With just six weeks’ notice, the Government announced that it would be slashing the Feed-in Tariff (FIT) payments for solar panels by more than half.
The cuts, which came into force last Monday, could threaten 25,000 jobs in the renewables industry but, as a homeowner, if you were thinking about improving your home’s energy credentials, is it still worthwhile fitting solar panels?
“We knew and accepted that the current subsidy level of 43.3p for smaller domestic and commercial solar PV installations was coming to an end. What shocked us and the industry as a whole was the extent of the cut and the speed with which it is being implemented,” says David Hunt, a director with energy company Eco Environments.
The FIT scheme has been understandably popular; you get cash payments as an incentive for having solar panels on your roof to generate your own energy. However, the Government has reduced these payments from 43.3p a kilowatt-hour to 21p (from next April) for any new installations registered after 12 December.
Those who already have solar panels in place get to keep the top rate for 25 years but, in the scramble to beat the deadline, many customers have been left unhappy after failing to get their installations completed in time. They will now earn less than half of what they had hoped from their investment.
Solar panels used to be a fairly easy sell with the more generous feed-in payments but the cuts are likely to put many people off.
“It used to take nine or 10 years for the systems to pay for themselves, and now that is increasing to around 17 or 18 years. On the old rate, you could make £1,200 a year. But with the new rate, that drops to £650 and the payments are only guaranteed for 25 years so you haven’t got many more years to make a profit on it,” says Sylvia Baron, a Which? energy expert.
There is no doubt there is now a big gulf between those with existing solar PV systems and anyone getting one installed today, but it is important to remember that these feed-in payments are still tax-free and inflation linked (to the retail prices index). Also, because the electricity companies pay for all the energy generated, whether you use it or not, any excess electricity is exported back to the national grid for extra cash.
Rising fuel prices and lower installation costs going forward could mean that solar panels still offer a decent combined return and saving. The cost of having solar panels fitted has already fallen some way in the past 12 months, while electricity bills have continued on an upward spiral and in an industry that has had the rug pulled out from under its feet, there are bargains to be had.
“Considering the economic climate the prospect of a Government-backed, income-tax-free and index-linked investment return at above 5 per cent means that it is still very worthwhile to invest in solar energy,” says Toby Ferenczi, a co-founder of energy company Engensa. “Prices have fallen so much that the returns are almost as good as they were when the scheme was first introduced last year.”
One company, EvoEnergy, has now cut the price of its cheapest system by over £3,000 so a 3.92kw system with 16 solar panels could be fitted for £9,777. EvoEnergy say that a typical south-facing home could earn £759 a year from the FIT and save £219 on their annual electricity bill, equating to a 10 per cent return.
However, the sticking point could be that from next April, full payments will only be available to those with an energy performance certificate graded C or above. This essentially means you’ll need loft and cavity-wall insulation, although the Energy Saving Trust says this makes sense as there is little point generating energy only to lose it through the roof and walls.
Even so, it may be that only very new homes qualify and everyone else could receive less than half of the reduced standard payments. The message, therefore, is to do your research, make the calculations, and if you’re looking at this purely from an investment point of view, consider other options.
There are so-called “free solar” or “rent-a-roof” deals where you can get the panels fitted for nothing (and still benefit from energy bill savings) on the proviso that the supplier gets to keep the feed-in payments. Several companies, including British Gas and Eon, have already stopped taking on new applicants in light of the cuts but you can still get free financing with the likes of HomeSun, Isis Solar and Engensa. These deals are potentially more attractive now that you have less to lose in terms of feed-in payments and more to gain from rising energy prices.
“These might become slightly more competitive. Before we said don’t go for a rent-a-roof scheme because you would lose out on a lot of money but that is not the case anymore. However, be careful about the contract; in the past we have seen a few problems in the terms and conditions to watch out for,” says Ms Baron.
It is important to remember that you have to lease your roof for 25 years and any financial contract of this length is a serious undertaking so legal advice is a must.
Watch out for contracts that are heavily in the favour of the solar panel company, for example, it may stipulate that you need consent to sell up, or make any home alterations near the system during the contract. It may even state that you must compensate the company for missed feed-in payments if you need to repair your roof at any point. Even if you are allowed to sell your home within the 25 years, bear in mind that finding a buyer happy to take on a house with a roof that is rented out may be tricky.
If you do decide to go ahead and get solar panels fitted, whether financed from your own savings or through a rent-a-roof scheme, there are some basic rules. First of all, check if you need planning permission although you generally won’t unless you have a flat roof or live in a listed property, or conservation area. You also need to inform your mortgage provider and insurer that you are getting solar panels installed. Then once you’ve chosen your solar PV company, ensure that they are MCS (Microgeneration Certification Scheme) certified and a member of the REAL (Renewable Energy Assurance Limited) Consumer Code.
Jo Kelly, 64, Basingstoke
Despite the cut to the feed-in tariff, Jo Kelly, went ahead with a solar panel installation on her three-bed Victorian home last Thursday.
“I had been thinking about it for some time and then the Government changed the goalposts. It didn’t put me off though. I think it’s the way that everybody has got to go. My money was sitting in the bank doing nothing,” she says. “It might as well stay on my roof instead”.
Jo used EvoEnergy to install six panels, which cost just shy of £7,000. The company has estimated that she will make £273 a year from the new feed-in tariffs but that doesn’t factor in the money she save on her own electricity bill and for Jo, any extra payments are a bonus.
“People shouldn’t get so hooked up on what kind of return they can get. If they want to leave something behind for grandchildren, this is a great way of doing it”.