The government has recently cut the payments they make to those that install solar panels and a frequently asked question is whether they are still worthwhile from a purely financial point of view.

This does not mean that you would not need to buy any electricity. There will be times when the generation by the panels exceeds the consumption at that moment, and the surplus will be exported to the grid. At other times (such as late evening), consumption will exceed generation and electricity must be taken in from the grid and paid for.

The main payment from the Government is confusingly called a feed-in tariff, but is paid for all the electricity produced by the panels regardless of whether it is used by you or exported to the grid. There is an extra payment that, again confusingly, is said to be for exports. However, unless you chose to have a separate export meter, the Government assumes or ‘deems’  50% of the output of such small systems to have been exported and pays accordingly regardless of how much, if any, of the generated energy is exported. The third element of the financial benefit is that every kilowatt hour of electricity that you use from the panels is a kilowatt hour you do not need to buy-in from the grid.

How much of the generated electricity is used by the owner depends very much on lifestyle. If someone is at home all day cooking washing and cleaning, such as with a young family, the percentage used could be high. If everyone in the house is out all day at work and only consuming electricity early morning and late evening, the percentage used could be low. For illustration, the government deemed figure of 50% exports and average variable cost of domestic electricity for the area will be used.

Stacking up the benefits for such a 4 kW local system on a good site using the latest prices:-

4400 kWh @ 4.39 p/kWh feed-in tariff       £193.16

2200 kWh @ 4.85 p/kWh deemed exports   £106.70

2200 kWh @ 13.6 p/kWh displaced imports £299.20

Total, just shy of £600 per year.  If you have a straight forward site with good modern tiles with easy access for scaffolding and shop around you may be able to get such a system installed for £4000.

To get the feed-in rates at the indicated rates you need an energy performance certificate (EPC) for the premises at grade D or higher. If you obtain one of these yourself this may cost you £50 provided there is no work needed to be done. Even if you do need work doing, this may well pay for itself in reduced future energy bills.  Your installer may well be able to organise an EPC for you but will charge for this.

The feed-in tariff is guaranteed to be indexed to inflation and electricity prices have historically risen at higher than that. At an assumed inflation rate of 1.5%, This means such a system will pay back the investment in 6½ years and still have feed-in tariff and export payment income for another 13½ years and will continue displacing bought-in electricity for much longer.

The example illustrated is for a good site and there are various things that could prolong the payback period, but it does show that the government cuts have not completely destroyed the incentive to install a domestic solar panel system.

Nick Rouse