Economics

There are many good reasons to go solar today, but the economics of solar still matter to many people who want to be sure they can recover their initial outlay. Value for money matters, but we advise anyone investing in solar to stick with MCS standards for their installation. It is a false economy to do otherwise. Which? research shows 93% of people with solar are satisfied with the performance of their system and you will be too if you use reputable installers.

The good news is that the costs of solar have tumbled and solar is much more affordable than it was when the Feed-In Tariff scheme was running. You can buy a good quality, straight-forward 4kW(p) system for around £5,000 today. More complex, or high-spec schemes will cost more. Collective purchase schemes run by iChoosr with local councils can cut the cost of going solar. If your council is not running a collective purchase scheme why not write to your council leader and ask them to do so? Many councils are keen to encourage local solar power, with over 85% investing in solar panels themselves.

We calculate that a typical 4kW system will generate power at 9p/kWh inflation free over its warrantied 25 year life. (Our calculation includes system degradation, NPV discounting, maintenance and a replacement inverter). Solar panels can last a lot longer than 25 years because they have no moving parts. Buying power from the grid today costs around 15p/kWh therefore the more you can use the power you generate yourself, the more money you can save. Going solar enables you to anchor your energy prices so you can have more confidence that there will be fewer nasty surprises in your energy bills. After all, who knows what energy prices will be in future?

 

How long will it take for my solar PV system to earn back its initial cost?

Each solar installation is unique and so too is the period it will take to earn back your initial outlay. It depends on a wide range of factors such as; where in the country you live, the orientation of your roof, the cost of your installation, whether you can finance the project upfront or require a loan and what you think future energy price inflation might be. However, the biggest factor influencing how quickly you can recover the cost of your installation is your behaviour in your home and how much of your own self-generated solar power you use. This is why Loughborough University has developed categories of solar user by behavioural archetype, based on analysis of thousands of solar homes.

Our own earn-back model includes all of the above factors, as well as system deterioration, maintenance, a discount rate and inverter replacement. Our analysis shows solar still pays back in around ten years for the ‘Home All Day’ behavioural category under optimal conditions i.e. a south-facing roof, future grid electricity price inflation of 4% (as per the last 10 years) and a fair market payment for power exported to the grid of 5.5p/kWh. Even without a fair payment for the Smart Export Guarantee, the payback under this optimal scenario is 11 years, because relatively little power is exported to the grid.

So if you are retired, have a young family at home, or if you work from home and would therefore be using a lot of your own solar power, solar can still be a solid investment for your pocket, as well as a great investment for the planet.

We’ve seen some bizarre claims out there in the media about the earn-back periods for solar after the end of the Feed-In Tariff which we will be addressing over coming months.

 

What about if I install battery storage?

It can be hard to work out the economics of installing solar alongside battery storage because there is such a wide range of further factors to consider. We will offer more resources on this in future, so watch this space. Broadly speaking, if you are out all day and have a large solar PV system then battery storage can make economic sense today.

Smart meters already provide half-hourly import metering, enabling you to make use of Time of Use Tariffs, such as Economy 7. So if you have battery storage and a smart meter, not only will you be able to save more of your solar power to use at home, you will also be able to buy power from the network when it is cheapest, giving you greater control over your energy bills. New aps and display technologies can empower you to engage with the electricity system and opportunities to save money.

However, there is more value to come in the exciting future of smart energy. Investing in battery storage means you can also control when you put power on the grid and this will put you in good stead to earn more money from the electricity system in the next few years. That is because under the smart energy agenda, the Government and the regulator Ofgem are changing the rules so small households in the electricity system can engage in real time with the electricity market, including new local markets for flexibility services, which are needed to better balance loads on the grid, particularly given the growth in electric vehicles​. Half-hourly export metering should become the norm by 2022/23, but in theory you can opt in to HH export metering today. Similarly, local electricity networks are moving to open up markets for local flexibility services, to enable them to manage loads on their system much more efficiently. This is likely to lead to many suppliers and new aggregators competing to buy your local power to put on the system when the system really needs it. Power at these peak periods has much higher value so you may be well rewarded for helping to support the power system in future. The STA is campaigning with other organisations to accelerate this shift to a smart energy system which will better enable the true economic value of solar and storage to be realised.