Join our community of smart investors

Could solar be a cost saver?

Solar panels can be cost effective if you remain in your home for decades
Could solar be a cost saver?
  • Solar panels can be a cost-effective option if you use them for 10 years or more
  • Heat pumps are less likely to have financial benefits but also reduce your carbon footprint
  • Insulating your home is a good way to cut energy use and costs

The energy price cap was hiked by 54 per cent on 1 April, meaning that the average household will now have electricity and gas bills amounting to £1,971 per year. Or to put it another way, you now pay 28.34p per kilowatt-hour (kWh) for electricity, a 36 per cent rise on the previous cap, and 7.37p per kWh for gas, up 81 per cent from the previous cap.  

Experts have warned that the price cap might go up more in October as Russia’s invasion of Ukraine has increased fears of supply shortages, even though the UK only imports 5 per cent of its gas from Russia. While the government has issued rebates to alleviate fuel poverty, everyone’s finances are being squeezed. 

But rising energy prices mean that the cost of installing solar panels is not as expensive relative to conventional energy as it was, and if you sell excess energy generated back to the grid you get marginally higher prices. “When the energy prices started filtering through at the end of last year, we all really started noticing increased demand,” says Kevin Holland, founder of The Solar Shed, which had to temporarily suspend new business enquiries to keep up with demand.

He says that the media coverage of the UN Climate Change Conference in Glasgow last autumn led to a pick up in demand, and since Russia’s war with Ukraine “the transition is swifter than ever I have known in 14 years in this industry.” 

Installing energy efficient materials in homes such as solar panels, heat pumps and insulation has been made more attractive by the government slashing the 5 per cent value added tax (VAT) on these products from 5 per cent to zero in the spring statement last month. Brian Horne, senior insight and analytics consultant at Energy Savings Trust, adds that some components which were previously charged at 20 per cent are now being taxed at 0 per cent. However, it’s not clear the extent to which this might be offset by rises in materials and installation costs. 


Shrewd financial move?

Currently, around a million homes are fitted with solar panels in the UK. But while demand has picked up recently, the numbers of homes installing solar panels fell dramatically when the government stopped subsidising them. It takes around 10 years for for solar panels to cover their costs, but if you are a long-term homeowner and concerned about environmental issues they are an option. 

Solar panels convert sunlight into electricity. Most residential properties with solar panels cannot solely rely on these for electricity because they only generate it during daylight hours and are much less powerful when it's cloudy.

“You will not produce enough electricity from solar panels alone in the winter months,” says Holland. But solar panels can greatly reduce your dependence on the grid and, if you have a surplus of electricity, you can sell it back to the grid, albeit for a reduced price. So it might be more cost effective to install batteries and time your electricity usage. For example, you could charge an electric car and use your washing machine at times when the panels produce high levels of electricity. 

The cost of installing the panels depends on the size of your house and how efficient the panels you install are. Kevin McCann, policy manager at Solar Energy UK, a non-profit solar trade association, says that the average residential property system might produce around 3,000 kWh per year, and cost roughly £4,000 to £5,000 to install. This could cut your electricity bill by around £400 per year over the life of the system, under current electricity prices and usage.

And your electricity usage is likely to increase in the coming years as transport and heating systems become electric. So efforts to reduce grid dependency will become more important and cost effective. 

Studies also suggest that solar panels increase the value of a house. Solar Energy UK analysed over 5m property sales and found that installing solar photovoltaics on a typical home could add £1,891 to £2,722 to its value. This suggests that the price of a home could be increased by up to half the cost of installing a photovoltaic system. 

However, Horne argues that installing solar panels is likely to increase the value of your property “by a small amount but not enough to justify the investment on its own”. Installing solar panels may also devalue some houses because their appearance becomes less attractive. 

And the potential financial gain from the VAT cut on installing solar energy may be broadly cancelled out by the rising cost of input prices because the prices of materials to make the panels and installing them have gone up. 


Installing panels

If you decide to install solar panels get it done by an installer who is certified by MCS, a standards organisation which certifies low-carbon products and installations used to produce electricity and heat from renewable sources. Also shop around for the best quote and ensure that they are based on the same size and efficiency of panels. 

“Solar panels will last for decades if they are well maintained and not subject to water ingress,” says Ian Rippin, chief executive of MCS. “Manufacturer warranties typically last for 25 years but installation is covered by an insurance backed warranty, which usually lasts for two years.” He adds that if there are installation problems it typically becomes apparent within the first two years of operation. 

It normally takes four to six hours to install solar panels, although it can take as long as two days for large houses. 


Adding batteries

It might also be worth installing a battery with the solar panels. “Last year we said putting a battery on with a solar panel will not pay for itself, but we might be at a tipping point,” says Horne, as the price of batteries has come down and the price of electricity has gone up. Holland says that 80 per cent of all new enquiries he receives are from households which install batteries. Batteries can store energy generated so you can use it later in the day or overnight. You do not pay VAT on batteries if you install them with solar panels, but pay 20 per cent VAT if you install them later, says Holland.

McCann says that a nominal battery cost is around £720/kWh, so you might pay around £2,880 for a 4kWh battery. He adds that the average energy consumption of a UK household with three or four bedrooms is around 10kWh per day, but this is higher in winter and lower in summer. 

“Bigger batteries are becoming more commonplace due to the smart charging features that allow people to purchase energy at cheap rates overnight and discharge that energy during the day in conjunction with solar energy,” explains Holland. “This is a great feature in winter when energy use is higher and solar gain is lower.” 

If you live in a listed building, you need to get planning permission to add solar panels but this is likely to be approved. 


Heat pumps

Although heat pumps have had a lot of bad press, Horne says that they are very effective if installed correctly. While the vast majority of boilers run on gas, heat pumps are powered by electricity so can be run via renewable sources to lower your carbon footprint. 

However, at the moment, installing one is unlikely to be financially beneficial. “We need to get heat pumps rolled out but haven't got the government support yet to make it happen,” says Horne.

However, the new Boiler Upgrade Scheme launched in April this year via which you can get a one-off grant of £5,000 towards an air source heat pump or, in some circumstances, biomass installation and £6,000 towards a ground source heat pump.

The Energy Savings Trust estimates that a typical air source heat pump costs around £6,000 to £8,000 to install, and a ground source heat pump costs £10,000 to £18,000 to install, depending on the amount of heat required. A new gas boiler costs around £900 to £1,200 for a mid range model and is cheaper to run, given current gas and electricity prices, unless your heat pump is powered by solar.

Get the heat pump put in by a good installer who ensures that it is the right fit for your house. It might be worth getting a more expensive, higher-quality pump which is more efficient than a cheaper model. It might also be worth paying a bit more for a higher-quality pump which is more efficient than cheaper models.


General efficiencies

Insulating your house well reduces the amount of heating you need to use. Draft proofing can cost around £200 for windows and doors, £1,000 for walls and significantly more for solid walls. 

“Loft insulation is the most common measure for strengthening energy efficiency and is more affordable, too, costing around £25 per square metre,” adds Rippin.

Behavioural changes also make a difference. Turning off lights when you do not need them, not having the heating on when you are out or don't need it and only using the washing machine when you have a full load all add up.

Horne says that being savvy with your heating controls could also save you around £200 a year. For example, turning the thermostat down by one degree “could save £100 a year and you might not notice the difference”.