Is solar PV a Good Investment?
By Sarah Ingrams
Article 5 of 7
Is solar PV a Good Investment?
If you're wondering whether solar panels 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? 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. Plus our unique survey of estate agents reveals the effect solar panels will have on the price 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.
Under the government's Feed-in Tariff (FIT) scheme, you receive cash in return for generating your own electricity using renewable energy. All proceeds you make are tax-free.
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.
Solar panel profit and payback time
The government cut the Feed-in Tariff rate for small domestic solar PV installations by 65% on 1 January 2016.
From 2016, the rate of FIT payment for new installations has decreased every three months. For April to June 2017, for example, you only got 4.04p for electricity generated. Previously you'd have got 12.92p.
You used to get 12.92p for every kWh generated. In April to June 2017, you only got 4.04p.
For information on the latest FIT payment rates, go to feed-in tariff cuts.
Be wary of claims made in solar panel sales pitches
Before the last 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.
What affects 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're 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.
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 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 compare savings and Isas from providers large and small to help you 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. 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 do 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 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 eight percent said they thought solar panels increased property value, and 17% said they decrease its value. But 67% of estate agent businesses told us having solar panels makes no difference to the value of a property.
The age of the solar panels, whether they’re owned by a company rather than the homeowner, and their effect on the appearance of the property can all have an impact too.
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.
*(Research: NAEA Propertymark surveyed 1,252 estate agent businesses for Which? in June 2017.)