Economics of Photovoltaics - My Findings - Is Something Missing?

Hello everyone!

We are currently in the process of having a photovoltaic system installed on the roof and I have read a lot on the subject. Here is what I have filtered out as information for myself. I am curious whether I have captured the essential points or if I have overlooked important aspects, and what you think of my summary.

Best regards

jx7

Preliminary conclusion:

[*
The most worthwhile photovoltaic systems for private houses are those with a peak power just under 10 kWp. (Anything above that is not profitable due to the Renewable Energy Act surcharge. Sometimes you have to stay below because of insufficient roof space.)
[*]Systems without battery storage are more economical (calculation see below). It seems a sensible strategy to observe the price development of electricity (rising) and battery storage (falling) and possibly retrofit a battery storage system later, maybe when the inverter fails after 10-15 years (since a storage system may require a different inverter).
[*]A 10 kWp system without battery storage using full-black modules costs about €14,000.
[*]Such a photovoltaic system is worthwhile: depending on orientation, it yields about 8 % return (net return, actual capital gain); the system pays off after 12-14 years. (A realistically modeled calculation can be found below.)
[*]Return information in profitability calculations by providers (up to 11 % gross return) often does not include all factors!
[*]The argument against photovoltaics that one would need to take out a loan does not hold: financing costs are tax-deductible. With a 3% loan and a marginal tax rate of 42 %, only effective interest of 1.74 % remains. And the installment can easily be paid by the monthly yields of the photovoltaic system.


Details:


[*]If you calculate everything precisely, it turns out that it is definitely worthwhile (even with west-east orientation). My calculations for €14,000 investment costs for a 10 kWp system yielded about 8 % return, i.e., the system pays off after 12-14 years. A realistically modeled sample calculation can be found below. The lifespan is estimated at 25 years, and feed-in remuneration is guaranteed for 20 years.
[*]A west-east roof actually has 20 % less usable solar irradiation. The 20 % less usable irradiation occurs at midday, when self-consumption is usually lower. In the morning and evening the west-east orientation is equally good, so the amount of electricity available for self-consumption in the morning and evening is about the same. (The claim that west-east systems increase absolute self-consumption applies only if the west-east system has correspondingly more panels, i.e., the same annual yield but a larger kWp, which usually is not possible due to the Renewable Energy Act surcharge limitation of 10 kWp.) Because of similarly high self-consumption with lower total yield, the self-consumption share in a 10 kWp system rises from about 18 % (south) to about 22 % (west-east).
A west-east roof also has an advantage: the mandatory power limitation to 70 % of maximum power (if you forego the expensive feed-in management) is not a problem because both roof surfaces do not reach their peak power at the same time. While a south-facing system loses about 3-4 % due to the 70 % rule over the year, a west-east system has no loss. The 70 % rule can be circumvented if you participate in feed-in management (grid operator can remotely reduce system output). However, the additional costs (larger inverter €300, ripple control receiver €400-800 plus accessories & installation) usually exceed the yield losses (<€800).
[*]What you earn with the system (yield minus depreciation) must be taxed at your personal income tax rate.
[*]Self-consumption brings more savings: instead of selling the kWh for 12 cents, you use it yourself and save on your electricity bill a kWh that is currently bought for 24 cents (in 20 years maybe even a kWh bought for 36 cents?), so it apparently pays off twice (or three times). Unfortunately, the calculation is not that simple. For self-use, at least in the first five years, 5 cents VAT must be deducted. It should also be taken into account that the larger profit is again taxed. When self-consumption is included, the calculation becomes much more complicated and depends heavily on the development of electricity prices.
[*]Systems with battery storage can also be worthwhile, but battery storage worsens profitability and extends the payback period. Because over 15 years, a storage system does not amortize (status spring 2018, calculation see below). Whether a battery storage system is worthwhile in the long term strongly depends on electricity price development. It seems sensible to observe the price development of electricity (rising) and battery storage (falling) and possibly retrofit battery storage later, e.g., when the inverter fails after 10-15 years (since a storage system may require a different inverter).
[*]The upper limit for a photovoltaic system is in most cases 10 kWp peak power, since above this the Renewable Energy Act surcharge must be paid. Since a 10-kWp system is not twice as expensive as a 5-kWp system, it seems economically sensible to approach the 10-kWp limit if the roof space allows for it. On the other hand, smaller systems (e.g., 5 kWp) have a higher share of self-consumption, which increases effectiveness. My calculations showed that both effects approximately balance out and small and large photovoltaic systems are equally worthwhile (about the same return, the required investment and expected profit of the larger system of course is higher).
[*]For tax reasons, it is most advantageous to switch to the small business regulation only after five years. Then no VAT has to be paid at the purchase of the system. However, in the first five years about 5 cents VAT must be paid on the self-consumed electricity.
[*]When looking at profitability calculations, you should ensure that reasonable values are assumed for the following points:
[LIST]
[*]Electricity price development (e.g., 3 %, as was the case between 1998-2018 at least. I consider 4.5 % unlikely, especially since the last five years have seen rather constant electricity prices)
[*]Electricity generation or specific yield (here you can ask where the values come from, e.g., photovoltaic simulation with Photovoltaik*Solar or pvgis database. At least you should be skeptical if one provider uses completely different numbers in their offer than others)
[*]Self-consumption share (for 10 kWp about 20 % without battery storage, about 40 % with battery storage, for 5 kWp without battery storage about 30 %) (Source: Volker Quaschning/HTW Berlin)


[*]Additionally, the following points should not be missing in the profitability calculation:
◦ Costs for insurance (about €50 per year)


[*]Costs for maintenance and repair (over 20 years: new inverter for €1800 + €200 other)
[*]VAT paid on self-consumed electricity (about 5 cents per kWh) in the first five years (before switching to small business regulation)
[*]Income tax on profits (yield minus depreciation) at personal marginal tax rate (very often 42 %)


[*]Good links on the topic can be found by google search for:


[*]solaranlagen-Portal photovoltaik kosten
[*]solaranlagen-Portal Mainz
[*]image search: Strompreis 1998 2017
[*]photovoltaikweb Alternatives in feed-in management
[*]System services of photovoltaic systems – influence of roof pitch and orientation Jochen Marwede/Energieagentur Rheinland-Pfalz)
[*]Self-consumption share calculator Volker Quaschning HTW Berlin
[*]solar radiation pvgis europe (photovoltaic performance calculator, page also available in German)

Sample calculation:

[*]Investment costs €13,300 net taken from a table from a solar system portal on the web, based on a statistical survey.
[*]Assumption: Yield 8,300 kWh (pvgis database, west-east orientation; with south orientation it would be 20 % more)
[*]Assumption: 22 % self-consumption (Source: "Optimale Dimensionierung von Photovoltaik-Speichersystemen" by Volker Quaschning HTW Berlin, adjustment due to west-east orientation)
[*]The first five years are not counted as small business, so investment costs can be calculated without VAT.
[*]VAT: 5 cents/kWh for self-consumption in the first five years.
[*]Calculation of electricity costs for self-consumption as follows: currently 24 cents; due to an electricity price increase of 3 % per year, an average value of 33 cents is assumed for the next 20 years.
[*]Income tax according to income-surplus calculation (EÜR). A 5 % depreciation of investment costs over 20 years is assumed, which is offset against income. For self-consumption the difference between saved electricity price from supplier and lost feed-in remuneration 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 costs 10 kWp system:
€13,300 net
Depreciation at 5 % over 20 years:
€665
Yield per year:
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, as long as not yet a small business, converted per year:
5/20 * (22 % * 8,300 kWh * 5 cents/kWh)
= €23
Insurance per year:
€50
Maintenance and repair costs per year (new inverter for €1,800 + €200 other)
€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 of alternative calculations:
- without self-consumption: 5.9 % return
- without electricity price increase: 6.7 % return
- south orientation: 8.5 %

Why a battery storage is not worthwhile:
When operating a battery storage, the generated electricity (e.g., 8,300 kWh per year) is divided into three groups:
1. Self-consumption at the moment of production
2. Self-consumption after storage in the battery
3. Sale against feed-in remuneration
Financial benefits from the storage only come from group 2. According to the self-consumption calculator of HTW Berlin, the share of group 2 in our model calculation is 24 %. That results in a saving of 24 % * 8,300 kWh * 18 cents/kWh° = €359. The savings over 15 years are €5,378. From this, another €25 additional VAT in the first 5 years due to increased self-consumption must be deducted, leaving €5,353. This is clearly less than the cost of a 10-kW storage today (2018), €8,000-10,000. Should electricity prices rise sharply or battery prices fall sharply, a recalculation is necessary.
Not calculated is that during intermediate storage two losses occur (charging and discharging), which add up to about 20 % loss!

° With an electricity price increase of 3 % per year, the average electricity price in the next 15 years is 30.2 cents/kWh, so compared to the feed-in remuneration of 12.2 cents/kWh there is a saving of 18 cents/kWh.

Thank you very much for your valuable contribution.

The first five years are not yet counted as a small business, so that the investment costs can be calculated without VAT.

Could you please explain this point to me in more detail? And what would happen if I already own a small business?

And what if I already own a small business?

Then you can probably save yourself all the trouble with VAT (but you won't get any VAT back either).

So either everything as a small business (is that even possible with "2 pieces") or the small business regulation no longer applies.

Or your wife or your child has just won a photovoltaic system.

Did you copy that now from your old thread? Why not continue there? You obviously didn’t take the advice from there. And that an installation of more than 10kWp is not profitable is still wrong. You should simply exceed the 10 significantly. From 13-14kWp it is worthwhile again.

I will not address individual numbers. But kudos for this extensive contribution.


have yourself advised on tax law in this case. The purchase of the photovoltaic system can cost you the small business regulation (turnover limit in the year of acquisition).
Apart from that, as a small business owner, you cannot deduct the VAT from the purchase, which is disadvantageous according to jx7’s calculation, although the VAT on own consumption is then eliminated.

Thank you very much for this great post, it also matches my calculations. Really clearly and thoroughly prepared. This year I will also retrofit a photovoltaic system on my house, as the heat pump already consumes a bit more electricity and I think it is worthwhile.