $1000pm rent before expenses; and thus be making an huge loss. The only way you’ll make money out of that is by capital growth and negative gearing benefits because you are making such a loss.
Now lets just say you have the $150k kicking around in the bank and stick it in solar (at the original 50.05cFIT), that’s a 15% guaranteed income. You don’t deduct your electricity use, because with the FiT you are paid for your gross feed-in and buy your consumption at the normal electricity price.

The $150k was a huge guess too. The system may have only cost $100k, thus your return is closer to 25% per annum.

The share market may on a good year return 15% gross, but it’s sure as hell not locked in, and I’ve seen plenty of people go backward with shares.

So, tell me a better way to take your $150k and make >15%?

About your biggest risk is that the Govt will try to change the terms of the deal. NSW tried backing out of its contracts and failed, so I don’t see that happening in ACT.

It gets much more complicated because for smaller systems, the ATO doesn’t want to know about the ‘income’, or at least that’s been a recent ruling. Now if you had the intent of setting up your $150k solar farm as a business, then you’d be claiming all sorts of things like depreciation, borrowing costs etc.

Of course this is all academic. Even before solar PV systems got a lot cheaper, the 50.05c offer was too good to be true and that’s why lots of people rushed in. For some, it was never an environmental choice, but rather a financial choice. That’s also why your argument isn’t valid, if it was such a poor investment, there wouldn’t have been the ‘gold rush’.

The NSW offer of 60c/kW of 7 years was even crazier. I know people whose systems will have paid themselves off in 4 or less years on that scheme and then it’s all profit from there.

OpenYourMind said :

In terms of ROI, some people are already cashing in on the FIT. There’s a certain linux God who is the creator of SAMBA file sharing who has installed 30kW (10kW per phase) on his Canberra roof. I don’t know what his system cost but guessing on $150k, his system is producing an average of $420 per week. That’s a hell of a lot better returns than you get out of an investment property!

regarding your investment advice, a loan of $150K/20yr is $1350 pm repayment which would leave $300 per month “yield”.

From that $300 take;

your own electricity usage @ 50 cents per kw, 20yrs of maintenance for the system (3 inverters of that size have to be worth at least $30K), a guaranteed reduction of 20% of fit payments over the first 10 years, interest rate rises, the 6 month time gap between spending the $150K and getting fit cheques, a fixed selling price per kw that is not indexed to inflation in any way over the 20 year period and to me it doesn’t sound a hell of a lot better that just about anything.

Not to mention that as an “asset” you can’t actually sell it as when someone buys the house they’re not going to pay 150K over market as they won’t get the 50 c fit deal.

As for the 1:1 deal I can’t see that paying you back, ever.

10 years @ 10% growth is 52 cents per kW

20 years @ 10% growth is 134 cents per kW

Usually growth of several percent past inflation is not tolerated in any market so I don’t think he’ll get his 10% and without it, his figures fall apart.