How would you like make £750 a year tax-free and save money for the next 20 years just from your roof?
While solar panels have an initial up-front cost, the long-term benefits are undeniable. As well as earning tax-free payments that are backed by the Government, you can also significantly reduce the amount of money you spend on your heating and electricity bills, and on top of all that you’ll be helping the planet reduce its carbon footprint. Read on for the Moneymagpie guide to making money from your roof.
Solar panels can make you money through the Government’s Feed-in Tariff (FIT) scheme – also known as ‘Clean Energy Cashback’. The Labour Government introduced it in 2010 to encourage us to produce more clean energy for ourselves and for the National Grid as part of the UK’s target to generate 20 per cent of energy from renewable sources by 2020.
To take advantage of the scheme, you will need between £4,000 and £6,000 of capital for the initial investment (a fairly hefty amount for most of us). However, the tariff rewards are so generous, you should definitely think about the scheme if you can afford the initial outlay.
Furthermore, some installers offer finance and the cost of finance for home improvements is usually generally reasonable.
The scheme promises to reward you if you have photovoltaic solar panels (solar PV) installed on your roof. If you go for it, you’ll profit in three ways:
Aside from the environmental benefits – reducing CO2 emissions and promoting renewable energy generation – there are big financial rewards up for grabs. Not only do you save money on your energy bill, you will also benefit from an annual income for the next 20 years – an income that has been protected by statute. The amount you could get each year is not guaranteed, but if your house is deemed suitable for the panels then you could make up to £750 a year.
Importantly (and even better for your pocket), your income from this system is exempt from income tax. This makes the scheme particularly attractive to those paying higher rate tax and those paying none. It means that you get to keep the full amount each year – earning you money for doing nothing. The returns are index linked (i.e. they go up with inflation) and could add a substantial amount to your retirement income – particularly useful if you are looking to build up your pension or other investments.
The only downside to installing solar PV is the length of time it takes to pay for itself. In environmental terms solar panels offset themselves after about four years, but financially you’ll have to be living in your home for at least the next six years before you get back your investment and start making a profit.
The money you spend will be invested in the system on your roof and not readily available should you need it, another reason why some buyers would choose to opt for finance.
If you can reasonably expect to be in your home for that length of time then solar panels could be for you. However, if there’s a chance you’ll be moving home in the next few years (say to downsize, or to find more space for a young family) you should tread carefully otherwise its just your potential buyers who will benefit from your investment.
Solar panels can be huge and, depending on where they’re placed, very obvious. Some people really don’t like solar panels and there have been cases where would-be sellers have had to remove their panels to close a sale (although any estate agent worth their salt will view most solar panels as a plus rather than a minus).
So even if you’re considering the free option (see below), you should only do it if you know you won’t need to sell your home for a while.
Then there’s the fact that most electricity production happens during daylight hours. Therefore it will be the appliances running during the day that will benefit most. If you’re out of the house all day you could set a timer for some machines to work during these periods such as water heating, washing machines, dishwashers etc.
Figures from Solar PV installer show that an ‘average’ system – 12 panels, or 3 kilowatt peak (kWp) – costs around £5,000 (including VAT at 5%). Solar systems can cost in the region of between £1,750 to £2,0000 per kWp, although the cost per kWp should reduce as the system size increases due to fixed costs such as scaffolding and EPC and MCS certificates.
Maintenance isn’t an issue. Other than washing them once a year, you don’t need to do much to maintain your solar panels. You may need to replace the ‘inverter’ after about ten years at a cost of roughly £300-400, that’s all. Solar PV has been available for many years and is a reliable system – all panels should come with a 25-year guarantee.
With the free option there are no upfront costs to you and you will benefit from cheaper electricity thanks to the energy generated from your panels. However, you won’t benefit from the regular annual income from the electricity for the next 20 years.
It comes down to whether you can afford to invest in solar panels or whether annual savings on your electricity bill will be enough for you. The free option still saves you money but won’t make you any. A typical homeowner is likely to save in the region of 50 per cent of their energy bill, but this entirely depends on a lot of factors, including level of energy usage, and when the energy is used, as well as the type of house and it’s energy efficiency.
Not receiving the feed-in tariff is a big downside as the index-linked, tax-free income could be very useful. However, if you don’t have the money to invest now this free option may be better for you. Consumer Focus has a good section on things you should ask before getting ‘free’ panels if you’re thinking of choosing this option.
Deciding whether to buy or ‘rent’ solar panels depends very much on your own circumstances – whether you can raise enough to buy the panels, whether you’ll be moving home in the short to mid-term and how important renewable energy is to you. If you’re planning to buy solar panels you’ll need to factor in the cost – it represents an investment as much as buying shares does.
Panels perform best on south-facing roofs at an angle of between 30-40 degrees to the sun. Even if your roof doesn’t match this ideal you could still have solar panels fitted and make a profit – it’s best to talk to an individual company (or companies) for more information.
Each provider has a different way of working but in general you can expect:
Whichever scheme you choose, opting to generate your own electricity from solar panels is a good long-term plan for making a bit of extra money while doing your bit for the environment. Solar panels make sense even if you’re just looking to save on your electricity bills – something we will all be forced to do as energy prices look set to continue rising.