Is solar PV a good investment?
By Sarah Ingrams
Article 5 of 8
Is Solar PV a Good Investment?
If you're wondering are solar panels worth it and whether they are a good investment, read on to find out when your solar PV system will start paying you back.
Solar panels are expensive, but will they pay their own way and earn you money into the bargain? And will they affect the value of your home? Read on to find out more.
Solar panels are often marketed as a way for you to make money, as well as to save on your electricity bills and reduce your carbon footprint. This is because you can get paid for the electricity that your solar photovoltaic (PV) panels produce.
We can help you work out whether solar panels are a good investment for your money. Plus our unique survey of estate agents reveals the effect solar panels will have on the value of your home. Keep reading to find out more.
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.
Until March 2019, the government's Feed-in Tariff (FIT) scheme paid owners for generating renewable electricity. It closed to new applicants in March 2019.
The Smart Export Guarantee (SEG) replaces the FIT. All companies with more than 150,000 customers must offer a SEG tariff by 1 January 2020. These will pay owners of renewable systems for any excess electricity they put into the grid. But, unlike the FIT, companies will set their own rates (rather than rates being set by Ofgem).
Very few SEGs are available yet: find out which companies are offering SEGs.
If you already received feed-in tariff payments, they 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. Any proceeds you make are tax-free.
Solar panel profit and payback time
How long it will take for your solar panels to pay for themselves, and whether you can make money from them, will depend on:
- The cost of your solar PV system
- How much of the electricity generated you are able to use
- Whether, and how much, you are paid for electricity generated and exported.
A higher initial cost to install the system will need to be balanced with how much money you are able to save by using the renewable electricity it generates, rather than buying electricity from your energy firm.
The more of your renewable electricity you’re able to use, the more you’ll benefit. Owners registered for the FIT are paid per kWh of electricity generated, and for 50% of that, which it’s presumed is exported to the grid. So if you use more than 50%, you’ll benefit.
If you have installed solar PV since the FIT closed to new applicants, you’ll only be paid for power you export if you’re signed up to a SEG tariff. Compare the rates of the SEG tariff with the amount you pay to buy electricity from your supplier to see how much you could save by using as much of your own power as possible.
For information about FIT payment rates, go to feed-in tariff cuts.
Be wary of claims made in solar panel sales pitches
In a recent survey of solar panel owners*, a quarter (26%) told us they were given a quote by a salesperson, rather than a qualified surveyor.
Some 15% said that they were quoted a higher savings figure than the reality and another 14% said they were quoted a higher figure for electricity generation than their panels had actually generated.
This suggests that practices previously exposed by our undercover investigation continue.
When you bought your solar panels, did any of the following happen?
Before the FIT closed to new applicants, Which? investigated the way solar panels were 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.
Although you can no longer sign-up to the FIT, beware of tactics used by solar panel companies to encourage you to buy. The number of solar PV installations has fallen since the FIT closed, so some companies are under financial pressure.
What affects your solar panel investment?
There are many variables that could affect the returns you receive from either the SEG, the FIT or the savings you could make by using the renewable electricity your system generates.
- Inflation will affect feed-in tariff payments, if you’re signed-up for them. They change in line with RPI each year.
- Electricity price increases will affect how much you save on your electricity bills by using the electricity generated by your system. The higher electricity prices go, the greater your savings.
- Cost of solar panel installation has fallen over the past few years. A smaller initial investment could mean that the savings you make and rates of return (if you have the FIT or SEG) could be higher, meaning it takes less time to repay your initial outlay.
- SEG tariff rates are set by companies, not Ofgem (like FIT rates were), so can vary. SEG tariffs are too new for anyone to predict how rates are likely to change. A fixed tariff will guarantee the same rates for the length of the deal, while variable tariffs will change based on the price of energy (for example, rates could be linked to wholesale costs).
Check our solar panel reviews to make sure you invest your money in good-quality solar panels.
Maximising your solar panel investment
If you're 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. Think about putting it into a cash Isa, regular savings account or even a high-interest current account.
You could receive interest on your earnings and build up savings over time.
Rates vary throughout the year, so check regularly to ensure you're always getting the most out of your money. Use our tool to compare savings and Isas to find the best for your money.
Paying for your solar panels
The most cost-effective way to pay for the installation of solar PV panels is upfront and in full. This is the most common route for Which? members who own solar panels – 85% of those we surveyed back in 2018 used savings to finance them.
If you don't have the cash to pay upfront, you may want to consider either a loan or remortgaging. 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 panels' or 'rent-a-roof' scheme is another option, but we advise caution here.
Will solar panels affect the value of my home?
Don't assume that solar PV installation will guarantee a comparable increase in the value of your property. In fact, the majority of estate agents we surveyed** think that having solar panels makes no difference to how much your home is worth.
Just 8% said they thought solar panels increased property value, and 17% said they decrease its value. But 67% of estate agent businesses told us that having solar panels makes no difference to the value of a property.
Impact of solar panels on property value
These factors can all have an impact, too:
- age of the solar panels
- whether they’re owned by a company rather than the homeowner
- their effect on the appearance of the property.
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.
If you’re buying a property with solar panels installed, it’s worth getting a surveyor to check them.
We've spoken to solar panel experts and solar panel owners for their top tips on making the most of your solar panels.
*Which? online survey in May 2019 of 1.987 Which? members who have solar panels
**NAEA Propertymark surveyed 1,252 estate agent businesses for Which? in June 2017.