Solar Panels As An Investment In The UK

Photovoltaic (PV) solar panels have really taken off in recent years. They have been transformed from a technology on the periphery to a much more mainstream energy provider. Part of the appeal with solar panels, aside from their environmental benefits, is the financial factor. Indeed, many argue that solar panels are a sound investment. This is largely down to the Feed In Tariff Scheme which financially rewards owners of panels for the electricity the systems produce. However, recent changes to these payments have left many doubting whether solar panels can truly be seen as a good investment. In this article we will look at both sides of the argument.

Panels as Money Savers

Solar panels work by transforming energy found in natural daylight into electricity. This means it is a remarkable energy source as the energy comes from an infinite source - the sun. Therefore, the electricity created by the solar panels is, in effect, free. Solar panel owners will not have to pay their standard electricity bills when there is enough daylight for solar panels to work. Therefore, money will be saved each year. Added up over the shelf life of the solar panels, which is estimated to be 20 to 30 years, significant savings can be made. From this point of view, solar panels can be seen as a sound investment.

Feed In Tariff Scheme

In April 2010, the British government launched the Feed In Tariff Scheme which aimed to encourage Britons to use renewable energy systems. The scheme paid panel owners for every unit of electricity their panels produced. Upon the launch of the scheme, this was 43.3 pence per unit, while excess electricity returned to the grid received 46.6 pence per unit. An average domestic solar panel system would make over £1,000 a year by way of these tax free payments. The scheme, which was guaranteed to run for at least 25 years, meant solar panels owners stood to make substantial profits. There was then little doubt this scheme made solar panels a good investment.

The Tariff Change 2012

However, the generosity of the tariff did not last. Just a year after its launch, the government announced a fast track review of the scheme. After a lengthy legal battle, the tariffs were cut by over a half for all new installations. This meant new solar panel systems would attract less than half of the annual tariff than those which had previously been installed. Although a profit would still be made, it was dramatically reduced and many argued solar panels could no longer be seen as good investments. Even more so, with yet another cut in tariffs imminent.

The Cost of Solar Panels

Despite their increase in popularity in recent years, solar panels are still expensive with the smallest systems costing at least £3,000. Under the old Feed In Tariff payment system, the tariffs would pay for the installation of the solar panels in under a decade. Future tariffs would be all profit. The changes to the tariff have already more than doubled the payback time and reduced the overall profit panel owners received. Whilst a profit can still can be made, it can also be argued that the length of payback time has made solar panels less of an attractive investment.

Electricity Savings: Are they Worth It?

Solar panels save money on electricity bills - that is a fact. However, it is estimated that the panels only save an average UK household between £60 and £80 a year. Considering their high initial cost many argue this is a very modest amount to say the least. Solar panels do not work at night so households will still be dependent on mains electricity. Panels also may not work efficiently enough to provide households with all the electricity they require in cloudy conditions.

It is clear that when the Feed In Tariff Scheme was first launched, solar panels suddenly became an excellent investment for those able to afford their upfront cost. The tariffs meant the panels would pay for themselves in under a decade and guaranteed a sizeable tax free profit. The resolution to the tariffs did not nullify solar panels as sound investments but made them slightly less appealing. What is apparent is that savings on standard electricity bills and lower FiT payments still make them appealing, if not as much as before.