Is getting Solar Panels still worth it?
Despite those Feed-in Tariffs being no longer available; big reductions in the price of solar systems, improvements in their efficiency, the introduction of battery storage systems and the payments which customers receive for exporting power back to the Grid, means that getting solar panels could still make a lot of sense from a financial point of view.
In addition to the financial aspect, there are many other environmental benefits to be gained from installing solar, installing battery storage, driving an electric vehicle etc., because they all contribute directly or indirectly to tackling air pollution and the climate crisis.
The solar subsidy may have fallen but that has been balanced by the cost of an installation. The cost of domestic solar electricity is currently around 8p per kWh, which is well below the 16p average domestic import cost from the grid; that import cost increased by over 6% in the last year.
The economics of solar in 2020
A standard 4 kWp solar system has an all-in cost of around £7,250 and on average a system will generate an average of around 3,500 kWh a year, allowing for a modest degradation over time. In the 25-year life of a standard system, it is expected to generate about 88,000 kWh of electricity. That means that if you ignore export tariff payments, each kWh generated costs 8p.
To get maximum benefit from electricity that costs only 8p per kWh, you need to be using as much of it as possible in your house displacing imported electricity which could cost as much as 18p per kWh.
If you do not use the solar electricity (or store it), it will not be worth that much to you – it will only be worth the export tariff, currently around 5p per kWh.
So, with a time-of-use tariff, you will gain around 10p per kWh by displacing expensive daytime electricity and lose around 3p per kWh on anything you export. Without a battery, if you use at least 50% in your house you are going to be in profit.
So, provided that you use at least half of your generated power in your house, then, with the right choice of import unit cost, solar will still make sense. The more you use, the greater the savings.
With a battery and a time-of-use tariff, you will easily use 70-80% in your house, and open up the potential to top up your battery and your car with cheap overnight electricity, whilst avoiding altogether the high daytime tariff of a time-of-use tariff.
The stored electricity will cost you a bit more than 8p per kWh (more like 20p per kWh all-in), because of the cost of storage, but you will minimise export, still benefit from the cheap overnight rate of the time-of-use tariff to charge your car and top up your battery, and, with the possible bonus that your lights will still be on in a power cut.
Reference could be made to the Government’s ‘Quarterly Energy Prices’ publication for further guidance on the changes in grid electricity pricing.
From the point of view of using panels as a pure investment, the Internal Rate of Return (IRR%), tax free and index-linked from an investment in a solar system over its guaranteed life would be between 9% and 12%. Compared with other types of investments, the only risk you are running is whether the sun continues to rise each day.