Solar PV a great investment for homes

by Solar Selections on November 1, 2011

With the UK’s current Solar Feed-in Tariff (FiT), solar photovoltaics (solar PV) is one of the most worthwhile investments a homeowner can make, According to an article in the Sunday Times. In addition to the concrete financial returns that can be expected under the FiT, there is also evidence that solar panels increase the value of a home.

Return on Investment for Solar Power Systems in the UK: a sunny outlook?

The Sunday Times article predicts payback periods as short as 7 years for solar systems installed in the UK under the current Solar Feed-in Tariff rates. Unfortunately, it was published just prior to the Governments announcement about its plans to slash the standing Solar Feed-in Tariffs by half, and may not be accurate for much longer. Home, business, and farm owners interested in taking advantage of the generous rates currently on offer will have until 8 December 2011 to have their systems installed and paperwork filed. Once the reductions come into effect, the optimistic assessment of the financial attractiveness of a solar system as calculated in the Sunday Times article will be obsolete for those who have not already signed up by the deadline.

With the price of solar power coming down throughout the EU and in the UK, solar is indeed likely to remain a financially wise investment well into the future. But even so, with the current FiT rates as generous as they are, for anyone considering going solar in the near future, the incentive scheme is a deal not to be missed.

The figures: Investing in Solar in the UK

Solar power systems are one of the top 5 investments for earning 10% returns on savings, according to the article. Returns on a system are a combination of avoided electricity costs when power is used directly from the solar generator, and payments for electricity fed into the grid. Income earned from the FiT is tax-free, and the figures mentioned in the Times article seem to be applicable especially to those in higher tax brackets who would otherwise be taxed on investment returns. Going solar can yield as much as a 12.9% return on investment (ROI) over the lifetime of a £14,000 system (depending on its capacity) for a 50% tax payer, and a 10.3% ROI for a 40% tax payer–equating to 18.2% and 15.6% respectively in real terms, as FiT payments are linked to RPI (currently at 5.3%). Returns will also be generous for smaller-scale systems, for which the FiT rates are higher.

(Contact Solar Selections or fill out the Solar Quote Comparison form to the right to get an impartial look at solar system prices and solar installers in your area of the UK.)

This means that, depending on how much you can invest in one, a system will ‘pay for itself’ in as soon as seven years’s time. Under the proposed changes to the Feed-in Tariff, this payback period would effectively double if a concentrated effort to reduce home electricity consumption is not made by the household–a consideration that is expected to be factored into the new FiT rates.

Will a solar system increase the value of my home?

The other way in which installing a solar system can potentially benefit homeowners is by adding value to the property itself. Although it is hard to point to solid figures due to the broad-scale uptake of solar power being a relatively new phenomenon in the UK, there are a number of reasons that back the claim up, and property values have been seen to rise for homes in countries that have a longer history of solar installations.

The main reason that home values may increase is that solar systems offer real financial returns, as outlined above. Unlike something like a pool, whose value may differ depending on the buyer’s preferences, a solar system’s financial credentials are unquestionable and quantifiable. And in the UK, the Government has indicated that the Feed-in Tariff will change hands when the home and its associated system are sold. Just how much a solar system will increase the value of a home is up in the air and will eventually fall to the market to decide, but it’s safe to assume that, with the FiT guaranteed for 20 years, it will have a positive effect on evaluation as opposed to a neutral or negative one.

Some of the most concrete information about solar power and home value can be found in the US market. The American ‘solar power services’ firm SunRun has compiled a list of resources that point to the ways in which solar power installations have contributed to a rise in home value in homes in California and other US states. The company has also published a comprehensive and well-referenced report (pdf) that outlines some of the stats and trends that can be observed in the American real estate market. According to the report, homes with solar sell faster and have higher property value due to their ability to deliver lower electricity bills. To back up the claim that this is not a phenomenon restricted to California, the EU Energy Agency has also suggested that solar panels, as a low- or zero-maintenance energy generation plant, can only add to the value of a home, going as far as to say that the value of a solar system should be taken into consideration in determining the size and terms for home mortgages.

Written by James Martin

Analyst for Solar Selections

© 2011 Solar Selections Pty Ltd

Resources and links:

The Sunday Times

UK Government’s proposed changes to the Solar Feed-in Tariff scheme

Solar Industry Mag: “Solar Power has highest return on investment among renewable energy sources

SunRun: Advantages of Solar: Increased Home Value

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