Independent expert Harvey Jones explains the pros and cons of household solar panels
“Many homes in my area have put up solar panels in recent months. I am keen to reduce my carbon footprint and save money. Are solar panels really worth it?”
With household energy bills going through the roof, the idea of generating your own electricity from the sun is enough to give you a warm glow – especially since you can make money at the same time by claiming a special government tariff. But don’t be dazzled by the hype surrounding solar power. The sums don’t add up for everyone.
In April 2010, the government introduced new subsidies to encourage people to install solar photovoltaic panels to their homes, known as feed-in tariffs (FiTs). Under the scheme, the government agreed to pay a set price for the green electricity you generate, regardless of how much energy you use.
Initially, it agreed to pay a generous 43.3p for every kilowatt hour (kWh) of energy generated. Better still, this was tax-free and index-linked for 25 years. That means somebody with average electricity usage installing a 2.5kW solar PV panel could earn up to £850 a year, and would also save around £150 on their electricity bill. That added up to an average return of around £1,000 a year, tax-free – or £25,000 over the 25-year term of the tariff.
That explains why you have seen a rash of solar panels popping up on local homes. Up to 100,000 households across the country rushed to go green and claim those valuable feed-in tariffs. Then solar lost some of its shine.
First, a host of cowboys, rogue traders and dodgy salesmen leapt on the solar bandwagon. There were reports of some fitters charging £15,000 or more to install solar panels that barely produced enough energy to make a cup of tea. Then, last December, the government halved the feed-in tariff to jut 21p per kWh, saying it had been surprised by the speed of take-up of solar panels.
It also claimed that installation costs had fallen, giving homeowners bigger than expected profits. Many were getting returns of 10 per cent a year on their initial outlay, rather than the anticipated five per cent to eight per cent. Now the government has cut the tariff again.
If you bought your system after 1 August 2012, you get just 16p per kWh. And the lifetime of the scheme will be reduced from 25 years to just 20 years. This should still give you a return of six per cent a year, according to the Department of Energy and Climate Change. But it could take 20 years to recoup your initial outlay, rather than the initial 10 years.
You can still make money from installing solar panels, if you’re patient. But before pressing ahead, ask yourself the following questions.
To catch the most sun, you need a south or south-west facing roof, preferably no steeper than 30 degrees, that isn’t in the shade. You also need plenty of roof space. Your roof tiles need to be in good condition, because the solar panels could be there for the next 25 years. As few as one in four properties may be suitable.
If you have a sloping roof, probably not. But you may need permission if you have a flat roof. If in doubt, contact your local authority’s planning department. You should also check your mortgage lender is happy for you to install panels.
Installation costs anything from £4,000 to £12,000, depending on the fitter and size of your roof. How long it takes to recoup that depends on how many panels you install, which feed-in tariff you qualify for, how much electricity your panels generate and what happens to energy costs in future. You can do the sums for your own property using the Energy Saving Trust’s online solar energy calculator.
Some homeowners have been tempted by companies offering to fit solar panels to their house for free. The installation company claims the feed-in tariffs, while the homeowner gets free electricity while the panels are generating power during the day. But as you might expect, there is a catch. In return, the solar panel companies get a long lease, effectively giving them ownership over your roof for up to 25 years.
If you want to get the panels removed later, you may have to pay a buy-out fee equivalent to the cost of installing them in the first place. It may also be a big problem if you try to sell your house, because potential buyers may find it difficult to get a mortgage, as some banks and building societies are reluctant to lend on these properties. Think very carefully before signing up to such a scheme.
Solar installers often claim panels will boost the value of your home, but they could just as easily put buyers off. Installing panels isn’t worth doing if you expect to move home shortly, because you won’t have time to recoup your initial costs.
Ask how long the solar panel company has been in the business, and ask to speak to some previous customers. Don’t succumb to high-pressure sales tactics, get three written quotations, and compare the quotes carefully. Look for a 10-year insurance-backed warranty. Finally, make sure your chosen installer is accredited under the Microgeneration Certification Scheme. Otherwise you won’t qualify for that subsidy.
If you are still keen to install solar panels, the sooner you do it the better. Tariffs look set to fall by 3.5 per cent every three months, but they could fall even faster if uptake exceeds expectations.
If all you care about is making money, there is likely to be a faster way to do it than installing solar panels. But if you care about your carbon footprint, it could still be a shining investment.
- If you have a general financial query or dilemma unrelated to a specific financial services provider, email Harvey at firstname.lastname@example.org.
- Harvey regrets that he cannot answer your questions individually. These are his personal views and not those of Virgin Money. Nothing in the article constitutes legal, financial or other professional advice.
- If you have a specific financial concern, you should always seek your own professional financial advice.
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