What is the average payback period for solar panels in the UK?

What is the average payback period for solar panels in the UK?

By Renogy UK
Renogy UK
renogys blog Aug 26th 2021

The United Kingdom isn't well-known for its warm sunny climate, so it may come as a surprise that solar power is increasingly popular in Britain.

Solar power harnesses energy from the sun, but it only requires some daylight to extract the sun's energy. So, despite our frequent rainy and overcast days, UK residents can still easily benefit from switching to solar power. Solar power adoption continues to grow amongst UK homeowners as they discover renewable energy's cost savings and environmental benefits.

Thanks to advances in solar technology, it is more affordable than ever before to make a power switch. By installing solar panels on your home, caravan, or cottage, you can capture energy from sunlight and use it to power your home, vehicles, businesses, and more.

Solar energy is incredibly efficient to run, so most of the costs associated with solar power come during the setup. Setup costs can be intimidating, but you'll quickly benefit from your initial investment.

If you're running the numbers to calculate the cost of installing solar power, you should be aware of the average solar panel's payback period. The payback period is the amount of time it will take for the panels to “pay for themselves” - so it’s an important budgeting consideration.

Read on to learn more about the average costs of installing and running solar energy in the UK.

What is the average cost of solar in the UK?

Installing solar power requires an initial investment in hardware and labour for the installation. The most expensive item will be the solar panels themselves. According to the latest government data, solar panels in the UK cost £6,000 to provide rough power for the average household. Solar panels continue to become cheaper and more widely available; the average cost of solar installations has fallen 25% in the past six years.

To meet their average energy consumption, an average household of three people will need a 3.6 to 4kW solar PV system. This system would usually require purchasing 12 or 13 panels and around 20m² of roof space available to install them.

Of course, the cost and number of solar panels you need will differ if you have a bigger house, more residents, or more amenities to power. Naturally, your solar panel costs will rise in these situations, just as your traditional energy costs would be more significant.

Installation costs can differ from one company to another. You can get quotes from several professional solar contractors who will come around and assess your property. They will quote you and advise you on all the costs based on the type of solar PV system you need and how many panels need installing.

It can be tempting to try your hand at DIY solar panel installation, but you may find professional installation unlocks access to other cost savings, such as Net Metering. The energy output from solar power will also differ from one home to the next. But a professional installation will help you maximize your roof space and orientation, so you get the best possible quality output from the photovoltaic cells used in each panel.

How do you benefit from solar panels?

Most people are aware of the environmental benefits of solar power, which is a low emission energy source. But there are many financial benefits from solar power that will appeal to the average home or business owner. Solar power is one of the most affordable, efficient, and popular zero-carbon renewable energy technologies available.

Offsetting your energy consumption

One of the most significant savings from solar panels comes from the decrease in energy you have to buy from the grid. You can replace or subsidise traditional energy from a utility provider with solar power, thus lowering your energy bill.

Of course, the amount you save off your power bill will depend on your solar panels' efficiency and energy consumption. If you are home a lot using your appliances during the day, you can get the most out of your solar power investment. However, if you primarily use appliances at night when the sun has gone down, you'll likely still need to draw some electricity from the national grid.

Using 250W panels with average energy consumption, the average household in the UK can save between £100-£500 off their energy bill alone. You can use our solar panel calculator to estimate how much solar power you will generate and how much energy you are likely to consume.

With enough solar panels and a solar battery, you can store solar power and live off-grid. However, there are benefits of remaining connected to a utility provider - also known as being "grid-tied." Even if you produce enough solar energy to be self-sufficient, you can make money back from your utility provider through Net Metering.

Feed-in tariff for excess energy

Net Metering is a measurement process that makes solar power more affordable for everyday users. Solar Net Metering and Feed-in Tariffs allow you not only to see a reduction in your electricity bill but can also actually make money for your excess solar energy. With Net Metering, you provide energy for your own house first and then sell your excess energy production to a power company. This process is known as the Feed-in Tariff.

Government initiatives can sometimes make it possible to have your panels installed for free through Feed-In Tariff Initiatives. This can reduce your upfront costs, but you will forfeit your Feed-in Tariff earnings or credits. That means you won't make any money from your excess electricity, but you will still benefit from cheaper power bills and cleaner energy. If this system appeals to you, you can check if these free solar panel initiatives are currently available in your region.

Feed-in Tariffs (FIT) are being phased out and replaced with the Smart Export Guarantee (SEG) system. While SEG is less lucrative than the TIF, this government program still encourages homeowners to switch to solar panels. It incentivizes installing new solar panel systems by providing payment for energy similarly exported to the grid to TIF.

What is the average payback period for solar panels in the UK?

When switching to solar power, it's a good idea to estimate your solar panel's payback period. The initial costs of a solar installation can seem daunting, but they quickly prove their worth in ongoing savings.

Most solar panels have an extremely long life, up to 20 and 25 years. Your initial installation and hardware costs can be offset within the first 12-18 years with only minimal maintenance.

However, it's worth remembering that the cost of energy bills is steadily rising and expected to increase further in the next few years. Therefore, your cost savings may be more significant throughout the panel's lifetime than your initial estimate.

How is the solar panel payback period calculated?

There are many savings factors to consider when calculating the average payback period for solar panels. The main contributing factors are the initial costs, offset by the annual energy bill savings, any savings from net-metering, and any other government incentives.

Energy bill savings

Energy bill savings from solar power in the UK are around 40% per annum, but this can be much higher. Remember that electricity prices are set to rise, so this saving will only become more significant over time.

Tax credits, rebates, and incentives

The UK government has committed to transitioning to renewable energy sources, so homeowners are encouraged to install solar energy systems through various financial incentives.

The UK followed the European Union's Renewable Energy Directive over the past decade and set out a roadmap to reach a 20% renewables target before 2020. Government incentives are still available, but as adoption grows, their need has lessened.

Government incentives can change regularly but usually come in tax credits, solar rebates, or incentives that cover installation costs. There are no longer interest-free loans and grants for solar panels like those available up to 2015 as part of the Green Deal.

Net Metering

Net Metering, in the form of The Smart Export Guarantee (SEG), came into effect in the UK in 2020. The SEG is the primary type of solar panel funding currently available within the United Kingdom. The system is similar to the Net-Metering systems in other countries and allows small-scale solar electricity generators to receive payment for their surplus solar energy. You can learn more about solar financial incentives in the UK here.

Make the switch to solar and save

More than 970,000 UK homeowners have made the switch to solar power and installed solar panels. This adoption is thanks in part to the many financial incentives and benefits that come with solar power. Monetary benefits aside, switching to solar panels is always worth it because it helps to protect the environment and reduces your carbon footprint.

As more UK residents see the cost-savings they can get from solar power and become more energy conscious, adoption numbers only continue to grow.