Payback from Photovoltaic (PV) Solar Panels in the UK

Photovoltaic Solar Panels or Solar PV panels for short are made from photovoltaic cells which can generate electricity from solar radiation from the sun.

PV Solar Panels are designed to be mounted on the roof of a house.

The image is a close up of our Sharp solar panels before they were installed.

Solar Panels require a significant outlay. It's important to that you learn as much as you can on the subject. Michael Boxwell's book has been recently updated to include information on government incentives and gets good reviews: Solar Electricity Handbook 2010: A Simple Practical Guide to Solar Energy - Designing and Installing Photovoltaic Solar Electric Systems

A south-facing roof is best for Solar PV, though it doesn't have to be perfectly south facing, SE-SW is okay though output will be reduced.

Your roof will need to be strong enough for the panels.

Any shade from trees or other buildings can reduce the output.

Planning permission isn't required for most systems, but you should check this out in your area (don't rely on us!).

And you'll need to be able to afford the cost of the system. Read on and we'll give you some idea of what this is likely to be.

If you're treating your solar PV system as a financial investment then there are lots of factors that will affect this. We'll try and cover as many as we can in this lens.

Solar PV has the following benefits:

• Reduction in carbon footprint
• Payments for generated electricity
• Saving on your electricity bill
• Protection against future increases in electricity prices - a proportion of your electricity will be free for the lifetime of the system (25 years or more)
• The wow factor - Electricity generated from the sun. That's pretty neat isn't it? Well we think so.

The financial benefits need to be weighed against the cost of acquiring and maintaining the system. If the system is paid for from savings then the loss of interest should be factored in. If a loan is taken out then the interest incurred must be accounted for.

There are a lot of inflated and ill-informed figures for 'return on investment' on the web (many from solar panel installers).

It is possible for a solar PV panel to outperform putting the cost of the system in a savings account. There are a lot of factors to take into account when working out whether it makes sense for you. We provide an unbiased and detailed guide to help you decide.

Solar panels generate electricity during daylight hours. The government has introduced an incentive scheme to make the introduction of solar panels viable for early adopters and to therefore accelerate the progress of the solar industry.

The government incentive scheme is the Feed-In-Tariff (FiT). FiT is a tax-free index-linked (via RPI) payment per unit of electricity (kWh) generated and has two components:

• The Generation Tariff is the part of the FiT paid for all generated electricity whether it is used or sold to the grid. The generation tariff payment makes up the largest part of the financial benefit of solar panels. It is paid for 25 years provided the installer is MCS accredited. For systems installed to existing properties (not new build) before April 2012, this is 41.3 pence/kWh for the first year.
• The Export Tariff is the part of the FiT paid for all electricity exported to the grid. In addition to the generation tariff you will receive a minimum of 3 pence/kwh that you sell to your electricity supplier.

In addition to the payments for electricity generated, you also benefit from free electricity:

• The generated electricity that is used leads to a reduction in the electricity bill. Since the cost of electricity is much greater than the export tariff it is beneficial to may use of free (daylight hours) electricity whenever possible.

The generation and export tariffs are index-linked and will rise in line with inflation. It is expected that the cost of electricity will increase faster than inflation so the free electricity will become more valuable over time.

The following graph shows the proportion that each of these element contribute to the initial year total for a typical example system:



In the following sections of the lens we will look at the payments that can be expected from example systems and show how to calculate your own values.

The size of system you can get will depend on your available roof space and your budget. Solar PV systems are measured in kWp - kilowatt hours peak. The roof of a small house or flat might take a 1 kWp system whereas a four bedroom house might accommodate a 4 kWp system (4kWh is the maximum that qualifies for the highest FiT tariff).

If you can work out the size of your roof (try looking on google maps) then you can estimate the likely system size. Not all panels are exactly the same size or output. An example is the Sharp NU-235-E1, the dimensions are 1652x994mm. A small system might include 6 panels, a large domestic system might be 16 panels.

The nominal output (Wp) of these Sharp panels is 235 (which is quite a high output). Nominal output is a standard way of measuring panel output in lab conditions, it allows you to compare panels. A small system using these panels would have an output of 6 (panels) x 235 (Wp) = 1410 or 1.41kWp. Our large system would have an output of 16 (panels) x 235 (Wp) = 3760 or 3.76kWp.

This kWp is a key figure to look for in any quotes. It represents the kWp (peak power) achieved under full solar radiation - your actual system performance will be less than this in the UK. The larger the system the more electricity it will generate, and the more money you will receive.

A rough estimate of annual output in the UK is 800W per kWp, so our 1.41kWp system could be expected to generate around 800 x 1.41 = 1128 kWp per year. Our large 3.76 kWp system could be expected to generate 800 x 3.76 = 3008 kWp.

Using the maximum intial generation tariff of 41.3 p/kWh our small system would deliver a generation payment of 0.413 x 1128 = £465.86 in the first year. Our large system would generate 0.413 x 3008 = £1242.30. (And remember this is a tax-free payment which in index-linked so will rise in line with inflation each year.)

But this estimate does not take into account the location or orientation of your particular roof, or any shading or the incline of the roof. We recommend the Photovoltaic Geographical Information System Calculator for an estimate based on your circumstances. For a south-facing roof on the UK south coast you can expect an improvement on the above figures.

You can use the electricity generated by your solar panels for free. There is typically no battery backup system so you can only use electricity when it is being generated.

A guideline is that you will be able to use 50% of the generated electricity to reduce your electricity bill. We'll assume an electricity cost of 10 pence per unit (kWh) for illustration purposes.

For our small system the saving would be 0.5 x 1128 (= 564kWh) x 0.1 = £56.40 per year. And for our large system the saving would be 0.5 x 3008 (=1504 kWh) x 0.1 = £150.40 per year.

The average UK house uses 3300 kWh per year (this sounds quite low to me) so a saving of 1000 kWh per year (a medium-sized system) would represent almost a third off the electricity bill.

You can optimize your electricity usage to make the most of the free daytime electricity by running dishwashers, washing machines, tumble-dryers and other power-hungry appliances when free electricity is available.


If you're not already monitoring your electricity usage then it's worth starting. This will give you an idea how much electricity you are using and when you are using it. In preparation for your solar panels you can begin to reduce non-daylight use of electricity as much as possible. Of course you should try and reduce your overall electricity usage as much as possible to benefit the environment, but free generated electricity only costs you the loss of the 3pence/kWh export tariff payment.

The Export Tariff is set at 3p/kWh and is aligned with the RPI. Electricity providers could choose to pay more than this.

Assuming we export 50% of the generated electricity to the grid, our small system will give a payment of 1128 x 0.5 x 0.03 = £16.92. And our large system will give a payment of 3008 x 0.5 x 0.03 = £45.12.

Exporting electricity is a small part of the overall payout. You'll benefit more from shifting your electricity usage to daylight hours so you can use a higher proportion of the generated electricity and therefore spend less on your electricity bill.

For our small, 1.41kWp, system we get a total first year payout of 465.86 + 56.40 + 16.92 = £539.18.
For our large, 3.76kWp, system we get a total first year payout of 1242.30 + 150.40 + 45.12 = £1437.82.

Or graphically:


Be cautious of any quotes of ROI based on comparing these amounts with interest generated from an investment the size of the initial cost. Many of them ignore the cost of the initial capital, which you can't do if you want a meaningful figure! Read on and we'll show you how to properly evaluate these figures.

Note that for a similar system your values may be better or worse depending on the location and orientation of your roof. (We're not far from the south coast and out figures look a little better.)

Electricity generation follows a bell-curve, peaking in the summer months. There is still some electricity generated even in the depth of winter.

The following graph shows a typical distribution of electricity over a year:



The y-axis shows the daily average sunlight in Watts per metre squared (insolation) in the south of England. Output will be proportional to these figures so in the peak of summer output will be almost 5 times what it is in the depth of winter. Figures are from the GISS Atmosphere Information Model if you want to view your own location.

Solar PV is unlikely to make a major contribution to electric heating in winter. Whereas it can contribute significantly to air-conditioning in the summer.

When you add solar panels to your roof, your initial outlay doesn't vanish.

The government FiT payments are linked to the house, not the initial buyer of the system. This means that any future owner of your house can benefit from payments as well as free electricity.

You can assume there will be some initial depreciation, but many buyers would consider the panels to be an asset and increase their purchase price accordingly. So don't rule out installing solar panels just because you don't plan to stay in your property for 25 years.

In our calculations we assume an initial depreciation by a configurable percentage. 0% initial depreciation means that you think that the panels will increase the value of your home by the total cost of purchase. 100% initial depreciation means that you don't think the panels will increase the value of your house at all. The we depreciate the value linearly to reach £0 after 25 years. The end result is the same, it's the intermediate values that are important if you think you may wish to move house within 25 years.

Payback of a solar PV system is best calculated over 25 years because this is the period that the government FiT payments apply for and it is typically the length of the guarantee for the solar panels. The panels are pretty reliable so they are likely to carry on generating some electricity after 25 years, but it seems reasonable to ignore this, as who knows what the situation will be when we get there.

You can't just look at the payments you'll receive from the system. You must also consider the initial capital investment and the loss of the interest you would have gained if you had saved to cost of the system in a savings account (or invested it). Don't forget to apply tax to this amount - if you pay 40% tax on interest then this significantly affect the return. You should also assume that the payments you receive will be invested (and taxed).

You need to apply inflationary increases to the payments and account for above-inflation increases in electricity prices.

And don't forget to include any maintenance costs (servicing, replacing the inverter every 10-15 years, cleaning of panels if you do this) and any increase in buildings insurance.

Then there's the loss of efficiency in the panels as they age.

If you want to look at the overall value of the system at intermediate points then you should also factor in the value of the solar panels as assets. This is particularly relevant if you plan to sell your house.

So, we've established that it's not a straightforward calculation! Our Solar PV Calculator takes the most significant of these variables into account and allows you to adjust values such as RPI and rate of taxation to match your assumptions and situation.

Here's an example graph for our 3.76kWh system with the following assumptions:
Cost of system = 3.76 x 4000 = £15040
System output: 3008 kWh/year
Tax rate: 40%
Savings rate: 5%
RPI: 3%
Annual increase in elec cost: 6%
Percentage of generated electricity which is used: 50%
Cost of a unit of electricity: 12p
And we'll won't treat the solar panels as an asset (i.e. we'll say they have 100% initial depreciation).




This gives us a 'break even' point of around 11 years. (If we treated the solar panels as an asset with value at intermediate points then it would be earlier). Note that if you live further south then your output will be better than the UK average.

Note that these figures are in future value terms, rather than today's value.

Your numbers will be different. It is important to do the calculation with your numbers.

In order for your Solar PV system to quality for the Feed-In-Tariff it must be installed by Microgeneration Certification Scheme registered installers.

How much does a Solar PV system cost? Obviously this depends on the size of the system, but a guideline is £4000 per kWp installed. E.g. £8000 for a 2kWp system.

You should be able to beat this guideline price, but make sure you understand what you are getting for your money. The lowest quote may not be the best value for money.

You should get quotes from at least 3-4 suppliers before going ahead. Make sure they are all MCS accredited.

There are many smaller installers and a number of well known brands.

Electricity providers are starting to come out with systems. Since we already knew the size of system we were interested in E.on Solar Saver Electricity were able to give us a quote over the phone. It wasn't competitive. But it's early days, they may still be adjusting their prices.

Tesco have a solution. You can see some sample prices at: http://www.tescohomeefficiency.com/electricity-pricing/. If you call them or apply online they will send out a surveyor. Note that when we did this the surveyor was unable to give us a quote on the day (due to lack of training) and we were told we would have to wait around 2 weeks for a formal quote (we are still waiting).

We had better experiences with smaller companies and got two quotes. We preferred the company that were able to offer a larger output (due to the use of higher output panels) and offered a 25 year guarantee on the panels direct with the manufacturer. Since the manufacturer is Sharp we felt comfortable with this. The other vendor that we considered offered a guarantee backed by a finance company that we found harder to evaluate. They also went with more of a hard sell whereas our preferred installer offered a comprehensive breakdown of costs and the offer was valid for 60 days.

VAT is payable on solar PV systems. The rate is currently 5%, but the government may choose to increase this in the future.

You really need to do your own research and take your priorities into account when choosing an installer.

And remember the installer must be MCS accredited for you to qualify for FiT payments.

However you fund the installation cost of your solar PV system, you must factor in the full cost (including any lost interest).

Disclaimer: The information provided in this lens does not constitute financial advice. You must do your own research based on your own circumstances.

The best situation is that you have the money available as savings. You must account for loss of interest. You may also be able to cover the first year as a payment on a 0% for purchases credit card, leaving your savings to accrue interest for the first year before paying off the credit card in full. (Only attempt this if you are financially savvy and know what you are doing.) You may also be able to get cashback or points on the credit card. Do not use a credit card to finance the purchase of solar PV if you don't have the money available in savings - you will lose money this way.

You may consider borrowing on your mortgage. Whether this is a good idea is highly dependent on your mortgage rate and your ability to make increased payments.

You could use a loan to finance the purchase and some installers will make this suggestion. Generally this doesn't sound like a good idea. It's hard to make a good return that way. The government have discussed introducing subsidised loans to make solar PV more affordable to a broader community, if this happens it may be worth considering.

There's nothing much to go wrong in a photovoltaic solar panel. For the Sharp NU-235 panels we mentioned earlier there's a 5 year product guarantee and individual panels can be replaced if needed. The panels do lose some efficiency over time, the Sharp panels have an 10 year 90% efficiency guarantee and a 25 year 80% guarantee. There seems to be a good chance that the panels will carry on generating at a lower efficiency beyond that, but who knows what electricity generation state of the art will look like in 25 years!

The inverter is not so reliable. You should factor in the cost of replacing the inverter every 10-15 years.

Well, um, they convert sunlight to electricity don't they? I think we'll hand you over to the experts on this one. Sharp have an excellent guide to how photovoltaic solar panels work. But you really don't need to understand how they work to decide whether to go for a solar pv electricity generation solution.

A domestic solar PV solution consists of a number of photovoltaic panels (in the region of 4-18) that generate electricity, and an inverter which converts the generated DC to AC for connection to the mains. The system is connected to the main distribution system in your house.

Solar panels may continue to get more efficient and cheaper. The FiT payments are designed with this in mind. After April 2010 the payments will be reduced by 8.5% each year so although the cost of an equivalent system may become less, the actual payouts will be reduced. too

You need to decide whether you're comfortable being in this position as an early adopter.

Inverters have been in short supply. Make sure your supplier is able to source one.

Some people think solar panels should be cleaned once or twice a year. Others think that rain does the job just fine. We'll let you know how we get on with ours.

There used to be government grants around for installing solar PV. These have been replaced by the FiT payments. Worth checking in your local are though, just in case.

If you are concerned with the environmental impact of your solution you should consider how and where the panels and inverter are manufactured.

Make sure your solar panels are covered by buildings insurance.

We had to gather a lot of information when evaluating the purchase of a solar PV solution. Our intent in providing this guide is that others can benefit from this experience. We hope we've helped you with your decision, whatever you decide.

Now we just need some sun:


Solaire Art Print
Haase, Andrea
Buy at AllPosters.com

We got home after going out on a Thursday evening to find that the scaffolding equipment and our solar panels had been delivered on time. The team were due to return in the morning to do the installation.

The were the Sharp NU-235-E1 make and model that we were expecting. It was actually quite exciting to see the panels there.

The electrician and his assistant turned up as expected on Friday morning. We were impressed by their professionalism and knowledge of the industry. They made quick progress in getting the panels onto the roof (they gave permission for us to post their photo).

Unfortunately, it started raining mid-afternoon, torrential rain. They carried on but it inevitably slowed them down a little. The panels were quite a tight fit and our roof is in two sections. They said it was one of the trickier installations they had done. They still had all 16 panels installed by the end of the day. And the electrics in the loft fitted. It wasn't wired in yet though. So near and yet so far! We had to wait until Monday for them to come back and complete the job. (We had been told it would take two days.)

On the Monday morning, the guys turned up as expected. Finished up the wiring and ducting. And by just after lunch we were generating electricity. We even had a bit of sun!

We've had some dreadful August weather since then! But the system has been performing as we'd expect.

We've adapted to make sure we run our appliances using free electricity during sunlight hours. "Quick the sun's out, put the washing on."

This is where we'll provide actual figures of the output of our solar PV system.

We've received our first quarterly statement. The process was very straightforward with the money paid directly into our bank account.

The payment was higher than expected (taking into account the amount we would expect to make in this quarter based on solar radiation figures for those months). This quarter included the end of the summer. The current quarter is winter where we'll only make a small proportion of the annual total, but the figures are on target.

More details soon.