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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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)|
The Feed-in Tariff (an income)
Free electricity (an avoided cost)
Export tariff (an income)
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.