When you install a solar system, you are effectively buying your own power station on your roof. That business is using your land (and the sun that falls on it), to produce an income stream. That income stream is the value of the business that you have created. Those income streams will come in over the course of 25+ years. So how do we put a Net Present Value (NPV) on them today? In an example below, Mr. C discovered that his investment of £8,900 would be worth over £25,000 on the day that it is installed. A return of over 270%.
All businesses (e.g. Apple or BP) are valued on the estimated NPV of their future cashflows. Because solar panels generate reliably quantifiable energy streams each year, we can value those streams to give a current value of your roof’s power station. Many large solar farms are sold using these calculations. The value depends on both the future energy prices and the future inflation rates.
Worked Example
We recently quoted a standard 4-bedroom domestic household for Mr C. The system cost £8,900 to install. Mr C is paying a national grid standard 34p/kWh for electricity and would get paid 15p/kWh for any exported electricity he’s generated.
The system is estimated to generate just over 3,500kWh in the first year. 52% is expected to be used on site with 48% exported to the grid. We have assumed standard 2% inflation rate for the £ and 5% inflation rate for electricity prices. The quoted panel has an annual degradation rate of 0.64%, hence the drop in output each year.
Here is a chart showing the cash flows for the system. The system is expected to last over 25-years with totals at the bottom.
If Mr C were to sell the system the day that it was installed, he could sell it for £25,354.
But the total savings over 25 years are £33,598? Why couldn't Mr C sell it for that much? Because of the time value of money. Compounding interest rates mean that £1,000 will be worth £980 in 1-years’ time. In - years’ time that same £1,000 will be worth £905 at a 2% inflation discount rate. The same logic applies to the future cash flows. Their present value depends on the compounding inflation.
Give us a call today to find out the potential profits from your solar system. With the value you add to your property, you can be both more energy, and financially independent. You could stand to make a lot more that £16000.
