ᐅ Cost-effectiveness of Photovoltaics – My Findings – Is Something Missing?

Hello everyone!

We are currently planning to have a photovoltaic system installed on our roof, and I’ve read extensively on the topic. Here is the information I have gathered so far. I’m curious to know whether I’ve covered the essential points or missed anything important, and what you think of my summary.

Best regards

jx7

Preliminary conclusion:

• For private homes, photovoltaic systems with a peak output just under 10 kWp are the most cost-effective. (Larger systems are less worthwhile due to renewable energy surcharge fees. Sometimes the available roof space limits the system size.)
• Systems without battery storage are more economical (see calculations below). It seems sensible to monitor the price trends for electricity (rising) and batteries (falling) and possibly retrofit battery storage later, perhaps when the inverter fails after 10-15 years, since battery systems may require a different inverter.
• A 10 kWp system without battery storage, using full black modules, costs about 14,000 € (about 14,000 €).
• Such a photovoltaic system is worthwhile: depending on orientation, it yields about an 8% return (net return, actual increase in value), and the system pays for itself in 12-14 years. (A realistic example calculation is provided below.)
• Yield figures in economic calculations from providers (up to 11% gross return) often do not include all factors!
• The argument against photovoltaics that a loan is necessary does not hold: financing costs are tax-deductible. With a 3% loan and a marginal tax rate of 42%, the effective interest rate is reduced to 1.74%. The loan repayments can easily be covered by the monthly income from the photovoltaic system.

Details:

• A thorough calculation shows that the investment is indeed profitable (even with an east-west orientation). My calculations, based on 14,000 € investment for a 10 kWp system, resulted in about an 8% return, meaning the system pays off in 12-14 years. A realistic example calculation is provided below. The expected lifespan is about 25 years, and feed-in tariff payments are guaranteed for 20 years.
• An east-west roof orientation actually receives about 20% less usable solar radiation. This 20% loss occurs mostly at midday, when self-consumption is usually lower. Morning and evening yield from east-west orientation is comparable, so the amount of electricity available for self-consumption in the mornings and evenings is similar. (The claim that east-west systems increase absolute self-consumption only applies if the system has more panels to achieve the same yearly output but a higher kWp rating, which usually is not feasible due to renewable energy surcharge limits at 10 kWp.) Since self-consumption is relatively high despite a lower total output, the share of self-consumption for a 10 kWp system rises from about 18% (south-facing) to roughly 22% (east-west).
An east-west roof also has an advantage: the required power limitation to 70% of maximum output (when foregoing the costly feed-in management) is no problem because both roof sides do not reach their peak output simultaneously. A south-facing system loses 3-4% annually due to this 70% rule, while an east-west system does not incur this loss. This 70% limitation can be avoided by participating in feed-in management (where the utility can remotely reduce system output). However, the additional costs (larger inverter approx. 300 €, ripple control receiver 400-800 € plus accessories and installation) usually exceed the earnings lost (<800 €).
• Income from the system (yield minus depreciation) must be taxed according to personal income tax rates.
• Self-consumption saves more money: instead of selling kWh at about 12 cents, you use it yourself and save paying the electricity bill rate, currently about 24 cents per kWh (which may increase to 36 cents per kWh over 20 years). This suggests a double or even triple benefit. Unfortunately, it is not quite that simple: for self-consumption, at least in the first five years, 5 cents VAT per kWh must be paid. Also, the higher profit must be declared for tax purposes. Including self-consumption makes the calculation significantly more complex and largely dependent on electricity price developments.
• Systems with battery storage can also be profitable; however, batteries reduce overall economic efficiency and lengthen payback times. A battery cannot pay off within 15 years (as of spring 2018, see calculations below). Whether batteries become worthwhile in the long term strongly depends on energy price developments. A sensible strategy seems to be monitoring electricity (increasing) and battery (decreasing) prices and retrofitting battery storage later, perhaps when the inverter needs replacement after 10-15 years, since battery systems may require a different inverter.
• In most cases, the upper limit for a photovoltaic system is 10 kWp peak output due to renewable energy surcharge fees above this threshold. Since a 10 kWp system does not cost twice as much as a 5 kWp system, it is economically sensible to approach the 10 kWp limit if roof space allows it. On the other hand, smaller systems (e.g., 5 kWp) have a higher share of self-consumption, which improves effectiveness. My calculations show that these two effects roughly balance out, making small and large photovoltaic systems equally worthwhile (similar returns, while the larger system naturally requires a bigger investment and generates higher expected gains).
• From a tax perspective, it is most favorable to switch to the small business regulation (small business VAT scheme) after five years. Then, VAT does not have to be paid when purchasing the system. However, during the first five years, about 5 cents VAT per kWh for self-consumed electricity must be paid.
• When reviewing economic calculations, one should ensure reasonable values are assumed for these points:
• Electricity price development (e.g., 3% per year, as was the case from 1998 to 2018. 4.5% seems unlikely given the stable prices in the last five years)
• Electricity generation or specific yield (ask about the data source, e.g., photovoltaic simulation with software or PVGIS database. Be skeptical if one provider's figures differ widely from others in their offer)
• Share of self-consumption (about 20% without battery, about 40% with battery for 10 kWp; about 30% for 5 kWp without battery) (Source: Volker Quaschning/HTW Berlin)
• Additionally, the economic calculations should always include these factors:
• Insurance costs (approx. 50 € per year)
• Maintenance and repair costs (over 20 years: new inverter about 1800 € + 200 € other expenses)
• VAT payable on self-consumed electricity (approx. 5 cents per kWh) during the first five years (before switching to the small business regulation)
• Income tax on profits (yield minus depreciation) at personal marginal tax rate (often 42%)
• Useful keywords to search for more information include:
• solaranlagen-Portal photovoltaik kosten
• solaranlagen-Portal Mainz
• image search: electricity price 1998 2017
• photovoltaikweb alternatives in feed-in management
• System service capability of photovoltaic systems – impact of roof pitch and orientation (Jochen Marwede/Energy Agency Rheinland-Pfalz)
• Self-consumption share calculator Volker Quaschning HTW Berlin
• solar radiation PVGIS Europe (photovoltaic performance calculator, website available in German as well)

Example calculation:

• Investment cost: 13,300 € net, taken from a table on a photovoltaic portal online, based on a statistical survey.
• Assumption: yield 8,300 kWh (PVGIS database, east-west orientation; south orientation would yield 20% more)
• Assumption: 22% self-consumption (source: "Optimal sizing of photovoltaic storage systems" by Volker Quaschning HTW Berlin, adjusted for east-west orientation)
• The first five years are not accounted as small business, so the investment cost can be calculated without VAT.
• VAT: 5 cents/kWh for self-consumed electricity in the first five years.
• Calculation of electricity costs for self-consumption:
Currently 24 cents, assuming a 3% annual price increase, a 20-year average of 33 cents is used.
• Income tax according to income-surplus calculation (EÜR). A 5% depreciation of investment cost over 20 years is assumed, offset against income. For self-consumption, the difference between saved retail rate and lost feed-in tariff must be taxed, i.e., 33 cents/kWh – 12.2 cents/kWh = 20.8 cents/kWh. A marginal tax rate of 42% is assumed.

Investment cost for 10 kWp system:
13,300 € net
5% depreciation over 20 years:
665 €
Annual yield:
78% * 8,300 kWh * 12.2 cents/kWh + 22% * 8,300 kWh * 33 cents/kWh
= 1,392 €
VAT on self-consumption in the first five years before small business status, converted annually:
5/20 * (22% * 8,300 kWh * 5 cents/kWh)
= 23 €
Insurance per year:
50 €
Maintenance and repair costs per year (new inverter 1,800 € + 200 € other expenses)
100 €
Income tax after EÜR per year:
42% * (1,392 € - 665 € - 23 € - 50 € - 100 €)
=
233 €
Return:
(1,392 € - 23 € - 50 € - 100 € - 233 €) / 13,300 €
=
7.4%

Results from alternative calculations:
- Without self-consumption: 5.9% return
- Without electricity price increase: 6.7% return
- South-facing: 8.5% return

Why a battery storage system is not worthwhile:
When operating with battery storage, the generated electricity (e.g., 8,300 kWh per year) is divided into three groups:
1. Self-consumption at the time of production
2. Self-consumption after storage in the battery
3. Sale under feed-in tariff
Financial benefits from the battery only come from group 2. According to the self-consumption calculator by HTW Berlin, group 2 accounts for 24% in our model calculation. This equals savings of 24% * 8,300 kWh * 18 cents/kWh° = 359 €. Savings over 15 years amount to 5,378 €. Deducting 25 € additional VAT during the first five years due to increased self-consumption leaves 5,353 €. This is significantly less than the cost of a 10 kW battery today (2018), which is about 8,000-10,000 €. If electricity prices rise sharply or battery prices drop significantly, a new calculation would be necessary.
Not calculated here are charging and discharging losses in the battery, which total about 20% overall.

° With a 3% annual electricity price increase, the average electricity price over the next 15 years is 30.2 cents/kWh, so the savings compared to the feed-in tariff of 12.2 cents/kWh is 18 cents/kWh.