We get asked a lot about the economic case for Home Storage Batteries. GivEnergy have written some case studies on their website and on LinkedIn which provide some insight about how others have managed to reduce their energy bills to close to zero. These are worth a look and can provide you with great inspiration.

There are a few different ways to approach this question. But we think the most interesting concept (and the one that others don’t talk much about) is the one that draws its inspiration from the Financial Independence Movement. Now before you write this off as a cranky sub-set of the internet, those people that are interested in Financial Independence have spent years fine-tuning their approach to spending and investing, such that “every dollar [or pound] has a name” and all their investments are carefully marshalled.

Financial Independence is perhaps just a fancy name for…..retirement. But proponents of Financial Independence advocate leaving the workforce much earlier than traditional retirement age. This could be a complete exit, or perhaps just a partial exit (where you continue to work part time) or it could be that you do alternative work, which is less stressful and more fulfilling. And to do this, they need to reach their “number” – their investment goal.

The key aspect of Financial Independence that we wish to focus on here is the “rule of 25”. This rule answers that age-old question of “how much money do I need to save for retirement?” Once you have worked out how much money you require to live on each year you simply multiply that number by 25. The result of this calculation is the (big handfuls) number you require in your investment pot to sustain you for the rest of your life.

Now it does get more complicated than this, and the rule of 25 should be considered a “rule of thumb” rather than a hard and fast retirement planning tool – but it is a very useful aiming marker. But here is another key consideration: TAX. You must minimise your tax bill, otherwise your calculations will be very wrong.

This is where we want to draw you back to your Solar PV and Battery system. This is a very tax efficient investment. There is 0% VAT on solar and storage. So a big tax saving on the way in.

And because it reduces your energy bill, with energy being an otherwise unavoidable cost (especially in your older years, as you require a warm home) it is doubly tax efficient. When you buy energy you’ll do so out of post-tax income. Plus also consider that buying energy is subject to VAT at 5%.

A worked example.

• Energy bill = £3000 per year
• Add 5% VAT = total bill of £3150 per year
• To pay this energy bill you require income. If this is coming from an ISA, this is free from tax on the way out, but is derived from post-tax income on the way in.
• If this is derived from pension income, you’ll most likely be paying 20% income tax on this pension income, possibly 40%.
• The pre-tax (gross) sum of money you require from your pension to pay the £3150 bill is £3937 assuming you are paying 20% income tax.
• So although your bill is only £3000, you need to find an additional £1000 to pay the tax man.

Now the rule of 25.

• £3937 x 25 = £98,437.
• To pay your energy bill in perpetuity, you require a capital sum of almost £100,000

Wow! £100k just to pay your energy bill.

Conclusion: The economic case for Home Storage Batteries

There are a lot of other calculations you might choose to make, for instance regarding the upfront investment in Solar PV and Battery storage equipment and the potential opportunity costs of not being able to use that money elsewhere. But the baseline consideration, the one you need to beat in your calculations, is this £100k capital sum needed to pay for the energy bill.

We think that if you are at the stage of considering Solar PV and Battery storage, the lens that the Financial Independence community provide for us should change the calculation in your mind. In fact, the decision becomes pretty easy – a “no-brainer”.

Explore Solar PV and Battery Storage with a family company that has your best interests at heart.

Brimstone Energy UK – For all your home energy needs.