This is the final pessimistic post – for a while.
I looked at some of the inevitable microFIT losses here and here that are not often advertised. If you have not skimmed through those posts yet, you may want to take a quick look.
In that example, we have a microFIT system that costs $27,000 to install and that is expected to generate $70,000 over 20 years. While these numbers are not based on actual system or some RETscreen analysis, they are representative and should be good enough to measure effects like inflation.
MicroFIT annual cash flow curves
Picture is worth a few words.
- PV income 0 – “advertised” income
- PV income 1 – add PV output degradation
- PV income 2 – add inflation
- PV income 3 – add income taxes
Income 0 and income 3 lines are quite a bit different. They are about 40% apart (in total income collected over 20 years). Take a guess which one of the two will be advertised. Some of these curves will probably look a little better in real life (like degradation, for example, which may not be that steep). But the point is, look at how dramatic impacts of inflation and taxes are relative to “advertised” returns.
And here is how it affects “returns”:
MicroFIT returns
So you have a flyer that advertises 14% annual return? In our example we started with 13% annual return.
- Panel degradation takes 1% off
- Inflation cuts another 3%
- Taxes take another 1%
It’s not 14%… it’s more like 9%. Still not bad though.
Problem is, when you buy some stock for $10,000 and one year later sell at 10% profit (for $11,000), you get 10% return and guess what else – your principal. If you buy $10,000 worth of stock and one year later sell it for $1,000, you get the same “10% annual return” but the principal is gone. See where this is going? 10% cash flow (or annual return) is not equal to 10% profit.
By buying into microFIT, you are purchasing future cash flow. The first half of microFIT lifespan will go just to get your principal back. When you take all income after that point and divide by 20 years… you go from 8% annual returns to 3% annualized profit.
Think of it as buying stock that pays 3% dividends annually, holding it for 20 years, and selling at break even to return 100% of your principal. Not as exciting an investment as you’d think, by reading those brochures. And it’s not as guaranteed as some think – weather does change over time, inflation can get out of control, etc.
This horse is officially dead!