Are Solar Panels A Good Investment?

Installing solar panels will save you money on your energy bills.

With the Feed-in Tariff you will earn money for the electricity you use as well as being able to sell back any electricity you don't use to the grid.

To compare installation prices in your area fill in the form above. You can also read our guide to solar investment in 2015 below.


In This Guide:


Are solar panels cost effective?

How much money will I earn / save?

Installing Solar Panels could save you around £700 a year if you installed a 4kW solar system.

Over 20 years you can expect to save and earn around £14,000. Once you take away the cost of installation this typically works out at a profit of close to £7,000. After the 20 year period you will no longer earn money from the Feed-in Tariff, however you will continue to generate your own electricity and in doing so save on your energy bills.

Ofgem have estimated that standard electricity prices will continue to rise by 20% by 2020; with this in mind it could be a very a good time to invest in solar panels.

In the tables below you can see how this saving is broken down between savings to your energy bills, earnings from the Feed-in Tariff (FiT) and selling excess energy back to the grid.


Savings Tables (click to expand)


Savings Each Year

Source of Income:
What you can save/earn:
Generation Tariff
£490
Export Tariff
£80
Electricity Bill Savings
£125
Total per year
£695

*Based on a 3.5kWp Domestic System


Savings Over 20 Years

Year:
Earnings/Savings:
Profit/loss:
One
£695
-£6,305
Five
£3,475
-£3,525
Ten
£6,950
-£50
Fifteen
£10,425
£3,425
Twenty
£13,900
£6,760


How much do solar panels cost?

The average domestic solar panel installation will cost between £4,000 and £6,000. Prices will vary depending on the size of the system. You can see the average price of a solar panel installation in the table below.

Read more on solar panel costs and how they have reduced by around 70% in the last few years.


Solar Costs Table (click to expand)


Typical System Size:

Approximate Roof Space:
Estimated Cost (£):

Estimated Annual Output:

CO2 saved over 25 years (tonnes):

Estimated First Year Return:
Profit Over 20 years:
1kW
8 sq m
2,500-3,000
850kWh
10
£184
£650
2kW
14 sq m
3,000-4,000
1,700kWh
20
£368
£3,800
3kW
21 sq m
4,000-6,000
2,550kWh
30
£534
£5,635
4kW
28 sq m
6,000-8,000
3,400kWh
40
£700
£6,750

As you can see from the table above, solar panels pay for themselves during their first 20 years and most average sized systems bring in a healthy return on investment. In fact, if you go for a 4kW system, the largest size for the highest FiT rate, you will see significantly more return on your investment.





Are solar panels worth it?


Key points in the video:

+ Energy prices look set to continue rising. The savings you will make plus payments from the FiT make solar panels a worthwhile investment

+ FiT rates have gone down in recent years but so have the prices of installing solar panels

+ Experts suggest that investing in solar panels could provide a long term subsidy to regular savings and pensions

+ Solar panels could be a particularly good investment if you are nearing retirement age, as a large percentage of pension money is spent on monthly energy bills

+ Solar panels can increase your property value and make mortgage providers more likely to lend

+ Solar panels are long lasting and require very little upkeep

+ You can compare solar panel prices in your area using the form at the top of the page



How long will it take to return my investment?

The exact amount of time it will take to make a return on your investment is difficult to calculate. The return on investment will depend on the size/price of your system, the FiT rates at the time of installation and your individual energy usage.

However, based on average system and usage data it should take around 10 years to start making a profit on your investment. Considering FiT payments are fixed and tax free for 20 years, that is a significant amount of time to then build profit. Remember that you will be benefitting from up to 50% savings on your energy bills during this time which could make a massive difference to your monthly outgoings.



Compare solar prices in your area



Why are solar panels good?

One of the main reasons solar panels are a good investment is due to the government's Feed-in Tariff scheme.The government created the FiT to encourage people to invest in solar panels by offsetting the initial costs and rewarding people for continued clean energy production.

Through the FiT you can earn money two ways. The generation tariff is the main way to earn money, this is the rate that you are paid for every kWh your solar panels produce. The current rate is 13.39p per kWh, this amounts to around nearly £500 a year from an average 3.5kW system. You can also sell unused energy back to the National Grid at a current rate of 4.85p per kWh.

However, as more people install solar panels and their installation costs reduce, the rates are getting lower each year. The rates are calculated every three months and the rate you join at is the rate you will receive for the full 20 years. This means if you are considering installing solar panels now is the time to go for it in order to benefit from these payments.


Here are the latest FiT rates:


Band (kW):

Generation Tariff between April and June 2015 (p/kWh):
Generation Tariff between July and Sept 2015 (p/kWh):
Predicted Generation Tariff between Oct and Dec 2015 (p/kWh):
4 or less
13.39
12.92
12.53
4 - 10
12.13
11.74
11.39
10 - 50
11.71
11.71
11.36
50 - 100
9.98
9.63
9.63
100 - 150
9.98
9.63
9.63
150 - 250
9.54
9.21
8.93
250 - 5,000 (or 5mW)
6.16
5.94
5.94
Stand alone
6.16
4.44
4.44



What are the tax implications

Feed-in Tariff payments are set at a fixed rate and remain tax free for the entire 20 year payment period. This means that, at the current rate, you could expect to receive up to £11,500 for an average system. This amount alone would be a great return on your initial investment, but when added to the energy bill savings you would be making, solar energy becomes as worthwhile as other tax-free savings options, such as ISAs

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Better than an ISA or pension?

The energy minister recently said that people may be better off investing in solar panels than in a pension. Whilst we do not recommend that you use solar panels as your entire income in later life, they can be a worthwhile subsidy to any pension or savings account.

New pension legislation allows people to withdraw a lump sum of cash when they reach retirement age. Many people are using this lump sum to invest in solar panels in order to secure a stable income over the next 20 years.

Some people are starting to believe that investing in solar panels will be more beneficial in the long term than putting their money in a cash or stocks & shares ISA. As it currently stands you may be slightly better off, with regards to profit, over 20 years with a lump sum in a fixed rate ISA. However, solar panels bring added benefits which may make them more worthwhile in the end. Firstly, your monthly outgoings will be instantly reduced with solar panels, whereas you would not see any benefit from an ISA until the end of the fixed term. Also, as energy prices rise the profit from your solar panel investment will continue to grow.

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Are there any concerns for investors?

The main concern for people considering solar panels is the cost. The cost of solar panels has fallen substantially in the past three years, however, and installation, dependent on size and specification can still cost up to £9000.

With the FiT the return on investment is around 10 years. However if the initial cost is a concern, there are multiple companies that offer a finance package with zero upfront costs and also free solar panel schemes.

For more on these schemes visit Solar Panel Grants

Secondly knowing if your home is suitable for solar panels can be complicated. Thankfully we have a solar energy calculator tool that allows for your home's position and roof size to be taken into consideration - click here to use. In addition solar panel technologies are evolving very quickly, this means that roof location is becoming a diminishing factor as cell efficiency improves.

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Next steps

If you would like to find out more about the costs, savings and earnings from a solar panel investment you can visit our costs page here. If you would like to compare prices from MCS accredited installers in your local area you can fill in the form at the top of the page.

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