Show Me the Money: Your Return on Capital

Hi Guys,

I hope that you are having a good day.

Ultimately everything boils down to MONEY. Can you afford a renewable energy system for your home? Are you wasting your money by installing a renewable energy system?

Your perception of cost and the reasons you would like to install a renewable home energy system will also determine your decision on whether or not you will install a renewable home energy system.

The first thing you need to do when considering installing a renewable energy system, be it a ground source heat pump, solar panels, a solar hot water system or a wind power generator, is to find out whether your home is suitable for such a system.

Once you have determined that your house is suitable for a renewable energy system, you must find out whether you will be allowed to install such a system by your local planning regulations and whether you will get planning permission to do so.

Assuming that your house is suitable for a renewable energy system and that you will be able to get planning permission then you can either build your own renewable energy system or get the system professionally installed.

A local energy company was recently advertising their renewable electricity generating system i.e. solar panels. They were also advertising a solar hot water system.

I decided to investigate and went onto their website to get further information. I must say that they did provide quite a bit of useful information – enough for one to make an informed choice if you put in a bit of effort to calculate your return on investment.

They will install an electricity generating system i.e. solar panel system that could provide up to 40% of your energy needs. However, this is based on using a standard 2.08 kWp installation generating 1768 kWh/year with a typical home energy consumption of 3300 kWh/year. They also include a rider that the output will vary.

Prices for the system starts at £10,995.00 and include fully installed 16 photovoltaic panels, inverter, cabling and fittings.

This led me to take a look at my electricity consumption and that came to 6953 kWh/year. More than double their typical home energy consumption.

(Interestingly enough my electricity consumption is only 58% of the approximate 12000 kWh/year that the average American household uses and less than 4% of the 191000 kWh/year that Saint Al Gore uses.)

The question is, if I were to invest in the above mentioned system, what would the return on my capital be?

The above mentioned system will only provide me with 25.4% of my electricity requirement. The 6953 kWh cost me £877.78. Therefore the above mentioned system will save me £223.20/year.

The break even point for the return on my capital, assuming a 0% interest rate, is £10,995.00/£223.20 = 49.26 years.

However if you were to borrow the money at 5% interest repayable over 5 years to finance the installation of the above mentioned system the break even point would be £10,995.00*(1.05)^5/£223.20 = 62.64 years.

Now, bearing in mind that your solar panels have a 25 years life expectancy, I don’t think that the above is good value for money.

The starting price for the solar hot water system was £4,939.00. Interestingly enough, they do not mention the energy saving provided by the solar hot water system. They only state that you may not need to run your boiler in the summer to heat your water.

They also keep including percentage energy carbon saving which as far as I am concerned is meaningless. People dealing in the so called carbon trading scams and governments wanting to tax us more than we already are, would be interested in those figures.

It is well known that so called professionally installed system will always cost considerably more than DIY systems. Buy building your own system you can save a really tidy sum of money.

If you wanted to build your own solar energy system, there are quite a few good publications such as The Solar Electricity Handbook 2009: A Simple, Practical Guide to Using Electric Solar Panels and Designing and Installing Photovoltaic Solar Pv Systems that will provide you with all the information you need to build and install your own system.

Save on your energy bills by generating your own power at home with solar and wind energy to reduce or eliminate your power bill. Get our complete guide at DIY Power System

As always, I wish you everything I wish myself.

Until the next time.

Alain

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