Is solar PV a Good Investment?
By Beth Askham
Article 6 of 12
Is solar PV a Good Investment?
If you're wondering whether solar panels are a good investment, read on and discover when your solar system will start paying you back.
Solar panels are expensive, but will they pay their own way and earn you money into the bargain? Read on and find out more.
Solar panels are often marketed as a way for you to make money as well as to save on your own electricity bills. This is because you can get paid for the electricity your solar photovoltaic (PV) panels produce.
We can help you work out whether solar panels are a good investment for your money.
Solar panel profit and payback time
The government's Feed-in Tariff (FIT) essentially pays you in return for having solar panels on your roof. It guarantees cash payments to households that generate their own electricity using renewable technology.
The government cut the tariff for small domestic solar PV installations by 65% on 1 January 2016. That means you now only get 4.39p for electricity generated, instead of 12.92p previously.
Find out more about how the FIT works and what the rates are in our guide to the Feed-in Tariff.
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 (such as savings and investments) and purchasing and installing a solar PV system.
Under the government's Fit scheme, you receive cash in return for generating your own electricity using renewable energy.
Payments are guaranteed for between 20 and 25 years (depending on when you had the panels installed). The price per kilowatt hour (kWh) of energy is index-linked, meaning that it will rise annually with the Retail Prices Index (RPI) measure of inflation. All proceeds you make are tax-free.
Be wary of claims made in sales pitches
Before the last proposed cuts to the FIT, Which? investigated the way solar panels are sold to consumers. We 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.
Factors that affect your solar panel investment
There are many variables that will affect the returns you receive from the FIT.
- Inflation will increase the generation and export tariffs each year. The Bank of England's target rate of inflation is 2% – this is a useful figure to use when calculating what future tariffs may be.
- Electricity price increases will affect how much you save on your electricity bills. The higher electricity prices go, the greater your savings.
- Cost of solar panel installation has fallen swiftly since the launch of the FIT scheme. If this trend continues, the rates of return you receive from solar panels could be potentially higher as it will take less time to repay your initial outlay.
- Lost interest – the money you make from the Fit can only be considered profit when you have recouped the amount you spent installing the solar panels. Think about how much interest you are missing out on by not putting the money you would use to buy and install the panels into a savings account, and make sure that you factor this to your calculations of your overall returns.
Make sure you invest your money in good-quality solar panels. See our solar panel reviews.
Maximising your solar panel investment
If you are thinking of investing in solar panels, a good way of making the most of your money is to reinvest any cash you save on your energy bill, plus any money you make from producing electricity, into some form of savings vehicle – such as a cash Isa, regular savings account or even a high-interest-paying current account. You could receive interest on your earnings and build up a decent savings nest egg.
Rates can vary throughout the year, so make sure you check regularly to ensure you're always getting the most out of your money. We can help you search hundreds of savings accounts and cash Isa deals from providers large and small – use Which? Money Compare to compare savings and Isas.
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 either a loan or remortgaging. If you do decide to this, remember that you'll have to pay interest on any money you borrow – loan repayments may even exceed the returns you make from the solar PV system, so make sure you do the calculations carefully.
Entering into a 'free solar' or 'rent-a-roof' scheme is another option, but we advise caution here. You can find out more by reading about free solar panels.
Will solar panels affect the value of my home?
Solar panels and the Fit 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 assume 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 system's 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.
We've spoken to solar panel experts and solar panel owners for their top tips on making the most of your solar panels.