We all know the role that solar energy plays in reducing our carbon footprint – and that solar panels, from an environmental perspective, are worth it. But how about from a financial perspective – and how much can solar panels save you on your electricity bills?

Below we’ll run through the factors determining how much money solar panels can save you – and what you can do to maximise these savings. We’ll also explain how to connect your solar panel system to the National Grid so you can start earning cash from your surplus energy.

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Homeowners talk about their experiences of installing solar panels

In this video, we speak to two people who have installed solar panels on their homes in the UK.

They explain why they did it, what it cost, and what solar panels have saved them on their bills, plus their tips for anyone looking to install solar panels themselves.

How much do solar panels save on electricity bills?

As of 1 January 2024, the price cap on electricity in the UK is 27p per kWh with an average daily standing charge of 53p. This will see the annual price cap rise from £1,834 to £1,928, a £96 increase.

Fuelled by global events, including conflict in the Middle East, the cost of wholesale gas is rising. And every kilowatt of electricity you’re able to generate through alternative, renewable methods – solar panels, for example – will offset a unit of power you’d otherwise have to purchase from your energy supplier. 

To properly answer the question of how much do solar panels save on electricity bills, let’s compare what you’ll spend without solar panels with what you’ll spend once your system is installed. 

Every home will have different levels of consumption and amounts of sunlight, so for the purposes of this comparison we have used this writer’s home in Bristol as an example. The solar panel system originally cost £5,524.00. 

Cost of electricity without solar panels

We know from the MCS’s report on sunlight data for the UK that Bristol (Zone 5E) has an irradiance factor of 928. When we multiply this irradiance factor by the size of the solar panel system and make corrections for shade, we get a fairly accurate estimate of the output of a home’s solar panels. The equation looks like: system size x irradiance factor x percent shade factor = estimated annual output (in kWh).

Therefore, with a 5.5kWp system and a shade factor of zero, the equation now looks like: 5.5 x 928 x 100% = 5,064kWh in Year 1.

The total domestic power consumed from the grid at this writer’s home is estimated to be 10,276kWh over the next year. At 27p per kilowatt, this totals £2,774.52 over the year. Add in the standing charge of 53p per day, and this totals £193.45. All in all, without solar panels this writer’s house will spend £2,967.97 on electricity.

Total consumed from the grid10,276kWh
Price per kWh27p
Total net price£2,774.52
Standing charge per year£193.45
Total annual cost£2,967.97

Now let’s look at how much solar panels save on electricity bills. We know that the house in our example has a system that can output 5,064kWh in Year 1 before any cell degradation. As there is no battery storage with this system, we can assume the home will consume 32% of the free electricity it generates, which is 1,620kWh. 

Cost of electricity with solar panels

Estimated annual output5,064kWh
Proportion consumed32%
Annual consumption of free power1,620kWh
Savings from self-consumption£550.80
Income from Smart Export Guarantee£128.00
Total savings£678.80

So, you can see that while the solar power output doesn’t match the annual consumption, there’s a significant reduction in cost.

Plus, many UK homeowners have reported savings of up to £1,200 annually with solar systems delivering optimum output.

There’s also the Smart Export Guarantee (SEG) to factor into your savings. This allows you to sell any surplus energy back to the National Grid to boost your savings. More on SEG later.

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The investment value of solar panels

We’ve seen how much solar panels save on electricity bills. Now let’s look at their investment value.

Taking the average installation cost of £5,000 for a system this size, with £678 in revenue the Year 1 nominal rate of return will be 6.6%. We can then use this figure to project your solar panels’ return on investment going forward. 

In order to do this, however, we need to make some assumptions. First, we factor in an annual cell degradation of 0.7%, which means your solar array’s  output diminishes a little each year. We’ll also assume an RPI of 2.2% and energy inflation of 8%. (These are very conservative estimates. We know that energy prices rose 32% in 2021 and are on course to increase by another 65% by 2023. The current RPI is more than 11%. If these numbers stay at these very high levels, the return on your investment in solar will come much quicker. But for this exercise we will assume numbers more like those we’ve experienced in normal times.)

As per these estimates, the example property’s solar panels will pay for themselves in around six to seven years. 

The typical break-even point for most solar panel systems is around five to nine years, but if energy prices and inflation continue to remain high, you’ll make your money back on the investment much sooner.

And, if you live in a low-income household, you might qualify for grants for solar panels in the UK – such as the Energy Company Obligation 4 (ECO4), which runs until March 2026 – to make your solar system much more affordable; and your break-even point even sooner.

When do solar panels pay back?

There’s no straightforward answer as to how long it will take for solar panels to pay back, as there are a number of factors that can impact this: including the initial cost of your system, your household’s electricity usage and where you live.

However, we’ve done some research to find out how much money you can save on your energy bills with various system sizes and compared this with their average cost to determine how long it takes to recoup the investment.

What we found? That most solar panels will pay for themselves within a decade.

System sizeNumber of panelsTotal cost (inc installation)Potential annual energy bill savingsPayback period
3kW12£5,700–£6,700£9006–7 years
4kW16£6,800–£8,800£1,0007–9 years
5kW20£9,000–£10,000£1,1008–9 years
6kW24£10,200–£11,200£1,2008.5–10 years
Approximate prices for December 2022. Source: Federation of Master Builders

How to consume more of your free solar energy

When it comes to accessing clean, green solar energy for your home, it’s not just generating that power that’ll save you money – it’s maximising your use of it, too.

So how can you ensure you’re making the most out of your domestic solar array? Let’s explore.

photo of bournemouth seafront at sunsetThe sun is a source of free energy that we can all use (Image credit: Adobe)

The impact of location

Living in the south of the country can boost your output by up to five per cent compared with the north.

That means that where you live within the UK will have the most impact on how much solar energy you generate and consume – and, of course, how fast you make your money back. The further south you live, the more sunlight your panels will be getting. In London or further south, you might find your savings from solar panels are about 10% higher than in Manchester.

Work from home during the day

If you work from home, you can also expect better savings. Simply being in your house all day means you’re using more of that free renewable energy. And the more solar energy you consume, the more you save on your electricity bills and the faster you make your money back on the investment. 

The flip side of being home all day means that you won’t have as much surplus energy to sell back to the National Grid. But with energy prices as high as they are, the money you’d earn from the Smart Export Guarantee will likely be less than what you would save by not having to pay your energy provider. You’re paying 27p per kilowatt-hour for electricity right now, but you’ll be paid a lot less than that for every kilowatt you sell back to the grid. 

You should also aim to use your white goods during the day as much as possible, when electricity is off-peak and thus at its cheapest. If you have to go to an office, work it into your morning routine to run the dishwasher before you go and program your washer to do your laundry in the afternoon. Little things like this really add up over time. 

If you want to consume even more of the electricity you generate, it’s worth considering investing in a battery. 

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Are solar batteries worth it? 

This is a matter of hot debate, with many people waiting to see what the market does.

To maximise your savings, you want to use as much of your ‘free’ generated power as possible. But even as a high-energy user, there will be periods when you’re drawing a background load only. Adding a battery to your system allows you to store all of your excess power to use later, significantly increasing your self-consumption and boosting your savings. 

Is it worth installing a solar battery? 

Batteries remain very expensive. The average battery costs anywhere between  £2,000 and £7,000, with some high-end models costing in the region of £10,000 to £12,000. They last about 15 years, and their capacity decreases slightly near the end of their life. When you consider that the average annual savings from a solar battery is around £300 (based on energy inflation in normal years), the maths, right now, simply don’t add up to make the investment worth it.

However, that might be starting to change.

Many have been waiting for solar battery prices to drop before making the investment, but the soaring price of electricity might push the needle from the other direction. The more excess energy you can store in your battery, the less you’ll need to pay your energy supplier at exorbitant rates, and the more you can sell back to the Grid. If electricity prices creep higher – or even remain at what they are in 2024 – the return on the investment of a solar battery will be much sooner. 

For more information on how solar batteries pay back, dive into our article: Are solar batteries worth it?

The Smart Export Guarantee

The Smart Export Guarantee pays the average solar panel owner in Great Britain £120 to £180 per year.

To earn money from your solar panels you need to apply to join the SEG. It requires electricity suppliers who are registered with the scheme to pay small-scale generators of low-carbon electricity for any energy they export back to the National Grid. Homeowners with solar panel systems of five megawatts or less can apply to join the scheme.

To join, you’ll need to apply directly with an SEG provider. SEG providers are any energy supplier with more than 150,000 customers. By law, they’re required to offer you a per kilowatt-hour rate for your surplus electricity. Rates vary, with EDF offering 3 to 5.6p and Octopus Energy providing 4.1p per kWh.

To qualify for the scheme and receive payments, you need:

  • to prove that your solar panel system was installed by an installer certified under the Microgeneration Certification Scheme (your installer would have given you a certificate evidencing this); and
  • a smart meter to track the amount of energy you export to the grid. You’ll need what is called a SMETS 2 meter, the second generation smart meter. 

The SEG replaces the popular Feed-In Tariff (FIT) scheme, which ended in 2019. The FIT scheme pays households a stipend for every kilowatt of solar energy they generate, plus a separate fee for every kilowatt they sell back to the National Grid. The scheme still exists for those who joined before 2019, but it is now closed for new entrants.

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