Solar Payback and Return on Investment

by Tom Charlesworth on November 27, 2012

Wondering what the solar payback and returns look like for solar panels on your home? Many now believe that the government’s incentives have been removed for solar panel installations in the UK, making the solar energy payback period longer than desired. In reality, the incentives still stand and actually solar power is a more viable investment option than ever, with excellent paybacks and returns. This article will explain what the incentives are and what paybacks and returns can be expected from a solar panel system on your home.

Government Incentives – Feed in Tariffs

There is currently a generous incentive scheme in place for any solar panel installations in the UK. These incentives are commonly known as the feed in tariffs.

Generation Tariff

The Feed in Tariff is a combination of two incentives, the Generation Tariff and the Export Tariff. At the time of writing, the Generation Tariff is the majority of the incentive and 4kWp systems & below currently receive 15.44p/kWh, this is the key reason for the excellent solar energy payback period. This tariff is simply a reward for generating renewable power, regardless of how the produced energy is utilised. A production meter will be required to measure the exact output of your system, so that the system owner can be rewarded accordingly. This rate changes depending upon the total capacity of an installation.

Export Tariff

The Export Tariff is simply a way of rewarding the producer for any generated power that is surplus to requirements. Unlike the Generation tariff, the Export Tariff rate is the same regardless of the system’s capacity at 4.5p/kWh. For domestic systems, exports are not measured and a deemed 50% export is rewarded to the system owner.

Energy Bill Offset

It is worth noting that a third and final incentive exists in the form of energy bill offsets. The value for a unit of solar energy produced and used on site can be measured by simply comparing the value of that unit to the rate charged by the energy retailer. Typically across the UK a unit of electricity is approximately £0.14 per kWh (this will vary due to a number of factors). Therefore, it becomes favorable for a generator to utilise all power onsite as opposed to exporting any power (£0.14 vs £0.03).

Costs of Solar Panel Systems

Solar Selections specialise in providing clients with highly competitive solar quote comparisons from local installers, so please contact us. Currently 4kWp solar panel systems can be installed for an amazing £5,500 inc VAT. This is also a key reason for the improved solar energy payback period. 4kWp systems were approx. £14,000 inc VAT 12 months ago.

Solar Payback Calculator

This Solar Energy Calculator is for example purposes only and uses a number of assumptions (listed at the end of this article) to come up with the solar energy payback period. Please click the image below to see the solar payback calculator in more detail. The size of array utilised is a 4kWp system costing £5,500 inc VAT.

Results:

Solar Energy Payback Period: 5 -6 years
Average Return on Investment: 22% per annum
Tax Free Cumulative Project after 20 Years: £18,750
Average Tax Free Benefit per Annum: £1,213

Click the table below to enlarge.

Conclusion

A Solar Payback of 5 – 6 years was not possible back when the highest Feed Tariff was available, £0.43/kWh. The reason why solar payback is has improved so drastically in such a short time is the dramatic reduction in installation costs.

For more information or to get your own solar panel quotes, please contact Solar Selections today. Our service is 100% free to our customers and impartial, so you have nothing to lose.

Assumptions for Solar Payback Calculator

- Solar Yield: 2.35kWh/kWp
- Energy price: £0.14/kWh
- No Solar panel degradation.
- 50% of power to be exported.
- Cost of system: £5,500 inc VAT.
- Installed at the 15.44p/kWh Feed in Tariff.

Written by Tom Charlesworth

sales@solarselections.co.uk

020 7205 2267

© 2012 Solar Selections Ltd

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