Rising electricity costs combined with falling panel prices mean the units could pay for themselves quicker than expected — in just over eight years. If you have an electric car or a solar battery, they can make even more sense.
Back in 2011, homeowners could sign 25-year contracts for “feed-in tariffs” (FITs), tax-free payments for supplying the national grid. These were guaranteed to increase in line with the retail price index. In addition, solar panels reduced household electricity bills. If you could afford it, it was an offer too good to miss.
My family invested in the maximum allowable number — 16 panels capable of producing up to 4kWh of electricity per hour. It cost us £12,800 for retrofitting to our house. We got our money back in about seven years, leaving us with 18 years to enjoy increasing tax-free revenues.
The panels on my family home currently pay 56p per kWh generated and that will increase by 7.5 per cent in April taking the rate to over 60p. Last year we received £1,780.
However, the government’s generosity did not last long. Those who installed solar panels after 2012 received progressively less money for supplying the grid. In the spring of 2019, FIT payments stopped altogether for new customers and were replaced in 2020 by Smart Export Guarantee (SEG) payments.
Falling panel costs mean that they are beginning to look economically attractive again. It is possible to install a 4kWh system of 16 panels for less than £5,000. The value of the electricity they generate has also increased.
Solar panels currently cut electricity bills by up to £440 a year, according to the Energy Saving Trust (EST), an independent organisation promoting energy efficiency.
The solar calculator on its website takes into account the slope and location of the roof, whether the home is occupied all day and where in the country you are. The further south, the more money you make because daylight hours are longer.
The latest 54 per cent increase in Ofgem’s standard variable energy cap means that from April around 22mn domestic customers will see the price per kWh of electricity increase from an average of 20.8p to 28.34p. Solar panels could then cut annual electricity bills by £600.
This increase in electricity prices makes the payback time for installing panels around eight years or more. However, this equation may alter if electricity prices fall and favourable fixed power rates are offered again.
Households with smart meters can receive about £125 a year under the smart export guarantee (SEG) scheme for electricity not used, typically at 3.99p per kWh.
Customers who are not at home during the day get a higher return from the SEG scheme, but this is lower than the savings made by daytime use of generated electricity.
Solar batteries are a new reason to get solar panels. They cost around £2,100 and allow households to use the generated electricity overnight, for example to charge an electric vehicle.
Peter Garside, a retired Post Office electrician, has three 2.4kW batteries. Much of the time he uses no grid electricity and is able to charge his car. “Our monthly bill for gas and electricity is £55 and we average £52 a month from the solar panels so we are paying £36 a year for gas and electricity.”
Garside installed panels in May 2015 and receives only 15p per kWh. “I knew they would be good value as electricity only gets more expensive as life goes on.”
The Energy Saving Trust has a list of the tariffs available. Panel owners can sign up for a tariff from a company that does not supply their energy. However, they must be careful — 29 UK energy suppliers failed last year. In this event, customers must find a new energy company themselves.
Solar Energy UK, a trade association, looked at more than 5mn property sales and calculated that solar panels add only £1,800 to the value of each — much less than the cost of the panels. Buying panels only makes sense if you plan to stay in the same property.
Early adopters were clearly the winners, but working from home is a new factor; many households can now switch on washing machines, dishwashers and other appliances during the day, using electricity during maximum sunshine.
FT readers Ian and Wendy Dear, neighbours of Garside, had 16 solar panels installed in 2012. They paid £7,900 and in 2020 estimated the panels had paid more than half the cost. They have had no maintenance costs and were eligible for the government’s home charging grant. They now have a free charge unit in their garage.
“It was always going to be a good investment on our three-bedroom house that faces the right way. Some weeks last year the panels earned more than £80.”
Panels require little maintenance, but the EST says that the inverter, the unit that converts direct current to alternating current, is likely to need replacing within 25 years of installation. This currently costs about £800.
Electricity bills are expected to fall in April next year, according to Money Saving Expert. Big returns are unlikely for new installers, but cheaper bills and helping the UK to reach the net zero target can still make the investment worthwhile.
Lindsay Cook is co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor, email firstname.lastname@example.org
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