Are Solar Panels A Good Investment?
Installing solar panels will save you money on your energy bills. You will also earn money from the Feed-in Tariff scheme for producing electricity.
Households who install in 2018 can expect a return on investment within 14 years and make a 4.8% return over 20 years.
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Are solar panels cost effective?
How much money will I earn / save?
Despite recent cuts by the government to the Feed-in Tariff, plummeting solar costs mean that solar panels are still cost effective and will deliver earnings and savings of around £8,080 over 20 years on average.
Although solar panels under the old Feed-in Tariff in 2015 used to earn households around £13,450 over 20 years, falling solar costs mean that in 2016 typical return on investment for solar panels is a healthy 4.8% over 20 years.
This could be even greater if, as predicted, electricity costs rise in the future. As solar panels power your home with free electricity, installing solar panels will protect you against rising energy bills.
If you install a solar battery system with your solar panels, you could reduce your energy bills even further. Learn more
How will future cuts to the Feed-in Tariff impact my return on investment?
To deal with the higher than expected number of households who are looking to install solar panels, the government announced that they would be reducing the Feed-in Tariff (FiT) every quarter and introducing quarterly caps for the number of households able to register for the Feed-in Tariff.
To achieve the best return on investment, install as soon as possible to lock yourself in at the highest possible tariff. Once you are registered on the Feed-in Tariff, you are locked in for the entire 20 years that you will receive payments for regardless of future cuts to the Tariff.
Are solar panels worth it?
Whilst the government have reduced the level of solar funding available to household, falling costs mean that solar still delivers a healthy return on investment and helps reduce your electricity bill by around 50%.
The table below shows the typical earnings for a 4kW solar system:
Earnings per year:
Earnings over 25 years:
Profit after 25 years:
The video below looks at how good an investment solar panels are:
Reasons to install solar panels:
- Energy prices look set to continue rising. The savings you will make plus payments from the Feed-in Tariff make solar panels a worthwhile investment.
- The price of installing solar panels has fallen by over 70% in recent years.
- Experts suggest that investing in solar panels could provide a long-term subsidy to regular savings and pensions.
- If you are nearing retirement age, solar panels could be a good investment as a large percentage of 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 little upkeep.
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 14 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.
If you are considering installing solar panels at a commercial property, see our guide to business solar panels.
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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.
You will also reduce your electricity by around 50% and this will also protect you from rising energy costs.
Earnings from the Feed-in Tariff and energy savings are tax free and index linked. This means you can expect to earn and save around £7,250 tax free on average for a 4kW solar system.
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.
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, panels and installation, dependent on size and specification, can still cost up to £9,000.
With the FiT the return on investment is around 15 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 solar panel technologies are evolving very quickly, meanng that roof location is becoming a diminishing factor as cell efficiency improves.
If you are considering solar panels then don't wait too long before installing. The Feed-in Tariff reduces every quarter, so you will be better off financially installing sooner rather than later
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