This forum is about wrong numbers in science, politics and the media. It respects good science and good English.
Without government subsidies, the cost effectiveness of any "alternative" energy system becomes accessible to only those who are "rich". There are people here in the Puget Sound area that recently installed such systems. The quoted cost was ~ $20,000 for the installation (although I suspect that it was significantly more than that). Amortize that amount over the expected life of the system, add it maintenance and the like and divide by the number of KW hours you receive and you discover that this number is greater than what you would have paid directly to the Electric Company. If the government pays for half or more of the system, then that number suddenly come closer to matching the electric companies bill.
Thank you. That part I already understood, though. Where they lose me is when they say, "in terms of electricity saved." Where is the savings in "electricity" if they simply give me less money to build the system?
If you are comparing the economics of different methods of doing anything the basic criteria is what can be called the "amortised whole life cost of the complete system" or in simpler terms what does it cost you to buy all the gubbins, use it and service it until its worn out or sold used for rather less than you paid for it. For things with an initial capital investment you also have to include the loss of income from investing the money you've spent or the cost of the loan to buy it.
The theory is that renewables give you free electricity so the only cost is purchase and installation. In practice even the most rabid enthusiasts admit that a single household micro-generator can only supply a part of the household electricity needs. If, for arguments sake, the micro-generator supplies 20% of your electricity and the Government gives it to you with free installation and free maintenance then obviously you save 20% of your electricity bill and the annual return is 20% in terms of electricity or £200 in money. So if the beast lasts for 10 years the total saving is £2,000 or 2 years worth of electricity bills, assuming, to keep things simple, that your electricity consumption and electricity prices remain constant over the decade.
If you have to pay for the installation the return decreases. Assume it costs £5,000, all paid for by you, and your annual electricity bill is £1,000. Whoopee-Do over ten years you save £2,000. Hang on, you have paid £5,000 for the beast and forgone interest you could have got by investing it, possibly £1,500 (after tax) in a best buy building society account. Congratulations you have lost £4,500 over 10 years, £450 per year or 45% of your electricity bill. That's an annual return of minus 45% in terms of electricity saved.
Factoring in a Government grant reduces the first cost of the system and a little simple maths allows you to play about with the monetary amounts to get pretty much any result you want. For our example the break even point requires a grant of approaching £3,750. The loss of interest on invested money is a killer for small percentage return things of significant capital cost and is pretty much never mentioned in journalistic reports.
The example is over simple but hopefully it makes the point.
Ooops. Editing error in previous post.
Third sentance of second paragraph should read :-
If, for arguments sake, your annual electricity bill is £1,000 and the Government gives you a micro-generator supplying 20% of your electricity including free installation and free maintenance then obviously you save 20% of your electricity bill and the annual return is 20% in terms of electricity or £200 in money.
Of course, the whole thing is founded on a fallacy; that the government money is not your money.
The more money government dishes out in subsidies then the greater your tax bill.
These calculations ought to include a correction factor for the tax investment.
If just one citizen akes the subsidy the citizen can safely ignore the tax correction but if every one takes it up then the tax correction needs to be more than 100% of the subsidy (because government is essentially inefficient, the cost of collecting the tax must be included).
I wonder what £2500 subsidy really represents in terms of tax collected? Is it £2501 or £3000? More?
Including the tax implications of the subsidy would be correct from an overall national accounting perspective but significantly complicates the calculations in a manner that obscures the central intention of the reply which was to illustrate how the amount of subsidy defines the rate of return on an uneconomic investment seen by the person supposedly making the investment.
Try to include tax and it becomes, to me at least, impossible to sort out a sensible set of conditions for an illustrative answer. For starters any figures are highly dependent on the percentage of taxpayers making the investment and getting the subsidy. Then you start worrying about things like tax rates and what is the true tax rate relative to that slice of disposable income bottom rate or top or even double taxed as from taxed income generated by savings made form previously taxed income.
In practice the tax side of things is irrelevant as its all gesture politics. The Government has decided to waste, sorry I meant spend, a fixed amount of money to make it look good to the environmental religion fanatics and self serving bandwagon climbers. Hopefully the amount has been well chosen to not seriously upset things although with Gordon in charge and the usual New Labour "here's a foot, shoot it quick, Ouch" management style such hopes may be somewhat forlorn.
Sloppy writing or sub-editing I suspect.
I think the comment should read something like
""in terms of the overall cost reduction based on grid supplied electricity saved."
Or something like that.
To extend the consideration of indirect (or maybe semi-indirect) costs a little further I also wonder about things like Insurance costs. Would a householder be covered by a standard household policy if his/her turbine broke a blade (or blades more likely once imbalance occurred) and killed a passerby?
Public liability insurance for equipment of a similar value (for theft and damage) and £2 million of third party damage claims costs over £500 p.a. . The current scales seem to suggest that the minimum cover should really be about £5 million. So presumably a higher premium.
Factor that into the calculations and even the most optimistic of figures would be clearly uneconomic no matter how one viewed it.