The Cost-Effectiveness of Solar Panels

Solar panels have an initial cost, but they can also count as an investment. Here, we’re going to look at how cost effective solar panels are.

Quick Navigation:

• The Cost of Solar Panels
• How Solar Panels Save Money
• Can Solar Panels Make a Profit?
• How Does Solar Compare to Other Energy Saving Measures?
• Try Our Solar Panel Estimator Now

When companies invest, they borrow money or take funds from their coffers to put into the business. That could be for anything – an IT system, staff training, new premises, product research or expansion into new regions, for example. The intention is always to pay in advance for something that will increase its profitability later on. It might take months, years or decades to recoup the investment, but it all adds to its resilience.

Your home is a place of warmth, love, comfort and memories. But it’s also an investment. And just like a business, you can put money into it today that will repay itself over time. Examples include:

• Loft insulation or double/triple glazing, which can reduce your energy bills.
• Building a garage could prolong the lifespan of your car, reduce car insurance premiums and increase the saleability and value of your home.
• Converting a room to a home office can help you work more efficiently and reduce commuting costs.

But there’s one home improvement that’s like no other, because it can not only help to reduce your bills and your carbon footprint, but it can actually generate cash. We’re talking about solar panels (surprise, surprise!).

So how much does it cost to install solar on your roof? And assuming it saves you money, how long will it take until it has paid for itself? Also, is it true that you can actually make money from solar panels? In this article, we’ll run some figures that add up to a convincing case for installing solar.

The Cost of Solar Panels

Generally speaking, for UK residents, installing solar panels costs less than a used family car, but more than a family holiday in Barbados. As every home and location is different, we can’t put a definite price on an individual installation without seeing the details. But according to our own figures, built up from hundreds of installations, it’s roughly this:

• A small home, generating a maximum of 3kW: £6,000–7000
• A medium home, 4–5kW: £6,500–8000
• A large home, >6kW: £8,000 and upwards

These are average entry-level estimates, for a system without a battery, and with panels working at maximum efficiency, i.e. in perfect sunlight. The variables come in the number of panels you have installed, how your roof is oriented, and things like weather conditions and how clean your panels are. In essence, the more panels you have, the more energy you’ll generate, and the quicker your system will pay for itself. We keep an updated page going that details average installation costs for the UK. 

So how does that compare to average household usage? According to Ofgem:

• A small home uses about 1,800 kWh a year
• A medium home uses 2,700 kWh a year
• A large home uses 4,100 kWh a year

Again, these are averages. A large home with a single occupant and gas central heating will use less electricity than a small home with a family of five and electric under-floor heating. You’ll probably know if your household is about average. However, the more you rely on electricity for your everyday living, the more you’ll save.

For example, Cambridge boasts a solar intensity of 511 w/m2, making it prime real estate for solar panel installations. While the exact savings will differ, on average, homeowners with solar panels in Cambridge save around £1,429 annually.

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How Solar Panels Save Money

Imagine you have a 5 kW solar setup on your roof. Let’s say it’s running at 50% efficiency during the day. That means it’s providing a steady stream of 2.5 kW. If you switch your 2 kW kettle on, the solar panels will cover all the energy needed to boil the water.

At night, it’s a different story. Your panels will be generating no electricity, so you’ll be 100% reliant on other sources of power. But that other source can mean two things.

First, there’s the grid – you’ll be getting your energy from power stations, wind farms and hydroelectric power plants.

But second, you can use your own energy if you have batteries. Think about it – you’re not boiling kettles and using your oven all day long, so where does that excess energy go? Well, you can sell your excess back to the grid, which is great. But come nightfall, in the absence of batteries, you’re just buying it back from the grid. If all that excess power charges up batteries, you can still be using your own energy long into the night. You might rarely have to turn to the grid at all. And best of all, once your batteries are fully charged during the day, you can still sell your excess to the grid.

Can Solar Panels Make a Profit?

Some people installing solar might think they can use their energy to power their homes and turn a profit by selling excess power to the grid. We’d urge caution here, though. Although there may well be times when you’re supplying the grid (exclusively during daylight hours), you’ll probably rely on the grid at least some of the time. Throw in standing charges for being connected, and for most people, the panels aren’t boosting their income in pure terms.

They are, however, greatly reducing your electricity bills, both by using your own power, and by potentially selling your excess. You would need quite a large solar array, great battery capacity, hyper efficiency and flag-cracking weather to be able to generate all your own power and sell your excess to the grid, all year round. In short, it wouldn’t be practicable.

How Does Solar Compare to Other Energy Saving Measures?

Domestic solar energy isn’t the only way you can economise and help the environment. Generally speaking, a technology that saves energy will naturally cut your monthly bills and have a positive environmental impact, and that’s great. But if you’re looking at a technology from an economic standpoint (i.e., your household finances), you mustn’t forget to factor in the up-front cost of buying and installing the equipment, as well as the ongoing maintenance costs.

Here’s how solar stacks up against other energy-saving measures as far as cost savings are concerned.

SolutionIndicative CostEst. Annual SavingPayback PeriodSolar panels£10,000£1,2008 yearsAir source heat pump£14,000£8n/aElectric car£25,000£1,10023 yearsCavity wall insulation£2,700£3009 yearsRoof / loft insulation£930£2853 yearsDouble glazing£7,500£19538 yearsDraught proofing£250£505 years

As you can see, solar performs pretty well when you look at the payback period (the time it takes for your energy savings to overtake your original payments). Few are disputing the environmental benefits of heat pumps and electric cars, but even with government incentives, they are less effective on a return-on-investment basis. That’s largely down to their high initial costs, but as you’re replacing one energy source with another (fossil for electric), you’ll still have costs, but they’ll just be less. If you’re ignoring the financial cost and focusing on the green benefits, heat pumps and electric cars are fantastic for the average household, as the following table shows.

SolutionReduction in Household Emissions (% of total)Heat Pump24%Electric Car16%Solar Panels11%Cavity Wall Insulation11%Roof / Loft Insulation7%Double Glazing7%Draught Proofing2%

Note: The figures are indicative, based on an 'average' UK home and will vary significantly depending on a number of factors, e.g. your energy usage or the efficiency of your boiler.

Solar still holds its own, with environmental benefits in the ballpark of home insulation and double glazing. If you insulate, double glaze and go solar, you can imagine how much less energy you’ll use. In a country that still largely relies on fossil fuel for about 40% of its grid electricity, that’s a big deal.

Try Our Solar Panel Estimator Now

All of the above stats are for a general readership, but we’ve got a tool that can give you a bespoke estimate of how much various solar installations can impact your home, financially and environmentally. Head over to our home page and input all the details about your energy usage, geography and roof orientation, and we can give a pretty reliable estimate of how much energy you can expect to generate. And if you like what you see, we can point you in the direction of approved local installers, too.

Find out how much you can save

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