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Aug, 2014

Bad modelling v good modelling for solar

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There’s two main functions we carry out day in, day out.

One is installing solar.

Before that, though, we talk to people about solar. A lot of people.

Mostly the direction we like to head is to show people what solar will do for them.

This is a financial projection that takes into account a range of factors.

You can read about those here. This note is about the most common error we see in other people’s proposals.

Life-Size-ModelA good model reflects reality and helps people make good decisions. A bad model will lead people astray.

The main culprit is the overstating of the rate that people pay for power. This is a critical piece of information because solar power is substituting your grid-provided power. So, the more your grid power is worth, the bigger benefit solar is to you financially.

Working out your rate for power is not intuitive though. A contestable power account looks a bit like a phone bill, and working out which bits are affected by solar isn’t simple.

What we see often is an incredibly over simplified ‘averaging’ of power rates – and this drives us crazy!  Someone will take the total bill, and divide it by the number of kilowatt hours (kWh) that were used. This methos may seem logical, or even reasonable. It isn’t either.

Many bills have fixed charges and demand charges which can be 30-60% of the total bill – these are either NOT affected by solar, or only moderately affected by solar. Therefore, should not be wrapped in how solar helps.

So, the averaging method overstates the price of power per kWh, and makes the financial contribution of solar look better than it will be.

This is a great (and misleading) way to present the proposal to someone looking at solar… and in many cases shows that solar would pay for itself in 3-4 years. Brilliant, but untrue.  The business owner is then making a financial decision on poor data. Is the “solar guy” to blame? Yes, if they know what they are saying is untrue. (If only there were repurcussions for this type of bad advice…).

So, if you analyse a bill properly and correctly ascertain what is ‘substituted’ by solar… the value will be accurate and lower. And the payback will seem longer – often 5-7 years on a contestable account.

I wonder how many business owners base their buying decisions on a dodgy analysis, and then never look at it again… they just assume it is doing what was planned?

Another misleading inclusion in proposals is an inflated power price increase. The higher the rate used, the better solar looks. We use 2.5 – 5% depending on the circumstance, rarely higher. We have seen proposals with rate increases of 10% pa, and just recently I saw one that had 4 years with a 20% power price rise, then “levelling off” at 5% pa. This helps the case for solar immensely. Except that it’s not true. More on power prices another day.

Meanwhile, the solution for business owners is to be critical in looking at the information that is presented to you.

 

 

 

 

PS The chicken model photo was completely borrowed from Step Change Marketing who are absolute geniuses.