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Solar panels and feed-in tariffs: making solar pay while the sun shines

Posted by Tasha Kosviner on 22 April 2014 at 9:22 am

It’s one of those crisp blue early spring days that are made for being outside. But Mike Meyerstein is inside doing the hoovering. To misuse a well-known phrase, Mike is making solar pay while the sun shines (sorry).

Such is the life of a solar electricity generator.

As drawbacks to an investment go though, this is one that Mike can live with while he’s enjoying a 15 per cent return on his solar PV installation.

Mike, 62, who lives in the Suffolk coastal town of Martlesham Heath, has a 4kWp PV array on his unshaded, south facing roof supplemented by a solar switch (which uses surplus electricity to heat water) and a voltage optimiser.

A year on from the installation, Mike is delighted with the results.

“I had the system installed in 2012 at a cost of £6775,” he explains. “And in the first year of operation I have made £680 from the feed-in tariff (FITs) and about £320 in savings on electricity and gas, compared to my previous year’s usage. That’s a tax free return of almost 15 per cent. Not bad, eh?!”

Not bad at all. If things carry on in this vein, Mike will recover his initial investment in 10 years – and still enjoy another 10 years of FITs thanks to the government’s 20-year FIT programme.   

The Solar Trade Association (STA) estimates that with current feed-in tariff rates, the average, annual return on a solar investment over 20 years is 12.6 per cent. As in Mike’s case, this can be exceeded with optimal system management and some small changes in behaviour - like vacuuming on a sunny day.

Earlier this year, energy and climate change minister Greg Barker said that solar energy was now a better investment than a pension and by way of cementing the message, the STA compares it to the 3 to 3.6 per cent you get for an ISA, the 5 to 6 per cent for an annuity and the 1.5 to 4 per cent for a government bond.

In terms of cold hard cash then, installing solar panels on your roof – assuming you can afford the initial outlay – would seem to be a no-brainer.

And yet, Mike says, among those he's spoken to, the reception hasn't always been positive. 

“People are still very sceptical,” he reports. “Even when I tell them about my experience, they still think there’s a catch somewhere. But people need to know that there’s no scam involved. It’s just a very good investment.”

It is true that solar power in the UK has had something of a rocky ride, but with the Solar Trade Association estimating that solar energy generated in the UK is now close to 4GW - enough to power 1.2m homes - the future for solar still looks bright. 

“The domestic solar market has been through a lot of twists and turns in its relatively short life to date, but it is much stronger now," STA Chief Executive Paul Barwell told YouGen. "Tariff reductions are now much more predictable and manageable. Although many people have installed in order to “beat” various tariff deadlines, the costs of solar have continued to fall, and electricity prices have continued to rise, meaning the returns are still broadly in line with those on offer when the scheme first launched – sometimes even better. As the upfront costs continue to fall, solar becomes affordable for more and more households, enabling them to cut energy costs and carbon at the same time.”

STA has predicted that another tariff reduction, or degression as it is known, of 3.5 per cent is due in July so will occur on July 1, so if you're considering installing, then now is the time to act. 

If you want to enjoy a return as good as Mike's then it helps, like him, to have a south facing roof and enough room to install the 4kW installation, which give you the best return from FITs (after 4kW the rates drop). 

Mike also attributes his great rate of return to the voltage optimiser and the solar switch, although the former is thought to be less useful in the domestic situation. In addition, a solar switch is not a great option if you're on gas and interested in carbon saving as well as income generation. (VERY briefly, this is because heating water with electricity is far more carbon intensive than using gas and by putting your solar-generated electricity back into the grid instead of using it, you're effectively 'displacing' electricity produced from less green sources). 

Atter optimising your panels' location, getting the most out of your solar then is just a question of keeping an eye on the weather and your generation and using your more energy intensive appliances when generation is at its peak. For Mike that means vacuuming and running the washing machine but it also means turning off the (gas) central heating on cold bright days and using electric heaters instead. 

"We are retired so we can use our heavy duty appliances during the day," says Mike. "Then on bright days, when we're generating in excess of 3kW of power, I can use my 2kW convection heater and a couple of oil filled radiators and turn off the gas for more savings."

More information

YouGen guide to solar electricity

YouGen guide to the feed-in tariff

From the blog

Feed in tariffs from April 1, 2014 announced (Feb 2014)

Data collection demonstrates the value of solar PV (Feb 2014)

The feed-in tariff still offers good rates of return (April 2012)

Making the most of your solar generated electricity (Feb 2012)

35 per cent of domestic solar systems 'underforming' (Jan 2014)

If you have a question about anything in the above blog, please ask it in the comments section below.

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