Are solar panels a good investment or is it all hype?
- By: Ashley Saunders
- July 2020
As we move to a greener world, coal and other old fuel sources have been replaced by new, technologies including solar panels. Many homeowners wonder are solar panels a good investment? In this introduction, we’ll cover the basics and answer if they make a good financial investment.
Until a few years ago, solar panels were a lucrative business, many homeowners benefiting from a generous government scheme. And while this initial scheme is gone, it has been replaced, albeit by a less generous one.
Whether or not the Government is being generous and buying your excess energy, solar panels will still help you cut your energy bills while lowering your carbon footprint. A win-win for you and the planet!
But are solar panels a good investment, or is it all hype that doesn’t add up? Come with us as we explore the topic.
An introduction to solar panels
If you believe the UK’s weather isn’t good enough to generate solar power, think again! You don’t have to live in the south of France or Spain to generate power.
The Department for Business, Energy & Industrial Strategy estimates that over half a million British homes have solar panels installed.
Solar panels work by harvesting daylight, not sunshine. So even on gloomy days, they can still generate some electricity. That said, your location does impact how many hours of daylight you typically receive as the south gets slightly more than the north.
There are two types of solar panels. The first type is photovoltaic solar panels (solar PV), which harvest the sun’s energy and convert it into electricity that powers items within the home. The other type is solar thermal allowing you to heat water and reduce heating bills.
As solar PVs are more common, we’ll be focusing on them.
Since 31 March 2019, the generous Government incentive scheme closed to new installations. After this date, installing solar panels means you won’t receive feed-in payment for generating electricity or exporting it to the grid.
However, replacing this scheme is the Smart Export Guarantee (SEG), which launched on 1 January 2020. Under SEG, you can sell any excess electricity you generate back to the National Grid. While the new scheme is less generous, it does help to recoup your investment.
Where’s best on my roof to install them?
For the best results, you need to install solar panels on a predominantly south-facing roof. If you have a southwest or west-facing roof, you’ll still be able to generate some electricity, but it will likely be less effective.
Of course, the more effective your panels are at generating electricity, the bigger you’ll save on your bills and the quicker you’ll recoup your initial investment.
Ideally, your roof should be unshaded between 10 am and 4 pm as this will allow the panels to collect the most energy. It’s also fine if they are shaded early or late in the day by other buildings or trees.
Am I locked into an energy supplier?
Many homeowners make the mistake of believing that by installing solar panels, they’re automatically locked into one energy supplier. Thankfully, this isn’t the case and you can change suppliers whenever you feel like it.
What can be confusing is having to deal with the feed-in tariff or SEG on top. Several energy suppliers support both schemes. The Ofgem website lists all the energy companies that are part of the old feed-in tariff scheme or the new SEG scheme.
You’re free to sell your excess energy to any firm on the list, but the price you’ll be paid will depend on the market, season and demand.
Potentially, you could buy energy from one firm and sell any excess you generate to another. Again you’re free to switch energy suppliers whenever best for your situation.
Will my house be worth more by installing solar panels?
It’s impossible to state categorically that solar panels will increase or even decrease your home’s value as it depends on several factors.
Some worry that plastering ugly panels on their roof will have a detrimental effect on the value. However, a home efficiently generating energy is often more attractive to buyers.
As a large investment, it’s unlikely you’ll see an instant jump in the property’s value. So if you’re planning to move in the next few years, it might be worth not adding solar panels as you’re unlikely to see a return on your investment.
If you’re concerned about the potential impact both in terms of aesthetics and property value, ask local estate agents for their professional advice.
Do I need planning permission?
Solar PV systems are generally covered under Permitted Development rights and so don’t require planning permission. However, if your property has a flat roof, is listed or in a conservation area, you will need planning consent. If you’re unsure, call or email your local planning authority.
Are solar panels difficult to maintain?
Once properly installed, a well-designed solar PV system requires little maintenance. You’ll probably need to replace the inverter, a key system component, within 25 years at a cost of around £800.
Things can go wrong, so you’ll want to ensure the installer offers a warranty that covers 20 years.
Your building insurance may cover the panels if a storm causes roof damage, for example. So it’s worth confirming if they are covered with your insurer before installing them. Adding solar panels to your insurance cover may increase the premium but could be worth the extra.
If I move, what happens to the solar panels?
Solar panels aren’t designed to be moved once installed. So if you decide to move, you can’t take the panels or the feed-in payments with you.
While you could physically remove the panels from your old home and reinstall them on the new property, you wouldn’t qualify for feed-in payments as they are now considered second-hand units.
Also, being a custom-designed and installed system, moving them to a new roof is unlikely to offer optimum performance and may have a negative impact on your new home’s value.
That said, assuming the panels remain, the new owner of your old home will continue to receive the payments.
How much do solar panels cost?
As basic technology advances, the price falls. Buying one of the first solar panel systems would cost at last £10,000. Today, the cost is more affordable as most system costs slightly over £6,000.
In content, £6,000 could buy a decent kitchen or a home cinema room. You could use that sum to fund part of an extension or a new boiler and some insulation. With this information, you should be able to answer are solar panels a good investment?
How can I recoup the cost?
A new solar panel system can pay for itself is by lowering your energy bills. Also, you can sell excess energy under either the feed-in tariff (old) or SEG (new) schemes.
The Energy Saving Trust estimates a typical 4 kWp (kWp stands for kilowatt peak – how the power produced by panels is measured) system can reduce your annual bills by £85 to £220. Your saving depends on the system size, typical electricity use and other factors.
For example, as the panels will generate electricity during the day, if you’re working from home, you’ll use less from the grid saving you money.
Can you recoup your investment?
It only makes sense to install a solar panel system if you can recoup your investment in a reasonable time period. Even with the feed-in or SEG schemes, it still can be hard to get the maths to add up.
Of course, saving £100 or £200 each year on your bills is an amount you’ll notice but it’ll take years for you to start benefiting from the system. You may find you can’t recoup the investment within the usable lifespan of 25 years, making installing a system unfeasible.
Putting exporting energy to one side, let’s look at some examples for a system costing £6,200.
If you save £250 per annum, it’ll take slightly under 25 years to recoup your investment.
An annual saving of £140 means it’ll take just over 44 years to pay back your initial investment.
If you save £95 per annum, it’ll take slightly under 65 years to recoup your investment.
At the lower end of these examples, it’ll take nearly your lifetime to recoup the investment. Not good news, as you’ll need the system to keep running for almost three times its intended lifespan.
Of course, having the ability to sell excess energy will provide you with an additional way to recoup, but you shouldn’t rely on this income to recoup the investment as the Government can (and will) change the scheme as they see fit.
That said, if you have a large house or are at home during the day, then your savings will be better and could just about pay for the system.
Already receiving feed-in tariff payments?
The closure of the scheme has little impact if you’re already benefiting from feed-in payments. And depending on when your system was installed and certified, the payments are guaranteed for at least 20 years (25 years if installed and certified before 31 August 2012).
Installing solar panels
If after running the numbers, you’re convinced that adding solar panels are a worthwhile investment, then you’ll need to find a local installer. You’ll need to ensure that both the system and the installer should meet the standards of the Microgeneration Certification Scheme (MCS).
As with any large task within the home, it’s worth asking three different firms to produce written quotes. It’s worth asking friends and family for recommendations as well as searching the MCS installer database.
With each quote, ensure the company have included scaffolding, removal of the existing roof and other roofing works, internal wiring works, sorting out a connection agreement with the energy supplier, electrical connection work, and a generation meter.
While this might sound like a lot of work, fitting a system typically takes a day or two.
Should I Register my system?
Under both the feed-in tariff and SEG schemes, you’d need an MCS certificate to register for payments with a licensed energy supplier. Even if you don’t plan to export energy, we’d still recommend using an MCS registered installer and applying for the certificate.
Doing both of these ensures that the system has been installed to a high standard and should allow you access to Government schemes.
So, are solar panels a good investment?
Now you have a better understanding of how solar panels work, and if installing a system makes financial sense, you can make an informed decision. You should be able to answer are solar panels a good investment?
In this introduction to solar panels, we’ve only covered the basics. So, it’s worth researching if you’re eligible for a local Government grant or incentive.
If the numbers don’t add up, there are still several ways you can save £100 plus each year on your household bills. These include simple actions like turning your thermostat down 2 degrees, washing clothes at 30 degrees and changing your bulbs for energy-efficient ones.
You could also upgrade your boiler or install some more insulation as both will help you reduce your bills.