Demand for solar continues to grow as it becomes more affordable and an even better investment
The continuing fall in the cost of a solar installation and the rise in energy bills mean that you can now pay back the cost of your installation quicker than ever before, despite the reduction in the Feed-in Tariff.
When you get solar power installed on your roof, the government pays you for each kilowatt (kW) of electricity you generate and for some of the electricity you export back to the grid. This is called the Feed-in Tariff (FiT).
FiT payments are index linked and are tax free. Index linking of the FiT tariff means that the FiT you have is locked in when you start and that it rises over a 20 year period in line with the retail price index.
Since its launch in April 2010, the Feed-in Tariff has reduced year on year. March 2012 witnessed the greatest reduction, with the rate for a 4 kilowatt (kW) system falling from 43.3p per kilowatt hour (kWh) to 21p. A further reduction followed in August the same year, to 16p per kWh. The Feed-in Tariff has continued to fall, but much more gradually, with the latest reduction taking place in January 2015, from 14.38p per kWh to 13.88p.
This has led many to wonder if solar is still a good investment, with the focus being on the decline in the annual income you could earn from the Feed-in Tariff.
Consumers’ opinion however has been the exact opposite, with the number of domestic solar installations in the UK continuing to rise. Following the introduction of the FiT, there were 16,985 installations in 2010 compared to a staggering 113,940 in 2014. That’s just over 2,000 on average per week, with over half a million homes in the UK now having solar power!
So what has driven this continued demand? Research by Green Business Watch has shown that the answer lies in not just considering the Feed-in Tariff, but also the dramatic drop in the cost of installing solar power combined with the rise in our electricity prices, which has led to higher bills.
The average cost of a 4kW installation has fallen by 62%, from an average of £20,000 in 2010 to just £7,520 in 2014. Over the same period, energy prices have risen by an average of 28%, meaning that the pound value of the savings you can make on your electricity bill have risen. Also, the part of the FiT which pays you for the electricity you export back to the grid has risen from 3p per kWh in 2010 to 4.77p in 2015.
These factors have meant that, based on a 4 kW system, the average time it will take you to payback the capital cost of your solar installation has dropped significantly from 12.5 years in 2010, to 9.4 years in 2015. It could be significantly quicker, depending on the location of your home and the orientation of your roof. The return on investment in a solar system is therefore now at an all time high in the UK, at a rate of 8.68% vs just 4.39% in 2010, when the Feed-in Tariff was first introduced.
Homeowners too have been able to afford larger installations than they previously were able to buy up front, with 4kW systems becoming more popular (4kW is the natural upper limit, as anything larger attracts a lower FiT rate).
The decrease in the cost of installation over recent years, combined with rising energy prices, have therefore been more than enough to offset the decreases in the Feed in Tariff rate and made solar a more attractive investment than ever before.
Sources: Rexel Energy Solutions & Green Business Watch