How to buy solar panels Is solar PV a good investment?

Solar photovoltaic (PV) systems are often marketed as a way for you to make money, as well as save on your own electricity bills. This is because you can get paid for the electricity that your solar panels produce. 

Under the government's feed-in tariff (FIT) scheme, payments are guaranteed for between 20 and 25 years (depending on when you had the panels installed), the price per kilowatt of energy is index-linked, meaning that it will rise with the retail prices index (RPI) measure of inflation annually, and all proceeds you make from the FIT are free from tax.

Investing in solar panels: need to know

Companies market solar PV panels as an investment, but there are some significant differences between the traditional ways of growing your money (like savings and investments) and purchasing and installing a solar PV system.

Be wary of claims made in sales pitches

Before the proposed cuts to the FIT scheme, Which? investigated the way solar panels are sold to consumers and found that some companies provided projected growth rates of 8% to 10%. 

We also found that their calculations often didn't present how the index-linking of the FIT, maintenance costs and panel deterioration might affect how much money you make. This is very different from the factors that affect the growth of your money in a cash Isa or stocks and shares Isa.

Factors that affect your solar panel investment

There are many variables that will affect the returns that you receive from the FIT.

  • Inflation - this will increase the generation and export tariffs each year. The Bank of England's target rate of inflation is 2%, and this may be a useful figure to use when calculating what future tariffs may be. 
  • Electricity price increases - this will impact on your level of savings on your electricity bills. The higher electricity prices go, the greater your savings. The Department for Energy and Climate Change (Decc) forecasts this at 2.6% a year until 2030.
  • Cost of solar panels - the cost of solar panel installation has fallen swiftly since the launch of the FIT scheme. It is not yet clear whether this trend will continue, but if it does the rates of return you receive from solar panels could be potentially higher as it takes less time to repay your initial outlay. 
  • Lost interest - Remember than the money that you make from the FIT can only be considered as 'profits' when you have recouped the amount that you have spent installing the solar panels. Think about how much interest you are missing out on by not putting the cost of panels into a savings account, and make sure that you factor this to your calculations of your overall returns.

Maximising your solar panel investment

If you are thinking of investing in solar panels, a good way of maximising your earnings potential is to reinvest any gains you make from the feed-in tariff into a best rate cash Isa

This means that if you were to put the cash you make from producing electricity and bill savings, you could receive interest on your earnings and build up a decent savings nest egg.

In addition to this, cash Isa rates will vary on an annual basis, so you may be able to get higher interest rates and possibly earn more than what is currently available

Paying for your solar panels

The most cost-effective way to pay for the installation of solar PV panels is upfront and in full. However, if you don't have the cash to pay upfront, you may want to consider remortgaging or a loan. If you do decide to this, remember that you'll have to pay interest on any money that you borrow, and loan repayments may even exceed the returns you make from the solar PV system.

Entering into a 'free solar' or 'rent a roof' scheme is another option, but Which? advises caution here. 

Will solar panels affect the value of my home?

Solar panels and the feed-in tariff scheme haven't been around long enough to know whether or not the installation of solar panels could increase the value of your home. Therefore, don't necessarily consider that solar PV installation will guarantee a comparable increase in the value of your property. Which? will continue to investigate the relationship between solar PV installation and property prices. 

Also remember that the inverter might need changing over the 25-year period and that, over time, the panels will reduce in efficiency. These factors need to be considered if you invest in solar PV and want to sell your home later on.  

More investment advice

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