Simple Modelling of PV FiTs

I've chuntered on, recently, about the stupidity of HMG's flip-flop management of renewables' FiTs. When I had my own solar PV array installed I analysed all the offers with a simple discounted cash-flow model. I still have that model (available to anyone who wants it on a no-liability basis) so I thought I'd run a couple of tests to see just how reasonable, or otherwise, HMG's proposals are.

I ran these tests on the orientation parameters for my own scheme (orientation 220 deg, pitch 40 deg) which are not perfect but adequate enough to produce a reasonable return based on the capital cost and FiTs pertaining at the time. I'm on course for an undiscounted payback in year 9 and an IRR over 25 years of 10.9%.

Plugging in the FiT rates for the first quarter of 2016, assuming long-run inflation to be 3% (with electricity prices inflating at the same rate), applying a discount rate of 4% and assuming that a 4 kWp scheme could be installed for £6750 gives a simple payback in year 10 and a discounted payback in year 15 (which includes the cost of a new inverter at year 12). The IRR for this scheme is 9.2% with an NPV at year 25 of £4470. That seems to me to be quite reasonable given the risks associated with such a project.

Now if I just plug in the proposed FiT of 1.63 p/kWh and keep everything else the same, undiscounted payback occurs in year 22 and on a discounted basis the project is still under water at year 25. Who would want to invest in a scheme like that? It's no wonder that some PV providers are already putting up the shutters.

Dropping the capital cost to £5000 would advance undiscounted payback to year 18 but the project is still just under water on a discounted basis at year 25.

If HMG is serious about hitting its renewables target they really do need to rethink the numbers here.

Addendum: I've just run a quick goal seek calculation. To achieve an IRR of 10% under the proposed FiT would require the installation cost of my example project to be £2785. Is there any installer out there prepared to offer at that level?