This article has been updated at the end of January 2012.
You are likely to be familiar with the mainstream adverts and websites that encourage you to invest in solar PV. Even with the announcement of the likely drastic cut in the levels of tariffs they are still claiming the strong rates of return together with the savings from being able to use the electricity you generate. One thing is for sure - as with any product or service, you should be wary of any information you are told by people that are trying to sell you it!
Is it all too good to be true? At GEN we want to cut through the hype and offer you an impartial view on when it makes sense to invest in solar PV...and when it does not.
This is the first of a series of articles on buying and implementing solar PV for your property. You should also read our other articles:
So when should you think twice about investing in solar PV? Many of the considerations are not necessarily ‘show stoppers’ but they may well impact on your financial returns. So if you are thinking of solar PV primarily as a long-term financial investment then the factors affecting your returns could be enough to make you think twice.
Of course a proportion of those investing in green energy generation solutions like solar PV are doing it primarily for environmental reasons in order to reduce their use of energy from fossil fuel generated electricity. If this is your prime motivation, then some of the considerations below maybe less important to you. However, as our article on home energy conservation points out, if you’re driven by your environmental conscience think first about investing in energy saving measures (insulation, draught proofing, ‘greener heating’ etc) then, once you've done that, you should consider energy generation.
Here's our list of 13 factors that you should consider before you get serious about solar PV..
1. Property Ownership
If you don’t own your property then things can become tricky. You may still be able to do something if you can encourage your property owner to take action. Your property owner may be interested in deals that allow them to rent out your roof space to a third party – this can provide benefits to you in terms of reduced electricity bills. We look at the ‘rent-a-roof’ solution in more detail below.
If you don’t have a suitable location, usually a roof space although it could be a patch of land, with a large enough area to attach panels then this is likely to be a show-stopper. Installers often talk about having at least 10 square metres of unshaded space for panel coverage otherwise the returns are less attractive. Bear in mind that your space could be made up of multiple 'patches' of solar panel. For example, you can utilise different parts of a roof (facing different directions) to increase your coverage – the panels don’t have to be physically adjacent to each other. If you don’t have available roof space you may have other areas of land that are unshaded and suitable for panels where they are fixed to a metal frame locked into a concrete base.
PV panels will add significant weight to your roof. Most residential roofs will be able to support this additional weight but there may be structures that are not build to withstand the extra load. If in doubt consult a structural engineer.
If you have plans to do work on your roof (for example replace slates) then it’s wise to do this work first. If your roof is relatively old and based on traditional roofing materials that are going to require regular maintenance then covering up a significant area could lead to much more expensive maintenance bills - it will not be easy to do work on your roof once the PV panels are attached to it. What happens if you need to take off a solar panel? Do you need to get your installer back to remove it and then replace it later? Solar PV solutions are likely to work best on relatively new or recently rennovated roofs. Some solar PV solutions can actually act as your roof covering - see our article on Integrated Photo-Voltaic Panels (BIPVs). If you have plans to extend your house into the roof, add dormer windows etc. then you should do this work first. If you are looking to re-design your roof space then you could ‘design in’ the addition of PV panels to maximise their output.
If you have sufficient roof space but it doesn't have a southerly aspect then your energy yield will be significantly lower. Installers talk about a PV system on east or west facing roofs having a capacity that is around 80% of that on a south facing roof. This could extend your payback period by several years and will ultimately decrease the profitability of the project by approximately 20%.
If you have sufficient, southerly facing roof space but the pitch of the roof is not ideal (a figure of 35-40 degrees is ideal) then your energy yield is likely to be marginally lower. If you have a flat roof you can still attach panels to this using a steel frame connected to your flat roof – this is a standard solution and shouldn’t have any financial implications.
Shading of your potential “PV space” can definitely be a show-stopper to your potential project. If your roof space is largely or even partially shaded by something (eg. a chimney stack at certain times of the day) which you can’t move (or cut down) then it is likely to have a significant impact on your energy yield, making your returns less attractive. It will depend on the amount of shade it gets but experts suggest that even small amounts of shade for regular periods are likely to have a much bigger impact than the area than you might expect. Also bear in mind that trees and shrubs can grow significantly over a period of 25 years. You should assess your site based on potential shading over 25 years. If, for example, the 'problem trees' are not on your property, you may not have the ability to reduce their size and shape.
3. Planning Issues
There are specific local authority planning circumstances which could make PV installation tricky or impossible. Listed Building status could be a show-stopper although there are examples of PV planning applications being successful for Listed Buildings. The conditions that require you to get planning permission before you can install PV vary depending on whether you are in England, Wales or Scotland. The conditions in England are most relaxed and consider roof mounted panels in Conservation Areas as ‘permitted development’ see the Planning Portal site. In Wales and Scotland you currently need planning permission for street-facing projects in Conservation Areas. In Wales the conditions are available from the England link above but change the drop-down at the top of this page to “Welsh site”. The best site for Scottish conditions is the Energy Saving Trust page. For more guidance on renewables in listed buildings see our recent article.
If in doubt seek early guidance from your local Planning Dept but don’t necessarily take ‘no’ for an answer if they refuse permission.
In terms of financial planning, you may have better uses for this amount of money over the next 12 years that you need to plan for - for example if your children are about to head off to college. Or you may be in a financial position where you need quick access to funds – this would be a sound reason why you shouldn't lock up your own money into a PV solution although you could look at doing it with a loan – see above.
Perhaps the biggest potential problem perceived by many is the up-front cost (typically £7,000-£15,000) combined with the long-term payback period (estimated to be 12 years with the new tariffs). Sales material tends to focus on the high rate of return but this is based on the average final revenues and savings at the end of 25 years. It is also based on savings from sharply rising electricity prices year-on-year for 25 years. A significant proportion of the financial benefits are 'weighted' towards the latter term of your project - the last 5 years. So if you end up moving house before then then your returns drop markedly (see below). If electricity prices don't rise as sharply as some calculators predict then, again, the amount you can save will be significantly less. It's better to do your sums on costs and potential returns (using http://www.solarguide.co.uk/solar-pv-calculator) based on conservative estimates - see our article on What you need to know to install Solar PV for our recommended settings.
If you don’t have a spare £7,000+ in the bank, this is not a show-stopper. Provided you are likely to be in your home for the majority of the 25 year FiT period, taking out a loan to cover the purchase of the solution is a perfectly sensible alternative. Your payback period extends by perhaps 3-4 years but the returns are still very positive if you consider it as a long-term investment. Using a loan to buy the solution has the added advantage that it doesn’t lock up your own money.
If you are likely to move in the next 5-10 years we would suggest an investment in a PV solution is relatively high risk - if you're likely to move in 10-20 years time there remains a risk on your investment. The Feed-in tariff payments stay with the owner of the property. Unless you can negotiate a premium on your house price to reflect your investment in solar PV then you are unlikely to get your up-front investment back let alone any profit on it. The bottom line - the longer you stay in your property the better your returns from PV investment - ideally you want to be there in 25 years time!
You will not cover your initial investment let alone get the returns you could get if you didn’t move for 25 years. If you are likely to move house in the next 12-15 years then this could dent your returns significantly. If you move house after 15 years then returns on an average project are around 4%. The % return improves significantly once you get to 20 years and beyond.
In terms of the returns from a PV project, many people are pleasantly surprised at the levels of electricity they are generating annually which often exceed the estimates they are given by their installer. Installers are required to provide these according to standard MCS accredited calculations. However, in our experience installers rarely factor in any budget for the replacement of the inverter over the 25 year term - often worth £800-1,000+. Engineers working in this area say that inverters can develop problems and there is no guarantee they will operate 'problem-free' over a 25 year period. Some installers do offer an additional warranty to cover the inverter for the project life-time - at an additional cost of course. We would suggest the cost of a warranty like this should be factored into your project. Many installers will not do this by default as it will impact negatively on your returns.
For more detail on financial issues read our article in this series Is Solar PV a sound financial investment? As a general rule you should consult an Independent Financial Advisor (IFA) about how best to invest your savings according to your circumstances.
5. Lack of certainty about impact on my house price
The fact that the Feed-in Tariff is tied to a property results in an inevitable degree of uncertainty over the impact of an installation on house prices. House prices are so inflated in the UK that many investments into improving a property (with the exception of adding more space) are often dwarfed to a point of relative insignificance.
As far as we are aware currently there is no sound statistical evidence in the UK to suggest that your house price will increase if you have installed PV on your roof. It's too early to do this research. Indeed some property specialists we’ve talked to will only suggest that PV panels “would act as a positive factor when selling your house over a similar alternative house in the same neighbourhood without them”. If you are likely to move house in the next 5-10 years, our view is that it’s unlikely you will get your up-front investment back. We would suggest that solar PV buyers should be pretty certain they will be staying in their property for at least 15-20 years, better still 25.
6. Potential issues with rent-a-roof schemes
If, at the end of the day, you don’t like the idea of taking out a loan to cover the investment then you can still consider PV via the increasing number of what are being termed “rent-a-roof” schemes. There are still several companies offering to cut your electricity bills in return for leasing your roof space. This solution has its own strengths and weaknesses. It is nothing like as profitable as buying the kit up-front (provided you stay in your house for 20+ years). However, provided you get some legal advice on the terms of the agreement it does have its place – it could overcome the risks mentioned above related to moving house. And, of course, there are no issues with up-front costs or maintenance costs as these should all be covered. The one cloud on the horizon – what will a potential buyer of your house think about taking over a contract where part of your roof is leased to a third party? Of course a new buyer would inherit potential savings from reduced daylight consumption of electricity.
7. General long-term uncertainty
It’s possible that the sheer length of commitment, 25 years, may put you off. Who knows what your situation may be in 20 years time? Your investment is effectively locked up for a period of 12 years minimum while you are paying it off. There is a need to consider it as a long-term investment in a similar way to a pension which will start to bear fruit from the point at which you get past your payback period. Of course there are environmental benefits immediately your solution goes live if you are able to offset your energy demand from locally generated green energy. But you could do much the same by switching your energy supplier to one with a 100% green energy tariff - see our article How to pick a green electricity deal for your home.
8. Life Stage
There is a reason that the majority of PV investors are very likely to be between 35 and 75 years old. This is an age where you are more settled and may have the outlook and finances to consider this type of investment. For those in their 20s and 30s life may change more quickly, house moves are more frequent, your outlook is often shorter term and finances are tighter. Talking in general terms, for those over 70 years old, taking out new long-term financial commitments (unless perhaps the property is likely to stay in the family) or locking up finance for a significant period is unlikely to be a top priority.
9. Government risks
Some believe that the Government will not be able to honour its financial commitment to pay the Feed-in Tariff for a 25 year period. At some point over the next few years, especially if finances get worse, then it could be forced to renege on this promise. This has happened in Spain. However we believe this is 'low risk' for reasons that (1) there is no precedent in recent UK history for this to happen – most experts we’ve talked to feel that FiT is a fairly secure commitment over the long-term and (2) the FiT payments actually come from Ofgem via a levy on the utilities - so a utility company would have to opt out of its obligation to honour the FiT payments.
For those interested we recommend reading the MacRoberts Legal Guide to the FiT scheme. This suggests they can find no evidence in law that, in the event that FiT payments are suspended, there should be any compensation paid to those who are registered in the FiT scheme – maybe no surprises there!
10. Bigger technical, ethical and environmental reasons
There are a significant number of voices that believe we should not be doing PV micro-generation in the UK – that it is inefficient (compared with sunnier countries in Europe) and that our money would be better spent on alternative, more efficient forms of energy generation. The argument about whether it makes sense to do PV projects across the UK just because the financial incentives make it attractive is complex and not one we’ll go into here.
There is also the argument (championed by George Monbiot) that this type of incentive benefits the wealthy (who can afford to lock up £8k+ for much bigger benefits down-the-line) at the expense of everyone else who pays through higher energy bills. We suspect that if you analyse the PV FiT household registrations, you would find that the majority of those taking up the opportunity are likely to be in the wealthiest 40% of all households - so there is likely to be some truth in this argument. This detailed data on FiT registrations is not publicly released so it's impossible to verify.
If you object to PV on these ethical grounds then it may put you off investing in it.
The current Feed-in Tariff rates are, as we've seen, subject to revision. Further custs are likely as technology prices come down further. How much they are cut for household scale projects remains to be seen. They were always designed to be reduced over time in line with the decreases in wholesale prices of PV modules. Wholesale prices of PV modules have dropped by around 25-30% over the last 18 months. The more FiT rates are cut the bigger the risk and the less attractive the returns.
12. Lack of time and awareness
Many people lead very busy lives. Finding time to research a project on this scale, much like buying a new car, is not easy. There is a great deal of information about ’solar PV’ now bombarding you through the doorstep, mainstream media like magazines and newspapers and, of course, the Internet. Trying to find a trusted source of detailed advice with all the answers you need is not easy. We are trying to make this process simpler and quicker. Likewise a significant proportion of people will simply be unaware of the potential for them to undertake projects.
13. Variation in sunshine across the UK
What if you live in Glasgow rather than Bristol? We estimate the returns may be about 10% less doing an equivalent project in Glasgow - so not a major difference although it does add significant weight to the case for those living in the south of England (particularly the South West).
This article has sought to cut through the hype and offer some home truths about when a solar PV project on your property makes sense...and when it doesn’t.
The decision to put up a new farm shed finally cleared the way for organic producer, Peter Segger, to invest in solar energy at Blaencamel Farm, Lampeter, in south west Wales.
“We’d already looked at wind, water and solar options and hadn’t been able to see how any of them could work for us without sacrificing either an area of ancient woodland, the trees surrounding our farmhouse or the appearance of the farmhouse itself,” said Peter.
When the new shed was being planned, however, for completely separate business reasons, the addition of 39 PV panels to the south-facing roof of the new building became an obvious and welcome solution.
“We put £30,000 into the development, which started life in March 2010 and is working extremely well,” said Peter, who farms Blaencamel with his partner Anne Evans. “I now think that anyone, farmer or domestic householder, who has the location, available capital or access to funding, should invest in solar energy. The income stream is guaranteed and they’ll be providing valuable energy. I can’t any reason for not investing in solar if you possibly can.”
The planned output from Peter and Anne’s PV 210w panels is 7000 kW hours per year, sufficient to produce an annual return of £2800, plus a 3p a unit export payment for 50% of their actual production. Payback time could therefore be as little as 9.5 years. The system itself, meanwhile, is projected to last for at least 25 years.
“Our installation was organised and carried out by Dulas, who are locally based, being an offshoot of the Centre for Alternative Technology near Machynlleth,” said Peter. “They’ve been involved in renewable energy since long before it became fashionable. They’re also highly reputable, similarly priced to everyone else and did a good job. Our sole installation task, in fact, was to arrange and pay for the scaffolding.”
Reasons for rejecting other options
Wind turbines? “To achieve any degree of efficiency in our location would have meant cutting down several trees, most of which we really like,” said Peter.
Water? “We have a small river running through the farm with sufficient flow and head to power some form of hydro scheme. The drawback, however, was the need to run a pipeline through an area of woodland which we’ve protected for many years and weren’t about to abandon.”
Solar? “Our original solar option was to put panels on the farmhouse, a solution which didn’t appeal both for esthetic reasons and that, at the time, the costs were just simply prohibitive. The new FITS system, introduced by the last Government changed everything, however.”
“There are no visual issues with the panels on the new shed, while the benefits they produce are considerable. These include enabling us to become one of the first carbon neutral farms in Wales, generating 80% more electricity than we need ourselves and allowing us to develop a solar-power irrigation system to pump water round our 50 acres of organic vegetables. Sustainability has always been at the heart of our business at Blaencamel and the solar development has fitted our approach perfectly.”