Will solar panels pay for themselves?

The government is offering £1,000 a year tax-free for 25 years in return for an initial investment of £12,500. It works like this. From 1 April any household generating its own energy will be rewarded with tax-free payments – even if that household uses all the energy it generates.

How much you get depends on the type of system you have – wind turbines, hydro-electricity schemes and solar photovoltaic panels are all included – and whether you are installing them on an existing home or a new-build property. The most generous rewards will go to people who install solar panels. This will earn you 41.3p per kilowatt hour (kWh) generated, plus an extra 3p for every kWh sent back to the National Grid.

According to Ed Miliband, who announced this ‘Feed-in Tariff’ (FIT) system last week, anyone fitting a typical 2.5kW solar panel system to their existing home should earn £900 in the first year, plus a £140-a-year saving on their bills. Is there a catch? The short answer is yes.

The initial cost of installing the system, for one. That typical 2.5kW system costs around £12,500 to install. So you won’t see any return on your investment for 12 years. That makes the idea that “these tariffs are going to generate rates of return that will beat high-street savings accounts by a mile”, as suggested by Jeremy Leggett, the chief executive of solar energy supplier Solarcentury, in The Times, laughable. You can’t possibly compare the two. With a high-street savings account you don’t lose access to your initial investment.

Still, if you have £12,500 to spare for the long term, the scheme looks attractive. The industry regulator Ofgem warned last week that bills could rise by 25% over the next ten years and having your own power source could help protect you from these rises.

And for those who don’t have the cash to spare, Miliband has more of his good news: there’s apparently another scheme aimed at rewarding those with renewable heating sources – which are much cheaper and easier to install – to be announced in this year’s budget.

There are other concerns that should be taken into account. For example, you might move before you get your hands on all the payback, and the value added to your house by solar panels may not be fully recognised by buyers. But the biggest drawback must surely be the length of the scheme. The government says payouts are guaranteed for 25 years. But there could be six changes of government in that time – one of them just around the corner. Who can be sure they’ll all stick to Miliband’s promises? If you are thinking of taking up this offer, it’s probably worth waiting at least until after the next election to do so.

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