IKEA is selling solar PV systems through its UK stores. Homeowners can buy a 3.3 kw system, fully installed on their roof, for a base price of £5,700. Hanergy are the contractors for the scheme. It looks a good deal but IKEA isn’t being careful with the claims it is making for the financial benefit. Actual returns are likely to be at least 15% less than the company advertises. A disappointing failure from IKEA, which trumpets its ethical standards. On its website, IKEA makes two claims about a typical system installed on a slightly shaded south facing roof in Maidstone, Kent.

a) The electrical output of the 3.3kw installation will be 3,314 kWh a year. This figure is too high and I estimate the actual output will be less than 3,000 kWh. This estimate is based both on my own knowledge and, more importantly, on the figures coming out of the online calculator on the Hanergy site. (www.hanergy.co.uk) . For a slightly shaded roof facing due south in Maidstone and carrying 3.36 of PV panels the calculator suggests an output of about 2950 kWh on a 30 degree slope. (35 degrees would give a very slightly higher figure).[1]

IMPACT: Overestimate by about 10%

b) IKEA uses current electricity costs of 15.32 pence a kWh (‘a unit’). The current price offered by Sainsbury Energy for a home in Maidstone is 12.68 pence for follow-on units, which is the correct comparison to make. If we assume that half the electricity generated by the PV panels replaces electricity that would otherwise be bought, then the savings will be 17% less than IKEA claims.[2]

IMPACT: IKEA savings overclaimed by about £39 a year.

Taken together, these would reduce the potential savings from an IKEA 3.3 kW system in Maidstone from £824 to about £695, a reduction of just over 15%.

I also want to question two other assumptions in the IKEA example. First, its calculation uses a roof facing due south. Such homes are rare. If houses are randomly oriented, then the typical home's best facing slope will be 45 degrees off south and, on average, generate about 6% less than IKEA estimates in Maidstone.

The other problem concerns shade. The IKEA estimate is based on ‘10%’shading. The important thing here is that an object very nearby, such as a chimney stack, that blocks 10% of the direct light has a greater than proportionate effect on output. Electricity generation will fall by more than 10% because of the way that PV systems work. IKEA’s output calculations give an unfairly rosy impression of the likely amount of electricity produced.

What does this all add up to? IKEA is suggesting a seven year payback for a Maidstone homeowner. The actual period for a typical house is likely to be over 10 years on a 3.3 kW system after adjusting for the four things I mention in this note. It would be longer for a home further north.

It’s presumably an arithmetic slip but IKEA also quotes a cost of £5,500 on its website as the basis of its calculations but seems to have actually stated a price of £5,700 in its press release. £5,700 is still a competitive quote and the income from the PV will provide an Internal Rate of Return (IRR) of 8 or 9 per cent in real terms with good inflation protection. So IKEA is offering something potentially valuable but it needs to be more conservative about its assumptions. Solar PV is essentially a financial investment and companies like IKEA should meet the tougher advertising standards demanded of banks.

[1] The IKEA website uses estimates from the Microgeneration Certification Scheme (MCS) handbook. These figures appear to be too high.

[2] IKEA uses figures it claims comes from the Energy Savings Trust. It should have employed current market prices for ‘Primary Rate’ units from some of the big suppliers. I used Sainsbury for my figure, EdF’s best tariff, for example, would have been slightly better today.