Why it's a great thing and what it means for your 'payback' period.
It’s well known by now, that generating your own electricity from your roof or garden with a solar system gives you your very own renewable source of energy and will near enough guarantee savings on your household energy costs over the course of it serviceable life, as well as lower your carbon footprint. However, the cost of a new installation can be expensive, and it may be some years before the books balance – the time it takes to get the money back on the initial investment is called the payback period.
Of course, there are some fairly complex economic models out there, but most people are simply interested in knowing how fast they get the cash back from the initial investment and roughly how much they’ll save on their energy bills annually.
There are some factors worth considering when arriving at your final figures, energy price inflation, is just one example. So how can the payback period be calculated and how can it be enhanced? The calculation depends on the total upfront cost of the installation and, as importantly, the quantity of energy you produce and offset against your usage in preference to importing it from the national grid. Most providers of electricity (E. On, SSE, Octopus, etc) will give you a token gesture for each unit of energy you export back to the grid (around 3-5p per kWh) – this unit price is generally set at the minimum stipulated by the UK government, namely, the ‘Smart Export Guarantee’ (SEG). In the context of what you buy each kWh for, it hardly seems fair and it certainly raises an eyebrow when the SEG stays static in relative terms to chronic energy price inflation, even when prices, on average, were hiked by a whopping 54% in April 2022 (unless you were on a fixed rate tariff). Gone are the days of the lucrative Feed-In Tariff (FiT) – at least for now, and it’s incredibly unlikely to return in anywhere near the same form, and to bear the same fruits as it used to.
This is where self-consumption can play a significant role in reducing your utility bill. Without any storage facility at your generation premises, any excess solar produced will, in most cases, flood back to the grid and you collect your measly £0.03 per kWh from your energy provider. But what if you kept those precious units for a time when your electricity demand goes up – in the evening for example. Each unit you store is a unit you are not inevitably purchasing from the grid at a later date and thus the pennies stack up at a much faster rate (the average unit price from April 22 is £0.33 per kWh) , potentially shortening your payback period considerably.
To demonstrate this concept, let’s look at a typical spring day in March 2022, at my own residence. I have deliberately switched off my energy storage device, thus manipulating my solar system to automatically divert any excess energy directly back to the grid.
The images above are screenshots from the Solar Edge user interface via their app for consumers and they’ve done a great job at providing easy discrimination between what you are consuming (red) and what is being exported to the grid (green). So what is happening here? Well, the point I want to focus on is the big green lump – this is my excess solar and this represents the proportion of energy that is feeding back to the grid (the blue is the proportion of my electrical demand that my solar system is servicing – the aim is to have as much blue, i.e. as much self-consumption, as possible, we’ll see why when we examine the calculations shortly). Importantly, it represents a time when the house is vacant for the day and most of the house’s appliances are off, so the household electrical demand is very low – this means without a storage device a larger proportion the solar energy I produce is supplementing the grid, thus, self-consumption is therefore at a minimum. As a point of interest: the only visible consumption other than the background grumble from the fridge/freezers, is represented by the sharp red spikes, which is my coffee machine working morning and evening to keep me afloat! But the figures do most of the talking..
I exported a total of 7.77 kWh to the grid on this day (76% of the production), so what did my energy provider pay me for this?
£0.03 per kWh x 7.77 kWh = £0.23
Now, let’s imagine I had banked that excess, in a battery for example, and used it later on instead of importing my energy for the standard unit price. What would the saving be?
£0.33 per kWh x 7.77 kWh = £2.56
That’s an 11 fold difference! Hence, adding a storage option is a great way to realise some incredible gains, and despite a higher upfront cost for the system, we think it’s absolutely worth it (and it’s often much cheaper to install the storage system as part of the initial outlay and use a hybrid inverter, rather than retrofit at a later date – (see our article on AC and DC coupled battery systems [coming soon]).
Using this model over a calendar month (assuming the entire excess is banked in the battery system consistently) results in an additional £79.36 saved, on top of the £25.77 I would have saved without the storage device, bringing the total saving from the grid energy equivalent to £105.13 per calendar month (PCM).
According to the Office for Budgetary Responsibility (OBR), energy bills are set to rise by another 40% in October 22. Let’s just see what the saving per day would be, again using the same model where 10.29 kWh is produced per day over a monthly period, whilst also employing the revised unit price prediction for October 22:
10.29 kWh x £0.462 per kWh x 31 = £147.37 PCM
“Energy bills are set to rise by another 40% in October”
Source: OBR (ECONOMIC AND FISCAL OUTLOOK, MARCH 2022)
My small west-facing system has a yield of around 2200 kWh per annum (PA), if I price in the next energy price rise penciled in for October 2022 and assume I use all of my generated solar from this point going forward, I can expect a saving of:
£0.462 per kWh x 2200 kWh = £1016.40 PA
Let’s now assume I paid £6000 for my solar storage solution. The payback period with my estimated annual yield (again assuming I stored or used all of it):
£6000/£1016.40 = 5.9 years
Given that we can estimate the average life of a system to be around 25 years (apart from the inverter which could be 10-12 years before a replacement is required), there’s a compelling argument to invest in a solar storage solution to navigate through the current energy crisis and ultimately save significant sums of your hard earned cash.
Get in touch and we’ll help you realise your maximum potential and assist you to unshackle yourself from the grid.
Written by Dan Smith – Potentia Engineering (Director)