Are solar panels worth it – how solar panels pay back

We all know the role that solar energy plays in reducing our carbon footprint, but are solar panels with it, and how much do solar panels save on your electricity bills? With rising energy costs in the UK, the amount of money you can save by installing solar panels is at an all-time high. What’s more, you can even earn extra money by selling any electricity you don’t use back to the National Grid, giving you more money towards those rising household bills. 

Below we’ll run through the different criteria that factor into how much money solar panels save and what you can do to maximise the 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.

Find out about 0% VAT measures on energy efficiency installation.

In this guide we’ll cover:

• How much solar panels can save on energy bills
• The investment value of solar panels
• When solar panels break even
• How to use more of your solar power
• Whether solar batteries are worth the extra cost
• Earning money from your excess electricity
• The most frequently asked questions about investing in solar panels

In this video, we speak we two people who have installed solar panels on their homes. They explain why they did it, what it cost, what solar panels have saved them on their bills, and if they have any tips for anyone looking to install solar panels themselves.

On 1 October 2022, the price cap on electricity in the UK rose to 34p per kWh with a daily standing charge of 45p – its highest price since the 1950s. The cap is expected to rise again in April 2023 − with the average home energy bill increasing to £3,000 per year. 

It’s clear that the cost of electricity is rising exponentially, and every kilowatt of electricity you consume from your solar panels will offset a unit of power that you would otherwise have to pay for with your energy supplier. 

To properly answer the question of how much do solar panels save on electricity bills, it’s often best to make a comparison between what you’ll spend without solar panels and 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. 

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 can 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 34p per kilowatt, this totals £3,493.84 over the year. Add in the standing charge of 45p per day, and this totals £164.25. All in all, without solar panels this writer’s house will spend £3,658.09 on electricity. 

This is based on the current price cap, which is set to rise in April 2023.

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. 

So, you can see that while the solar power output doesn’t match the annual consumption, there’s a significant reduction in cost. Especially when you consider that the price cap is expected to rise again in April 2023.

It should be noted, however, that many people report savings of up to £1,200 annually with systems delivering optimum output.

There is also the Smart Export Guarantee (SEG) to calculate into the savings. This allows you to sell any surplus energy back to the National Grid, increasing the money you save. More on SEG later.

The typical solar panel installation pays for itself in 4-8 years. (Image credit: Adobe)

Discover how much solar panels would cost for your home by answering a few quick questions

We’ve seen how much solar panels save on electricity bills. Now let’s look at their investment value. If we say the cost of installation is £5,000, which is the average amount for a system this size, with £678.00 in revenue the Year 1 nominal rate of return will be 6.6%. We can then project its return on investment over the years. 

In order to do this, we need to make some assumptions. First, we factor in an annual cell degradation of 0.7%, which means their 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.

With these in mind, 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 sky high, you will make your money back on the investment much sooner.

And, if you live in a low-income household, then you might qualify for grants for solar panels in the UK to make the solar system much more affordable, and your break-even point even sooner.

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, such as 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 potentially 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. The good news is most solar panels will pay for themselves within a decade.

Approximate prices for December 2022. Source: Federation of Master Builders

The sun is a source of free energy that we can all use (Image credit: Adobe)

Location matters

Living in the south of the country can boost your output by up to five per cent when compared with the north. Where you live within the UK will have the most impact on how much solar energy you generate, consume and 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. 

Home during the day

If you work from home, you can also expect better savings. Simply being home all day means you’re using more of that free 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 and set to rise further, the money you would earn from the Smart Export Guarantee is likely to be less than what you would save by not having to pay your energy provider. You’re paying 34p per kilowatt-hour for electricity at the time of writing, but you will 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. 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. 

This is a matter of hot debate. This writer chose not to invest in one for the time being, and many people are 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 for high-energy users, 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 augmenting your savings. 

However, batteries remain very expensive. The average battery costs around £2,000. 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 just haven’t added 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 2022, the return on the investment of a solar battery might be much sooner. 

For more information on how solar batteries pay back see our article Are solar batteries worth it?

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

To earn money from your solar panels you need to apply to join the Smart Export Guarantee. The SEG 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 need to apply directly with an SEG provider. SEG providers are any energy supplier with more than 150,000 customers. By law they are required to offer you a rate per kilowatt hour for your surplus electricity. Rates vary from as low as 1.5p with EDF to as high as 12p with Tesla (via Octopus Energy). 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 replaced 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.

Learn more about solar panels

Read our guide to the best solar panels in the UK in 2022, find out how solar panels work, and see how solar panels are installed on a typical roof.