With energy prices soaring and annual household bills leaping above £3,500 more people are turning to sustainable sources to heat their homes and in particular solar panels.
Sales of the panels have soared by 33% to an average of 3,000 a week, according to Solar Panel UK, with installations up by 45% since 2019, Gov.uk reports.
But is an investment in solar panels a good financial investment?
The price of a typical 4.2 kilowatt-peak solar panel system is about £6,500. In most cases you will not need planning permission as they are treated as ‘permitted developments’ so there will not be any professional fees to consider.
According to moneysavingexpert.com the average payback period is between 11 and 15 years. If you’re at home all day the payback period will be shorter as the key is to consume the energy you produce, as investments in panels no longer qualify for feed in tariffs.
Similarly, for businesses and offices that have high power demand in the daytime then solar panel payback will be shorter making them a good investment for shops, hotels, restaurants, dairy farms and offices.
Figures show that up to £534 a year could be saved by a household installing a 4.2 KW system according to the Energy Saving Trust.
Your location is crucial as it is best for the panels to be south or south west facing to capture energy throughout the day.
Small businesses and homeowners in England, Scotland or Wales could also access the Smart Export Guarantee (SEG) tariff, which enables you to get paid if you generate more energy than you use.
But exporting to the grid is not usually cost effective as the typical payment is 5p per KW compared to a purchase price of 32-34 pence per KW.
For this reason, most installers will usually arrange for your panels to heat the hot water cylinder throughout the day to minimise exporting to the grid.
Solar panels combined with air source or ground source heating will be environmentally friendly, but the savings may not be as high as expected as the pumps will need electricity to be operated when solar production is not possible.
For this reason, you should consider installing a battery system with your solar panels. Again the payback period is 10+ years.
As one of our early green investor clients recently noted if you already own an electric car that is V2G enabled you may be able to store electric in the car battery charged by cheap overnight electric and supply your home and the grid in the day. Given the higher KW capacity of a car battery this has the added advantage of being able to power your home for up to a week in the event of a power cut!
The numbers
Solar panels are thought to have an estimated life of 20 years by which time the residual value is assumed to be nil. The return on investment will vary dependent on whether you are a residential user or business. The returns for business are higher because VAT and capital allowances may be claimed as shown below:
| Residential customer | Business
(VAT registered company) |
Business
(VAT registered sole trade/partnership) |
|
| Cost of panels | £6,500 | £6,500 | £6,500 |
| Less VAT | N/A | £1,083 | £1,083 |
| Less Tax relief @19%/29.73% | N/A | £1,235 | £1,932 |
| After tax cost of panels | £6,500 | £4,182 | £3,485 |
| Return over 20 years – ignoring inflation – 20 @£534/less 19% tax for company and 29.73% for sole trade/partnerships. | £10,680 | £8,651 | £7,505 |
| Average compound return over 20 years |
2.5% |
3.7% |
3.9% |
Alun Evans, Partner at Bevan Buckland, said: “With everyone feeling the effects of the cost-of-living crisis right now, there’s never been a better time to consider switching to environmentally friendly alternatives such as solar panels.
“For businesses this is particularly beneficial as opting for greener investments will qualify for capital allowances and you can reclaim VAT on the initial investment.
“The payback period is quite long but should offer increased dividends if energy prices continue to increase. Not only could installing solar panels reduce your carbon footprint, it could also help you save hundreds on your annual energy bill.
“In terms of value for money, solar panels are a positive low risk investment offering long-term benefits for those considering it.”
To find out more about how adopting greener energy could benefit your business contact Bevan Buckland on 01792 410100 or visit https://www.bevanbuckland.co.uk/sectors/environment/
This article is general advice and does not constitute FCA investment advise. You should always seek independent advice regarding your specific circumstances before making your decision.