In recent years, there have been significant shifts in the solar energy economy. When the feed-in tariff was closed to new applicants in 2019, photovoltaic systems are no longer subsidized. Later that year, solar tax rates also got a shake-up, which means not all installations are entitled to 5% VAT. So, are solar panels worth it today?
Purely financially speaking the answer is a resounding yes. Of course, in addition to the economic, there are many other environmental benefits to be gained by installing solar, install private battery storage, driving an electric vehicle etc. Not least because they all contribute directly or indirectly to tackling air pollution and the climate crisis.
Back to the economy. The solar subsidy may be completed, however the cost of the technology has fallen by more than 50% over the last decade. Overall the cost of domestic solar energy is now around 8p per. kWh. This is well below the average domestic import cost of 16p from the grid (which, by the way, increased by an average of 4.75% each year over the last decade …).
The economy with sun in 2021
A typical 4 kWp solar system (10-13 panels) now costs around £ 5,000 incl. 5% VAT. There will be some maintenance costs over the lifetime (a recommended cleaning and service every 3-5 years), and a probable replacement of inverter required, total cost around £ 2,050 in daily money. So true the total cost of the system is around £ 7,050.
On average, a system will generates about 3,500 kWh per year, which allows for a modest degradation over time. In its 25-year lifespan, it is expected to generate approx. 88,000 kWh el.
The non-subsidized cost of solar
Ignoring export tariff payments for now, this means that each kWh generated costs 8p:
|kWh from 4kWp system over 25 years:||88,000|
|System costs including 5% VAT:||£ 5,000|
|Lifetime maintenance costs (present value):||£ 2,050|
|Total system costs:||£ 7,050|
|Costs per KWh:||8p|
To get the maximum benefit from electricity, which only costs 8p per. KWh, of course, use as much of it as possible on site and displace imported electricity that can cost as much as 18p per kWh. KWh (on a tariff for useful life) or 20p per. kWh at a typical Economy 7 tariff. These usage time rates then allow you to buy cheap electricity at night (at 8p per KWh, say).
If you do not use solar energy (or store it), it will not be worth that much to you – it will only be worth it. export tariffabout 5.5 p / kWh.
So with a tariff for usage time you will win around 10p per. KWh by moving expensive power hours in the daytime and losing about 2.5p per. KWh on everything you export. Without battery, as long as you spend at least 50% on the site, you will be ‘quids in’.
The lifetime cost of the electricity grid
It is one thing to compare the lifetime cost of solar energy with today’s import tariffs, but perhaps it would be fairer to compare it to the cost of electricity in the same period of 25 years. Over the last decade, electricity prices have risen by an average of 4.75% each year. Assuming this rate continues, it is the expected average lifetime costs for the electricity grid is 30p / kWh.
Solar plus household battery storage
With a battery and a usage time tariff, you can easily spend 70-80% on site and open up the potential to fill your battery (and your car) with cheap electricity overnight, while completely avoiding the high daytime tax inherent in a usage time tariff.
The stored electricity will cost you a little more than 8p per. KWh (more than 20p per KWh all-in) due to the cost of storage, but you minimize exports, and still benefit from the cheap overnight rate at the time of Use rate to charge your car and recharge your battery, and with Powerwall 2 for example, you have the added bonus that your lights will still be on in a power outage.
Conclusion: solar energy is still a very good investment!
As long as you use at least 50% of your electricity on site, with solid choice of import tariff, solar will make sense. The more you spend on the site, the greater the savings. Using everything on site gives a price well below the average home electricity rate 16p pr. kWh and even longer below the expected life of 30p per. kWh.
What’s more, the cost of electricity is rising. In absolute numbers, it creeps up by about 4.75% every year …
On the basis of financial return is internal return rate (IRR%) from an investment in a solar system is typically 9% over life, not taxable and linked to inflation. How many other investments give 9%, depending only on the fact that the sun continues to shine?