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Solar PV Knowledge Bank

Solar Power Return on 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 showed, the cost per kWh of solar electricity is around 9p. This is well below the grid cost of electricity, which for homeowners, is about 15p per kWh, and rising (rising by 7% in 2018 - see page 6 of this government publication).

Of course, the financial solar return on investment 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 on solar power

As a guide solar PV systems cost between £1,400 and £1,750 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 866kWh 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 two income / savings streams produced by a PV system.

System size (kWp) Annual generation (kWh) Total annual savings / payments Investment rate of return (IRR)
2 1,675 £172 3%
3 2,792 £286 7%
4 3,350 £343 8%
10 8,659 £966 8%
30 25,968 £2,954 12%
50 42,993 £4,944 14%

 

Please note: 

  • Annual kWh is calculated at 866 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 15p/kWh for systems equal to and under 4kWp (domestic), and 13p/kWh for systems over 4kWp (commercial) – 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 iBoost or similar device). For commercial properties, we assume 80% usage.
  • For the purposes of payback period calculation we are assuming a 6% annual rise in electricity prices and a 3% RPI inflation rate.
  • We assume panel degradation of 0.7% per year.

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

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 export tariff of around 5.5p per kWh for this (it will vary depending on which energy company you choose).
  • The Export Tariff is also linked to inflation.

Worked example

A 4kWp system costs £5,500 and is expected to produce 3,350 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) FREE electricity (50% gets used): 3,350kWh x 50% x 15p per kWh = £251.25

(2) Export Tariff (50% gets exported): 3,350kWh x 50% x 5.5p per kWh = £92.13

Total annual income / savings = £343.38