Solar PV Knowledge Bank

Are Solar Panels a Good Investment?

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Are Solar Panels Worth It?

Are solar panels a good investment? Yes!

Solar PV is a fantastic investment. Returns of 10% plus are available, non-taxable (for individuals)inflation linked and dependent only on the sun coming out.

In fact, as our recent blog (Are Solar Panels Worth It in 2018?) showed, the cost per kWh of solar electricity is somewhere between 4p and 9p. This is well below the grid cost of electricity, which for homeowners, is about 15p per kWh, and rising (rising by 7% in 2017 - see page 8 of this government publication).

Of course, the financial return doesn't tell the whole story. In this age of increasing air pollution, climate change, and decreasing fossil fuels, solar PV makes sense even without the excellent financial return.

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Prices / returns

As a guide solar PV systems cost between £800 and £2,500 per kWp of installed capacity depending on system size and complexity. To give an accurate quote we need to take into account factors such as ease of access to the roof, the nature of mounting system / roof covering, the length of cable runs, and shading and monitoring requirements.

The table below gives some sample system outputs, based on a nearly East facing system located in not-too-sunny Reading, Berkshire. The system is expected to generate 859kWh per kWp (PVGIS forecast). An optimal south facing system is expected to generate 985kWh per kWp and the returns will be EVEN HIGHER than those below! See below for an explanation of the three income / savings streams produced by a PV system.

System size Annual generation (kWh) Feed-in Tariff per kWh Total annual savings / payments Investment rate of return (IRR) Equivalent pre-tax IRR (individuals taxed at basic rate)
2 1,718 £0.04 £236 5.9% 7.1%
3 2,578 £0.04 £354 7.1% 8.5%
4 3,436 £0.04 £472 7.9% 9.5%
10 8,592 £0.04 £1,012 10.1% 12.1%
30 25,776 £0.04 £3,089 10.3% 12.4%
50 42,960 £0.04 £5,149 10.5% 12.6%

 

Please note: 

  • Annual kWh is calculated at 859 kWh/kWp, as calculated by the MCS calculator for a property in Reading 70 degrees off South (i.e. nearly East), with a roof slope of 30 degrees (so chosen to be far from optimal solar generating parameters…).
  • Savings are calculated using 14p/kWh for systems equal to and under 4kWp, and 10p/kWh for systems over 4kWp – what you save will depend on what you pay your electricity company for electricity.
  • We assume you use 50% of your electricity in your property – this is quite conservative and higher usage is possible using careful energy management (which can be automated via the I-boost or similar device).
  • For the purposes of payback period calculation we are assuming a 3% annual rise in electricity prices and a 3% RPI inflation rate.
  • We assume panel degradation of 0.7% per year. See our panel page for more information.

The three income / savings streams produced by a PV system:

The Feed-in Tariff (an income)

  • Earn up to 4.03p per kWh for the next 20 years, just for generating electricity. Tax free for individuals.
  • The Feed-In Tariff is paid quarterly, against the metered output of the system. The amount paid per kWh depends on the system size. Click here for more information about Feed-in Tariffs.
  • The tariff is payable for 20 years from the date on which the system is commissioned.
  • The rate per kWh is index linked and will go up each year in line with inflation (specifically the Retail Price Index). For example the rate of inflation was 4.1% between April 2017 and March 2018. Thus the tariff for systems installed prior to March 2018 went up by 4.1% in April 2018.

Free electricity (an avoided cost)

  • Use the energy you generate for FREE.
  • Every unit you use is one less you have to buy. The average peak electricity cost is currently 15p per unit.
  • A typical user will use between 50% and 75% of what they generate. There are automated devices to maximise energy usage.

Export tariff (an income)

  • Note that most systems don’t include batteries. So if the electricity generated is not used instantaneously, it gets exported back to the grid for someone else to use.
  • The system owner will be paid an additional tariff of 5.24p per kWh for this.
  • The Export Tariff is also linked to inflation.

Worked example

A 4kWp system costs £6,000 and is expected to produce 3,503 kWh per annum. The user has an energy management device to maximise energy usage. 50% of the electricity is used, and 50% is exported.

(1) Feed-in Tariff: 3,503kWh x 3.79p per kWh = £132.76

(2) FREE electricity (50% gets used): 3,503kWh x 50% x 15p per kWh = £262.73

(3) Export Tariff (50% gets exported): 3,503kWh x 50% x 5.24p per kWh = £91.78

Total annual income / savings = £487.27

Note that for systems smaller than 30kWp, the Export Tariff is based on ‘deemed export’ since it is too expensive for the network operator to install a meter to measure the export. Thus it is assumed you will export half of what you generate. If you use more, either because you have higher day-time usage than the system can provide or because you invest in the i-Boost device to divert ‘excess’ generation to your hot water tank, you will be ‘quids in’, being paid an Export Tariff for electricity that you actually use on site!

For systems higher than 30kWp, export is measured and requires you to have half-hourly metering plus an export meter.