Are solar panels still worthwhile?

Nick Daws explores the current incentives for installing solar panels and considers if the financial calculations still hold

Today I’m looking at solar PV (photovoltaic) panels. As you probably know, these panels generate electricity from sunlight. Growing numbers of homeowners (me included) have them on their roofs.

At one time solar PV panels came with generous payment tariffs known as FiTs (feed-in tariffs), but those days are long gone now. 

In this article I will be discussing what incentives exist today for installing panels and whether the sums still add up. I’ll also look at the other pros and cons of installing solar panels. 

The history

The UK has been at the forefront in promoting renewable energy, and solar power has been a key part of this.

The Feed-in Tariff (FiT), launched April 2010, paid home-owners an initially quite generous rate of around 46p per kWh (kiloWatt hour) of electricity their panels generated. This was known as the Generation Tariff. There were also additional Export Tariff payments of around 3p per kWh for surplus electricity exported back to the Grid.

FiT payments were soon reduced for new installations, though existing owners continued to receive the same rate for the duration of their contract (20 years in most cases or 25 years if your system was installed before 1st August 2012). The payments were also increased every year in line with inflation.

My late partner and I were fortunate to have our panels installed just before the rates were (first) cut. As a matter of interest, I now receive about £1,500 a year in tax-free FiT payments.

The FiT scheme was finally closed to new applicants on 31 March 2019, by which time the rate paid for new solar PV installations had been reduced to a paltry 4.01p per kWh.

New financial incentive

In January 2020 the Smart Export Guarantee (SEG) was introduced. 

The SEG is not a direct government subsidy. Instead, it requires all large energy suppliers with at least 150,000 customers to pay for renewable electricity exported to the grid by households. Unlike the FiT, with the SEG you don’t get paid anything for energy you use yourself.

Rates paid under the SEG vary considerably, from as little as 1p per kWh to 20p or more in a few cases (the highest rates tend to be variable).

The Energy Saving Trust estimates that a typical household in the middle of the country could make between £100 and £145 a year from the SEG, based on a rate of 5.5p per kWh (though, of course, the higher the rate paid, the more money you will make).

Other financial considerations

As you can see, the direct incentives to install solar panels have reduced considerably since the FiT scheme was introduced in 2010. It‘s not all bad news, though. 

For one thing, the price of solar panels has fallen steadily. When we purchased ours in 2011, we paid about £14,000. The Energy Saving Trust says that the price of a typical solar panel installation today is around £7,000, so half of what we paid.

In addition, the price of electricity has of course shot up, which means the savings you can make by generating your own have increased as well. 

The Energy Saving Trust estimates that at current prices (price cap to 31 March 2024) households could save on average £276 on their electricity bills. Add in the average £124 SEG payments and that makes £400 a year.

If your installation cost £7,000, that means it will take almost 18 years to pay off the cost of installation and be in profit. Of course, if electricity prices carry on rising, the pay-back period will be reduced.

On the other hand, any maintenance and cleaning costs (see below) will extend the pay-back period.

Additional benefits to solar panels

There are other benefits to installing solar PV besides the purely financial ones. 

One is energy independence: Solar panel owners enjoy a degree of independence from the Grid, which may be particularly valuable during power-cuts.

As the UK switches to an economy increasingly dependent on electricity, such events may well become more frequent. Of course, to get the full benefit from this you will also need home storage batteries (to be discussed in a future article).

Another consideration of great importance to some is the environmental benefit. Solar energy is a clean and renewable source, producing electricity without emitting any greenhouse gases. Solar panels can therefore be seen as contributing to the fight against pollution and climate change.

Though it must also be said that the manufacture of solar panels requires large amounts of water and other natural resources, causes greenhouse gas emissions and produces toxic waste. They are also difficult to recycle and may end up in landfill at the end of their useful life.

Other considerations

There are a few other things to take into account before getting solar panels.

Up-front costs – While the cost of panels has decreased, the initial investment can still be substantial. It’s important to carefully consider your budget and explore the financing options and any available grants or loans. Clearly if you have to borrow to install panels, any interest charges will reduce the financial benefits from them.

Roof orientation and space – The efficiency of solar panels depends on the orientation and angle of the roof. South-facing roofs with minimal shading provide optimal conditions for solar energy generation. If you don’t have such a roof all is not lost, however. My house faces east-west, so we had a ‘split array’ installed with half the panels on the east-facing side and half on the west-.

Your lifestyle and energy usage – The amount you save in practice will depend on how often you’re home, how much electricity you use, and when you use it. The Energy Saving Trust estimates that at current rates annual savings will amount to between £165 and £405, with an average of £276 (as stated above). 

Maintenance – Solar panels should not require any regular maintenance. The one exception is the inverter, which converts the DC power produced by the panels to the higher-voltage AC used in UK homes. This will likely have to be replaced at least once during the typical 25-year life of the panels at a cost of £500 to £1,500. 

Cleaning – It’s also important to ensure your panels are kept clean, as if they get dirty (e.g. from bird droppings, a problem where I live) their efficiency will be reduced. Personally I have my panels professionally cleaned every two to three years at a cost of around £150.

Decline in efficiency over time – Solar panels gradually decline in efficiency, a process known as degradation. This typically occurs at a rate of 0.5% to 1.0% a year; so after 25 years your panels will likely only generate about 80% of the power they did when first installed. There is nothing much you can do about this, though regular cleaning (as mentioned) will help maximize output.

Final thoughts

So is it still worth having solar panels installed? As you can see, it’s quite a complex question, with various considerations to take into account.

In purely financial terms, it’s likely to be at least 15 years before the costs are covered – so if you are planning to move in the next ten years or so, you might want to think carefully before proceeding.

On the other hand, if you have the money available and like the idea of cutting your energy bills and (possibly) helping save the planet, solar PV panels may be worth considering. And, as mentioned above, they will also give you a degree of energy independence. The latter may prove increasingly valuable according to how the government’s quest to achieve Net Zero plays out.

As always, if you have any comments about this article, please do leave them below.

Photo credits: Pexels