Are solar panels worth it? How solar panels pay back

Are solar panels worth it? We examine the costs, payback period, and grants available when you install solar panels, as well as the benefits they bring.

By Katharine Allison

October 19, 2023
Are solar panels worth it? Solar panels installed on the roof of a house with the sun shining in the background

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With energy bills for residential properties typically coming in at £2,500 per annum between October 2022 and April 2024, and with the introduction of grants for renewable technology, more households in the UK are opting to power their homes with solar energy. But are solar panels worth it?

In this article, we answer this hot-topic question by highlighting the costs, payback period, and grants available for installing a solar system, plus the benefits to homeowners.

What are solar panels?

Solar panels are designed to convert sunlight into electricity to run your home. 

Energy from the sun heats the silicon cells inside the panels, which are set in a frame. Once warm, electrons within the silicon start to move and this produces direct current (DC) electricity. The electricity is converted to alternating current (AC) by the inverter before it meets your home’s electrical system and powers your appliances.   

How much do solar panels cost?

Solar panels have seen an 82% price reduction over the last decade. Coupled with the availability of grants from the UK Government, there has never been a better time to invest in this technology. According to the Energy Saving Trust, a typical household solar system costs  around £6,000. Here is a breakdown of the costs involved:

Several factors, such as the brand of solar panels, the size of the system, the complexity of accessing your roof, etc., will influence the final price tag. Let’s get an idea of the price ranges of different-sized systems.

Size of systemAnnual power outputApproximate cost

3 kW

2,700 kWh

£5,000–£6,000

4 kW

3,600 kWh

£6,000–£8,000

5 kW

4,320 kWh

£7,000–£9,000

6 kW

5,400 kWh

£8,000–£10,000

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How much are the savings on energy bills?

Solar panels for your home will generate savings by reducing the amount of electricity you consume from the National Grid. You can even earn money by exporting excess electricity produced by your solar panels to the grid. The Smart Export Guarantee (SEG) programme currently pays a rate between 1.5p and 15p per kWh you export. This rate is set by electricity suppliers and varies depending on the company. 

Below is a list of some electricity suppliers and their SEG rates as of August 2022. However, suppliers can change their rates anytime, so contact your supplier and confirm the rates and conditions before committing.

ProviderSEG rate (per kWh)

Social Energy

6.0p

Tesla Energy Plan 1

10.0p–12.0p

Bulb Energy

5.57p

Octopus Energy

7.5p

E.ON Energy

5.5p

OVO Energy

4.0p

ScottishPower

5.5p

British Gas

3.2p

Utility Warehouse

2.0p

EDF Energy

1.5p

The savings you earn depend on many factors such as your usage, location, shading effect, the direction the system is facing and the size of your system. Another major contributor to your savings is whether you use the SEG scheme and who your provider is. From our research, you can achieve the highest savings from south-facing systems located in a sunny area with little to no shading, where residents are home all day. In optimum conditions, it’s possible to save over £1,000 annually.

Let’s assume you have a 4-kW solar system in London facing south, with little to no shading and that you are out of the house all day till 6 p.m. Suppose we consider the new electricity rate of 34.0p per kWh, which is in effect from October 1, 2022, until April 2024, and an SEG tariff of 6.0p per kWh. Based on these assumptions, you can save approximately £385 per year. 

On the other hand, let’s use the same assumptions as above, but instead of the residents being away from home all day, let’s assume you are home all day (a new norm for remote workers). In this case, you can potentially save £630 per year. The table below shows the potential savings on offer for various-sized systems in London, based on varied usage and the same models we used previously.

Solar system sizeEstimated annual savings on energy bills (out all day until 6 p.m.)Estimated annual savings on energy bills (home all day)

3 kW

£300

£530

4 kW

£385

£630

5 kW

£450

£710

6 kW

£520

£785

The savings figures shown above are estimates based on assumptions and, as mentioned earlier, are affected by many factors. We recommend contacting your installer and electricity provider to get a clearer idea of your potential savings.

How long is the payback period on solar panels?

Are solar panels worth it? A person holding a calculator in front of solar panels installed on the roof of a house with the sun shining in the background.
Calculating the payback period can help you determine if solar panels are worth it for you. (Image credit: Adobe)

The payback period varies considerably depending on a number of factors, including the initial cost, whether your panels can work at peak efficiency, and how your household uses electricity. SEG payments also play a big role in calculating the break even point. The average system pays for itself in around six to seven years. However, as electricity prices continue to rise and the cost of solar panels drops still further, the payback period will likely become shorter. 

The table below shows the average UK payback period on 3 kW, 4 kW, and 5 kW systems.

System sizeNumber of panelsCost (inc installation)Potential annual savingsPayback period

3 kW

12

£5,700–£6,700

£900

6–7 years

4 kW

16

£6,800–£7,800

£1,000

7–8 years

5 kW

20

£9,000–£10,000

£1,200

8–9 years

What grants and funding options are available for solar panels?

The UK Government has numerous grants and schemes available to help homeowners make money from their solar panels, and even assist in financing these systems. We researched the schemes currently available to give you a better idea of how they can help.

Smart Export Guarantee (SEG)

The Smart Export Guarantee (SEG) was introduced on January 1, 2020, to replace the Feed-in-Tariff scheme. The initiative compensates small-scale energy producers for any extra energy they export back to the grid.

Anyone who has installed a solar panel system with a capacity of up to 5 MW is eligible for the scheme. However, the system must have been installed by an MCS-accredited contractor, and a smart metre is required to export readings to the provider. 

Zero percent VAT rate as of April 2022

From April 2022, the VAT for solar panels, heat pumps, and insulation dropped from 5% to 0% for five years, incentivising homeowners to adopt more energy-efficient technology. This alone could save you up to £1,000 in solar panel installation costs.

ECO4 (Energy Company Obligation) scheme

ECO4 is the most recent phase of a £4 billion UK Government initiative to assist low-income households by creating more energy-efficient homes and reducing carbon emissions. The programme aims to save energy, warm houses, and reduce carbon emissions.

As part of the scheme, households can apply for solar panel grants until 2026, providing you the possibility of obtaining free solar panels for your home and other home improvements like new boilers or wall insulation. There are qualification criteria in place and you can check your eligibility by completing the online form. The level of support you can receive depends on your energy provider and your personal circumstances.

The LA Flex scheme

The Local Authority Flexible Eligibility (LA Flex) scheme falls under the ECO4 programme. This scheme was introduced as many households in the UK were ineligible under the previous ECO3 programme. 

LA Flex empowers local governments and councils to broaden the qualifying criteria for solar panel grants. It’s a new path to the same ECO4 financing, with similar measures but different eligibility requirements. Those who qualify can receive funding for eco-friendly technology like solar panels.

The new Green Deal

The Green Deal was a scheme initiated by the UK government from 2013 to 2015, which provided loans to homeowners to adopt more energy-efficient systems. Currently, this scheme has been reintroduced through private investors. 

To be eligible for this scheme your home needs to have an electricity meter and a pre-paid meter. The loans are offered by a variety of banks and the credit terms differ. However, the loan instalments are billed as an additional charge on your energy bills, and any repayments should never exceed the amount you’re saving through the upgrade to your home.

How do I maximise the return on my solar panels?

Your location has the greatest influence on how much electricity you produce and use. Systems located in London and further south receive more sunlight and produce more electricity than those in the north, which can result in up to 5% higher savings on energy bills.

As previously stated, the time you spend at home also impacts your returns. If you’re home all day, your energy bills will reduce as you’re not using the National Grid as much and using more of the energy produced by your solar panels. Furthermore, installing a battery system can store surplus energy generated during the day for use at night, increasing your self-sufficiency. So, when choosing your system, carefully examine which option best suits your savings.

Finally, use heavy appliances like dishwashers or washing machines during the day to maximise use of the free energy produced by the solar panels, and reduce your dependency on the National Grid. Most appliances include built-in timers, so make use of these to set energy-hungry appliances to run on the free daytime electricity.

Is it worthwhile to install solar batteries?

Are solar panels worth it? A solar battery installed on a brick wall next to a solar inverter
Solar batteries can help you save money by allowing you to use more of the electricity generated by your solar panels. (Image credit: Adobe)

Without a solar battery, the National Grid will supply all the energy you require throughout the night, when your panels aren’t generating power. But, by incorporating a solar battery into your solar system, you can store surplus electricity created during the day and use it when the sun goes down. Given the rising energy costs, this will enhance your energy bill savings even more. However, solar batteries can be expensive, ranging from £500 to £5,000 depending on the brand, and capacity. 

Are solar panels worth it? The benefits of installing solar panels

For years we have been told of the benefits of using solar energy, but are solar panels worth it? To help you make your mind up, here is a list of the benefits you can reap from solar systems:

 

Frequently asked questions about solar panels

How do solar panels work?

Most residential solar panel systems utilise something called the photovoltaic effect. Solar panels are constructed of cells made with semiconducting materials such as silicon. When light hits the cells, photons in the electromagnetic radiation from the sun heat them up, which causes electrons to start moving. This movement creates an electric current, which is then captured by plates and wires within the solar panel in the form of a direct current (DC) electrical charge. An inverter connected to the solar panels converts the DC into alternating current (AC), which can then be used to power all of the electric appliances in your house.

How are solar panels installed?

The first step to installing solar panels is to determine if they are a good fit for your house. Research how solar panels work and the ideal conditions for them to be the most efficient. If your roof gets a lot of shade or you don’t have a big enough roof to hold all the solar panels needed to power your house, it might not be the right solution for you. However, if you want to go ahead with solar panels, find a local installer that is accredited under the Microgeneration Certificate Scheme (MCS), as this will assure the quality of both the products and the installation. Your installer will carry out an assessment of your home to determine its suitability for solar panels as well as the best set-up for your circumstances. They will then give you a quote for a complete system including installation. It’s best to gather quotes from a few companies so you can choose the one that fits your budget and needs. Once you’ve agreed to the sale, your installer will arrange for scaffolding to be erected on your house (if needed). A team will then attach anchors, or brackets, and rails on your roof to hold the solar panels. Once the solar panels are in place, a certified electrician will connect them to your inverter (usually stored in your loft or garage) to then power your house.

Do I need planning permission for solar panels?

In most cases, you will not need planning permission to install solar panels, as they are now considered “permitted developments”. However, if you live in a listed building or in a conservation area, you may need planning permission—though this is usually just a formality thanks to solar panels’ permitted development status.Some panels, such as the LG NeON model, are designed to be visually appealing, with a low profile, ideal for period, or listed properties, whilst still maintaining superior efficiency.

Do solar panels work in the UK?

While the amount of electricity that can be produced by solar panels varies in different parts of the UK. A system in the south of England will typically be more efficient than a system in Scotland, for instance; however, they do work well across the nation. It is said that if you can see outside without artificial light, your solar panels are working. This is because they do not need direct sunlight to work. This means solar panels work even in the rain, on cloudy days, and during the winter when it is snowing—all typical weather conditions seen throughout the UK.

What are the two main disadvantages with solar energy?

The main disadvantage to solar energy is the cost of solar panels. With the average system costing in the region of £6,000, investing in them requires a lot of thought. There are government grants and loan schemes available, bringing the cost down, and if you are eligible for an ECO4 grant, you could pay nothing for your solar panels.  The annual savings can be as much as £1,200, and with the cost of electricity rising, this brings the breakeven point down to a potential five to six years.  The other disadvantage is the solar panels’ drop in efficiency on very overcast days. Their output will still generate enough electricity for a typical family, but you may need to draw more from the National Grid on cloudy days when you are using a lot of appliances. Solar technology is advancing rapidly, however, and many brands are working hard to overcome this issue.

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