Solar Panel Return on Investment.
When calculating the total potential savings and income offered by PV panels, it is necessary to consider a wide range of factors, including:
- PV system size, lifespan and efficiency
- geographical location of your property
- roof orientation
- roof inclination
- the amount of shade over your roof
- your property's FiT eligibility based on its Energy Performance Certificate (EPC) rating
The three main income sources associated with solar panel installations are:
- FiT generation tariff
- FiT export tariff
- Energy bill savings (around 40% per annum, although this figure can be much higher)
The table below gives you a rough idea of the potential savings and return on initial investment offered by solar panels.
|Roof size*||Approx. system size||Average system cost||Approx. yearly system output||Estimated first year FiT income bill savings**||Average break-even point||Income over 25 years***|
|8m²||1kWp||£2000-£3000||900 kWh||£228||10 years, 10 months||£5700|
|15m²||2kWp||£3000-£6000||1,800 kWh||£453||9 years, 11 months||£11325|
|21m²||3kWp||£5000-£7000||2,700 kWh||£680||8 years, 9 months||£17000|
|28m²||4kWp||£6000-£8000||3,600 kWh||£907||7 years, 8 months||£22675|
*System output calculated for a rural, inland property in Southwest England. System output for an inland urban property would be 5%-10% lower.
** We have assumed a 50% export rate and 15p as the average unit price of electricity. These figures are based on the 15.44p/kWh FIT generation tariff and 4.64p/kWh export tariff for systems up to and including 4kWp.
***Figures shown exclude inflation.
The government energy regulator Ofgem estimates that the average UK household consumes 3,300kWh of electricity per annum, which leads to an average bill of £424.
Depending on your energy consumption, a 4kWp PV system producing an estimated 3,600 kWh per annum could therefore in theory produce all of your annual energy needs. However, for an average household, it is unlikely that PV panels will produce all of the required energy; the exact proportion of the household’s energy use produced by solar panels is contingent upon energy consumption habits.
It is possible to use the excess electricity generated by your PV system to heat water and heat your property during the day, although once again the viability of this option depends on your energy consumption and efficiency. It is also possible to charge appliances that you use at night (laptops etc) during the day, at times when your PV system is generating the most energy.
Another way of storing electricity generated by solar PV systems is to use lead acid batteries. This option, although more popular with off-grid properties, is rare for grid-tied systems. What’s more, in economic and environmental terms it makes little sense: the batteries are very expensive and require the use of hazardous materials, thus making them difficult to dispose of.
Here is another example for the potential saving and return on investment for solar panels:
- a household installs a 3kWp photovoltaic system costing £6,500, which would generate approximately 2,700kWh of energy annually
- The annual FIT generation tariff would total £417
- Assuming you use 50% of the energy you produce and export the other 50%, the annual FiT export tariff income would total £63 (1350kWh x 4.64p)
- The electricity bill saving would total £202 (energy used in home - 1350kWh x 15p - this is the electricity that does not need to be bought from a utility company)
- The annual FiT income and electricity bill savings would therefore total £682
- The breakeven point for the initial capital outlay would come after a period of approximately 9 years, 6 months
- The income over 25 years would be £17050 (£682 p/a x 25)*
*These calculations do not take into account inflation (though the FiT payments are index-linked).
It is therefore clear that quite apart from being a clean and sustainable resource, photovoltaic panels also present a sound investment which offers a strong return on the initial outlay, as well as high savings on energy bills.
 Ofgem Domestic energy consumption factsheet, January 2011, [accessed 13 November 2012] http://www.ofgem.gov.uk/Media/FactSheets/Documents1/domestic energy consump fig FS.pdf