Six things to consider before buying solar panels
Feature
by Nathalie Bonney
Worried homeowners looking for a way to combat their rising electricity bills could be tempted by solar panels - and the promise of free installation by some companies in recent advertisements is certainly an added incentive. But is this simply a case of ‘too good to be true’?
How much can I save?
Photovoltaic or PV panels convert light energy into electricity (unlike the less effective old-school panels that needed direct sunlight and heat energy to work); the more light converted into electricity, the less electricity you’ll need from your energy provider and therefore the lower your bill.
The Energy Saving Trust estimates a typical home is likely to reduce its annual electricity bill by £90. On top of this, British Gas estimates an average household can earn £877 per year from the government feed-in tariff scheme.
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What is the feed-in tariff (FIT) scheme?
Customers are paid by their energy company for any electricity produced - even electricity they use. The National Grid also makes a smaller bonus payment for electricity that feeds back into the grid. Your FIT payments are guaranteed for a 25-year period and are tax-free.
British Gas estimates an average household could claw back £24,900 by the end of this period.
Why do companies offer free solar panels?
Installation costs (including the cost of the panels themselves) range from £6,000 to over £10,000. If a company offers to install these pricey panels for free, you’d be forgiven for thinking ‘yes please’.
But these companies aren’t doing this out of the kindness of their hearts: although you’ll save some money with the electricity you use, it is the company that actually owns the panels, so it gets to keep all the income created by the FIT scheme, not you.
So will I be better off paying for the installation costs myself?
If you can, yes - although bear in mind that the feed-in tariff stays with the property, so you should only consider this if you’re planning on living somewhere for a long stretch. Even if the panels only cost £4,000 and you make nearly £1,000 a year, it will take you at least four years living in that property just to break even.
Are there any catches to look out for?
The position of your house - south-facing homes stand to benefit the most, but companies will consider west and east facing roofs too.
The gradient of the roof and surrounding trees will also affect the productivity of panels, so if a company gives you a hard sell to take the panels and pay the installation costs yourself, be wary.
Also bear in mind the rate paid for electricity could change in the future, according to government policy.
What else should I consider?
Money-making and money-saving claims will always be based on the optimum levels and may not include extra costs. Take solar panel company Everest. It recently had its knuckles rapped by the Advertising Standards Authority (ASA) for claiming customers could “generate up to £1,614 per year for 25 years taxfree”.
The ASA ruled this was misleading, because it didn’t take into account the costs of installation and the upkeep of the solar panels. You should also only use companies approved by the Microgeneration Certifi cation Scheme.
Am i missing something here?
i was quoted over £10k for installation and told i'd make a "healthy return" (I can't remember the exact % figure) over the next 10 years, however, by my calculations, even if i did get back a net £1k pa, it would take me 10 years to break-even, ie:- a nil net return? Over that same 10 year period, i could instead choose to invest the £10k into an ISA (or unit trust) and ok, there's going to be ups & downs in stockmarkets, but you'd still hope to be "up" overall during that time period, even after i've deducted what it costs me per annum in electricity charges?
Therefore, financially, how does it ever make sense to pay out thousands yourself to install panels?
"unlike the old school panels that needed heat and sunlight to work" Your words. I think this writing off of the existing technology is adding to the misleading nature of the whole debate. In terms of longeveity, return on capital, energy savings, the original hot water system for south facing roofs cannot be bettered. Hot water for most of the year, no hot water costs in the summer, a return on investement that might take a decade, but the likelihood, is that system will still be there in 50 years from now. Or put another way, will I be keen to move into a 7 year old solar panel installation - I don't think so. They will probably have already stopped working. But a solar water - yes please REAL savings off my energy bills! It adds value to the house!
I DON'T HAVE SOUTH FACING ROOF,BUT 3 FACE'S. I HAVE BEEN QUOTED APPROX 8K FOR A 1.56KW (THIS WON'T BOIL A KETTLE) SYSTEM WITH 8 PANELS. WAS TOLD FEED IN TARRIF AND SAVINGS WOULD AMOUNT TO ABOUT 16K. SO I WOULD END UP WITH MY MONEY BACK AND SAVINGS OR CASH WORTH ABOUT THE SAME 8K.
I AM OF THE MIND THAT IT WOULD BE MORE BENEFICIAL TO PAY THE 8K OFF THE MORTGAGE AS I THINK THE LONG TERM SAVING WOULD BE GREATER.
I WAS ALSO DISAPPOINTED TO FIND OUT THAT IN THE EVENT OF POWER CUTS, YOU WOULD NOT BENEFIT FROM THE POWER GENERATED FROM YOUR SOLAR SYSTEM AS THAT WOULD NOT PASS INTO YOUR SUPPLY EVEN THOUGH YOU OWN THE SYSTEM......
I BELIEVE THAT THE AUTHORITIES ARE NOT INTERVEINING IN THE ABUSIVE RISING COST OF ENERGY BECAUSE IT WILL SCARE PEOPLE INTO ALTERNATIVE ENERGY, MAKING IT EASIER FOR THE GOVERNMENT TO ACHIEVE ITS CARBON TARGETS.
On your roof is easy for the installer - BUT think about potential maintenance issues for the next 25 years with being unable to access the roof. It is also rather scary when you realise how the array is attached to the roof (potential leaks).
We have the land, so have been trying to get a ground based installation for nearly a year. We have now given up, installers are not interested (unless you do all the ground work, mounting plinth, underground cabling, and therefore _you_ get to guarantee all that stuff for 25 years).
Joe's comments are spot on - the returns quoted are grossly optimistic, do not include the "cost" of tying up the capital (which you will not recoup), and some installers even use assumed inflation to boost the total return over 25 years.
Oh, and by the way the Feed In Tariff drops by half after 12 Dec.
When the salesman told us that we could make £2,000 a year from PV solar panels, I was more than a little sceptical. However, having looked into it very carefully, we decided to invest £15,500 in a 22-panel, 3.68kWh array on our south-facing roof. During the hours of daylight, we now generate sufficient free electricity to reduce our bills by several hundred pounds. Since they were installed in February 2011 they have generated nearly 3600kWh. At 46.3 pence per unit, we have already received nearly £1,700 from the generating company. Even if we had used every unit generated, we would still have received the same amount. Add to this the savings on our bills and we have already achieved the projected £2,000 in only 11 months. At the current rate of return, our installation will have paid for itself in around seven and a half years. Since the Feed-In Tariff is index-linked and tax-free, this period could easily drop to as little as five years. Investing the same amount in a savings account might achieve a return of around 3.5% which is variable and taxable. The figures speak for themselves. However, a word of warning for anyone currently considering investing in PV solar panels. The Feed-in Tariff was halved in December. This will extend the pay-back time considerably and it would certainly not be worth taking out a loan to pay for an installation unless it is interest-free.
We purchased a 4pkW system in late July 2011 and in the first 6 months the FIT came to £680, the deemed 50% returned to the grid came to about £25 and the saving on electricity usage came to about £60, giving a total return for that 6 months of £765.
Because of the 5.6% inflation rise and the time of year of the 2nd 6 month period, we expect to get a FIT return of £780 together with £30 for electricity deemed to have been returned to the grid and a saving on electricity usage of about £50 – giving a return of £860 for the 2nd 6 months (£1,630 for the full 12 months).
Investing the original £13,500 in a 4% gross fixed rate bank account over the next 25 years would have produced a return of just £432 for each of those 25 years.
The equivalent figures for the Solar PV system show that (without allowing for RPI and electricity price inflation) by taking an income of £432 from the £1,630 and applying the rest to rebuilding the £13,500 capital sum, the £13,500 would be recovered in less than NINE years after which, the income to be enjoyed for the following 16 years would be in excess of £2,500 p.a (By year 25, i'll be over £32,00 better off than the person who put his £13,500 in the bank at 4%gross</b>)
As an alternative calculation, if you treat the recovery period (to replace the £13,500 capital sum) as 25 years (£323 p.a @ 4% gross cumulative) and you also assume no residual value for the PV system, the equivalent return on capital is over 16% AFTER tax. A standard/higher rate tax payer would have to earn 20% or 27% p.a. gross to provide 16% net.
All this leads to the conclusion that, for my family at least, the solar PV is a wonderful investment.
Your figures are incomplete joe - during the "break-even" 10 years, you are rebuilding your £10k capital - at the end of year 5, for example, if you had just put the annual £1,000 in a 4% cash ISA, you would have capital of £5000 plus interest of about £600.
Also, at the end of the "break-even" period, you would not only have your original £10k plus £2,200 interest but you would also have a zero-cost investment producing about £1,500 p.a. (Equivalent, in todays rates, to the yield from £40,000 invested on the stock market)
Would your £10k invested in a unit trust ISA have grown to £52K over the 10 year period ?