Will solar panels pay for themselves?

By Staff Writer Ruth Jackson Feb 12, 2010

Ruth Jackson

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The government is offering £1,000 a year tax-free for 25 years in return for an initial investment of £12,500. It works like this. From 1 April any household generating its own energy will be rewarded with tax-free payments – even if that household uses all the energy it generates.

How much you get depends on the type of system you have – wind turbines, hydro-electricity schemes and solar photovoltaic panels are all included – and whether you are installing them on an existing home or a new-build property. The most generous rewards will go to people who install solar panels. This will earn you 41.3p per kilowatt hour (kWh) generated, plus an extra 3p for every kWh sent back to the National Grid.

According to Ed Miliband, who announced this 'Feed-in Tariff' (FIT) system last week, anyone fitting a typical 2.5kW solar panel system to their existing home should earn £900 in the first year, plus a £140-a-year saving on their bills. Is there a catch? The short answer is yes.

The initial cost of installing the system, for one. That typical 2.5kW system costs around £12,500 to install. So you won't see any return on your investment for 12 years. That makes the idea that "these tariffs are going to generate rates of return that will beat high-street savings accounts by a mile", as suggested by Jeremy Leggett, the chief executive of solar energy supplier Solarcentury, in The Times, laughable. You can't possibly compare the two. With a high-street savings account you don't lose access to your initial investment.

Still, if you have £12,500 to spare for the long term, the scheme looks attractive. The industry regulator Ofgem warned last week that bills could rise by 25% over the next ten years and having your own power source could help protect you from these rises.

And for those who don't have the cash to spare, Miliband has more of his good news: there's apparently another scheme aimed at rewarding those with renewable heating sources – which are much cheaper and easier to install – to be announced in this year's budget.

There are other concerns that should be taken into account. For example, you might move before you get your hands on all the payback, and the value added to your house by solar panels may not be fully recognised by buyers. But the biggest drawback must surely be the length of the scheme. The government says payouts are guaranteed for 25 years. But there could be six changes of government in that time – one of them just around the corner. Who can be sure they'll all stick to Miliband's promises? If you are thinking of taking up this offer, it's probably worth waiting at least until after the next election to do so.

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Published in Personal finance | More articles by Ruth Jackson

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  • 1. Jim

    (18 February 2010, 09:24PM)  Complain about this comment

    Interesting article.

    If the property uses electricity only, then savings would presumably accumulate, especially if your generating your own power then there would be no electric bills to pay. I suppose there is the standing charge for the meter.

    Although the basic condition is, will there be enough sunshine to make the solar panel worthwhile!

  • 2. Ian Franzen

    (18 February 2010, 10:48PM)  Complain about this comment

    These schemes usually only pay out for professionally installed systems which are often prohibitively expensive. Payback is not within a reasonable time frame. All new build property should be required to meet the highest possible standards of sustainability. The government should then fund retrofit on current property, after high levels of insulation have been installed, starting with public buildings, community facilities then private homes at no direct cost to the property owner the cost of which should be met by windfall taxes on the banks, utility and oil companies.

  • 3. Phil Catterall

    (19 February 2010, 06:43PM)  Complain about this comment

    If you haven't got a large surface area south facing roof then forget it - you simply won't generate enough electricity to make this sort of project worthwhile, even on the brightest of days.

  • 4. Stuart Vincent

    (05 April 2010, 12:52AM)  Complain about this comment

    Having considered installation of such a system I have found that electricity is only generated during good daylight conditions and full output of an average domestic system is not sufficient to power more than one major domestic appliance at a time. The majority of heavy domestic use ,particularly if heating is electrically powered, is not during daylight hours even if the sun is shining.This does not make the systems practically efficient even in full sunlight. Until cost efficient solar energy storage systems are available to compliment solar panels and installation costs are reduced, in my opinion, any idea that householders can make money from this scheme or become self sufficient and eliminate electricity bills are totally unrealistic.

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