Just doing a back-of-a-fag packet calculation for Michael Holmes in the office today – he expressed some interest in solar panels and wanted to see how it would stack up.

It was quite illuminating, and so I’ll share it. I can’t guarantee these figures are exact but they are pretty close, I think.

Michael has high electricity bills. Boy, actually, they are astonishingly-I-need-a-second-job high. He spends £320 a month on electricity – it’s a big house and he has three kids who, one presumes, spend a lot of time ignoring his pleas to turn lights off when they leave the room, leaving iPods charging all the time and, by the size of his bill, getting involved in medium-scale manufacturing.

At £3,840 and 11p/kWh (unit) then he’s consuming 34,909kWh a year.

He thinks he’s got room for a large array and could possibly fit a 10kW kit on a flat roof area and perhaps as a standalone structure at the bottom of his garden. Let’s say that that would generate 60% of his requirements (conservative), making 20,945/kWh a year.

Even assuming he’s not selling any back to the grid, he’ll get a little over 41p/unit.

That means an income of £8,587 under the FiT scheme and an additional saving of 60% of his electricity bill, i.e. an additional £2,304 (all figures p.a).

We reckon this 30kW would cost him around £30,000, meaning that with a net benefit to him of around £10,800 a year, it would pay for itself in 3 years. Interestingly this is much more lucrative than smaller installations dealing with smaller energy demands.

If he goes for the capital cost under the new PAYS scheme announced this week – say at 2% interest over 10 years – he’s paying out £3,300 a year to get £10,800 – or, effectively, the government are giving him £7,500. Tax free.

Am I missing something?

Hi Jason

I agree with your headline (Feed-in tariffs – they make sense), but I think you’ve been a little overambitious with your estimates. There are various ways to do these sums, but the one which must be used in illustrations by MCS installers is the one at the back of the SAP document.

SAP appendix M1 gives a calculation for solar PV as

0.8 x kWp x S x ZPV

where S is the Annual solar radiation, in kWh/m² – the max for this is 1042 facing South at 30 degrees from horizontal – probably achievable on a flat roof, and ZPV is the overshading factor, which is 1 at best, assuming little or no shading.

So for a 10kWp system with little or no shading, at a good angle on a flat roof, the figures would be:

0.8 x 10 x 1042 x 1 = 8336 units per year

The 41p you mention only applies up to 4 kWp on retrofit; a 10 kWp system would be in the next band at 36.1p, plus 3p minimum for whatever you feed in to the grid or, say, 11p saving for what you actually use. The energy suppliers I have spoken to are planning to "deem" (estimate to you and me) that you use 50% of what you produce so, taking this estimate, you’d get 36+3 on half of the produced electricity and get/save 36+11 on the other half, so an average of 36+7, or 43p.

This is still a very respectable 43p x 8336 = £3584. Taking your estimate of £30k for a 10kWp system, this gives Michael a return on investment of nearly 12% for 25 years – better than any building society. Or looking at it another way, it would pay for itself in 8 and a half years and then provide a tax free income of 3 and a half grand for the next 16 years.

The bottom line is this is a good deal for those of us looking into this technology. Grab ’em while they’re hot; the rates change at the end of March 2012.

Best wishes

Rob