You might be considering installing solar panels on your roof, to take advantage of the feed-in tariffs that most electricity suppliers are now obliged to offer. As an example, we can take a look at a typical domestic system. This assumes that the house has a south-facing pitched roof, with no significant shading throughout the year. Any deviation from this ideal situation will reduce the efficiency of the system, and hence the amount of electricity generated. Note that the cost of solar panels is falling and installation costs have come down in recent months, which makes solar PV a more attractive proposition than ever.
A typical domestic system
Let's assume we have installed a 1.5 kilowatt peak (kWp) system, consisting of six photovoltaic (PV) panels. Using standard assumptions endorsed by the government about amounts of sunlight enjoyed by the Midlands, we can estimate that this will generate 1200 kilowatt hours (kWh) per year. Obviously, solar PV will generate much more electricity in summer than winter, so the tariff payments will vary accordingly throughout the year. You will also import less electricity from the grid, so cutting your electricity bills.
The new electricity meter measures how much power the system is generating, and in some cases it can determine how much is being supplied to the grid. But in the absence of an export meter, this figure is deemed to be 50% of the total.
IMPORTANT NOTE: New lower tariffs for Solar PV came into effect from 1 April 2012, for systems installed and commissioned after 3 March 2012. So, for a 1.5 kWp system installed after this date, the generation tariff will be 21p/kWh, and the export tariff 3.2p/kWh. The table below is based on these new rates (see 'Solar tariffs slashed by half').
| Systems eligible for generation tariff rate of 21p/kWh | |
|---|---|
| Amount generated per year (kWh) | 1200 |
| Revenue from generation tariff (£) | 252.00 |
| Revenue from export tariff ('deemed'; i.e. estimated at 50%; rate = 3.2p per kWh)* (£) | 19.20 |
| TOTAL ANNUAL PAYMENTS | 271.20 |
| Saving on electricity bill** | 80.00 |
| ANNUAL INCOME | 351.20 |
| Payback period (years) | 14 |
| Annual return on investment | 7% |
*The FITs scheme requires a total generation electricity meter that measures the amount generated. However, for smaller systems the energy company may choose simply to estimate the amount exported, to avoid the cost of installing an export meter. This export is then 'deemed' to be 50% of the total generated.
**This figure for savings on the bill is notional. It assumes that roughly 50% of electricity generated by the panels is used in the house, and that you are paying your electricity supplier a rate of 13p/kWh for the electricity you import from the grid. However, the figure depends on how much electricity is used in the house when the solar panels are actually working. If the house is mainly unoccupied during the daytime, the savings will be relatively low compared to a household that uses lots of electricity during the day.
The government has undertaken to maintain the solar PV tariff for 25 years. The tariffs are tax-free and linked to the Retail Price Index, so should be 'inflation-proof'.
Return on investment
The capital cost of installing this relatively small system as outlined is assumed to be around £4800. So at current prices, in this example, the annual return is about 7%. In other words, the cost of the scheme will be repaid within about 14 years. With index linking of the FIT and the likely increasing cost of electricity, returns should turn out to be better than these projections. Given that solar panels have potential operating lives of 20-25 years or more, the system should ultimately generate a profit of £3000 at current prices. Generally, the larger the installation, the lower the initial cost per installed kWh capacity, the shorter the payback period, and the greater the long-term return on the investment. But note that the tariff is lower for systems of more than 4kWp capacity.
Solar discount scheme
Sustainability Matters and Stafford Borough Council have organized a special discount on solar PV installations for residents and businesses in Stafford Borough. See the box below and click on the link for full details.
Stafford Area Community SolarSolar PV discount scheme for residents, businesses, schools and community groups in Stafford BoroughClick here for full details |
Loans
A big drawback to the FITs scheme is the capital cost of installation. It is worth talking to installers about possible finance options. Some banks may be prepared to make long-term loans against the guaranteed income generated by the FIT, and still leave the householder in profit. Are you considering 'free' solar panels? Take a look at 'Free solar panels: 'win-win' or 'no-no'?. Also, keep your eye on the Green Deal finance scheme to be launched by the government in 2012.
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