Investing in solar panels - the pay back

If you are going to install solar panels you ideally need a predominantly south facing, sloping roof which is unshaded. West and east facing roofs produce less energy but can make sense depending on your usage.

The most obvious issue with solar panels is that they require significant upfront investment. There are grants available for charities and community-based organisations and some government grants if you are on a lower income. There are also group buying schemes which might help you save money. VAT on energy saving measures has also been reduced from 5% to 0%.

The payback calculation

The likely payback period for solar panels has usually been quoted at around 10 years but this has now significantly improved with the changes in energy costs. So how does this calculation work?

Let’s say the price of a typical 4.2 kilowatt-peak solar panel system with 12 panels is about £6,000. Based on your postcode, the orientation and angle of your roof you can work out the amount of energy that will be produced in a ‘typical’ year. You can then multiply this by the energy price to calculate the value of that energy. Let's say this calculation comes out as £1000. That would mean that you would pay for the system after 6 years and from then on you would be saving £1000 per year.

The problem with this calculation is that it assumes you can use 100% of the solar power you produce when it is available. In reality more solar power is produced in the summer and during the middle of the day i.e., at times when you often need less power. Any excess is fed to the National Grid but at a much lower rate than you have to pay for electricity.

One way round this is to use a solar battery to store excess power generated by your solar panels rather than exporting it back to the grid. The electricity can then be used at a later time. Of course, if you go down this route you would need to consider the cost of the battery in your pay back calculation.

The price you pay for electricity is currently capped at 34p per kWh. This compares to typically 1p to 6p you might receive for selling electricity via the smart export guarantee (older solar installations had a more generous rate). Some suppliers do offer better rates tied to certain conditions, so you need to check this out.

This means that if you can only use say 60% of the power as you produce it your annual energy saving goes from £1000 to £600 (plus say c.£50 from exporting to the National Grid). This means it would now take you c. 9 years to recoup your money. This would still be an OK investment, it just highlights that it could be improved by looking at ways to utilise the electricity as you produce it such as heating of hot water, domestic heating via electricity or electric vehicles.

The environmental calculation

From an environmental viewpoint, solar panels take around 6 years to pay back the energy cost of manufacture. This means about 20 years of usage with no carbon footprint. The energy you create from solar panels improves our ability to meet society's Net Zero target and contributes to our overall energy security.

Less than 4% of UK homes have solar panels and hardly any have battery storage. It's got to make sense for all public buildings, company offices and households with the right type of roof space to seriously look at installing solar panels - we just need a few more incentives either in the form of grants, loans or a better price from the export guarantee.