What is the payback period for solar panels now, given the Government’s reductions in Feed-in Tariffs? Is it still worth bothering?

Solar Photovoltaic (PV) panels generate electricity during daylight hours. The efficiency of these depends on several factors, but most importantly on the angle of the roof, the direction the roof faces, and the space available for installation of panels. A site survey would be needed to assess your individual situation, and accurately predict the expected output from the units. There are several websites which will allow you to input details and obtain an indication of expected outputs, and returns. The Energy Saving Trust website is a good resource to use, and explains the feed in tariffs and payments well.

In terms of savings and considerations, if your home is insulated to a reasonably good level, you will be paid 15.44p/kWh for the electricity generated by your panels (from April 2013), irrespective of whether you use this energy yourself, or export it to the electricity network.

In addition you will be paid 4.5p per KWh for any electricity you don’t use yourself and, therefore, export to the network. Remember that any electricity you use within your home which is in excess of that produced by the panels (which will be all the electricity you use after dark), will have to be purchased from your supply company at normal rates (around 15p). So, where practical, it is better to run appliances during the day so that you use the solar-generated electricity yourself.

At some stage smart meters will be installed to measure the amount of electricity that you export to the grid but, until then, the estimate of exported electricity which used to calculate your payments is 50% of the electricity you generate. At the moment only systems above 30kWp must have an export meter fitted, but a home PV system is unlikely to be that big.

So, do the numbers add up to a financially useful investment? Well, by way of a worked example, let’s take a semi-detached 3 bedroom house located in the English Midlands. The sunny side of the roof is facing South West at 220o, the roof is angled at 40o (most roofs are), there is no shading on the roof from trees or other buildings, the average electricity bill is £35 per month and 3kWh of PV panels can be fitted on the roof. The installation would cost around £6,430 (for more precise quite contact certified installers here) and it should produce around 2,553 kWh each year. Using current (mid-2013) rates, the annual income from the electricity generated would be £394 (Feed in Tariff) and £59 (export). There would also be a reduction in the annual electricity bill of about £81 as the house now uses less ‘bought-in’ electricity. So this typical installation would deliver to its owner a total of £534 per year of value. This means that the installation will ‘pay-back’ in about 12 years and, with the FiT and export payments guaranteed and inflation-protected for 20 years, the installation will turn a profit of about £4,250. In practice, of course, the proposition isn’t quite this simple as the inverter (the device that converts the DC generated by the panels into useable AC power) will need replacing during the 25 years of panel life and the panels themselves will lose efficiency throughout their life (although we’re probably only talking about 1% per year). On the plus side (sort of), if the cost of bought-in electricity rises, then the savings that an owner will see from generating their own electricity with increase too. (Note that these are only estimates and for more accurate quotes you should contact a registered PV panel installers).

To calculate your approximate costs and savings for your home you can use Energy Savings Trust’s Solar Energy Calculator here.

Do be aware that, if your house is below D energy efficiency rating, payments for electricity generated will reduced to 7.1p kWh. This is an important consideration and will affect the feasibility of installing a solar PV array. You should also consider whether you have the money available to purchase the system outright or whether you would need to raise some through a loan. Loan interest should be factored in to a decision and will lengthen payback periods and reduce profit considerably. Another factor to consider is how much sunshine (both hours and intensity) you home gets each year. It’s difficult to make hard and fast statements about where in the UK is, and isn’t, viable as a location for PV, so take a look at this map of irradiation and solar electricity potential produced under the auspices of the EU here.

So, is it worth bothering? Providing that you have money to invest into solar panels, that your home energy efficiency is EPC D and above and that you have a suitably orientated roof, then yes, probably. You’ll be investing in a greener electricity supply for your home and making a sound commercial decision too!