Is solar power a bright investment?

If you install a typical £12,500 photovoltaic (PV) system on your roof, the new feed in tariff should give you a return of at least £25,000. So what's the catch? There isn't one!

If the government offered to pay you £1,000 a year for the next 25 years, in return for an up-front investment of £12,500, you'd snap it up in a second. Well, that's pretty much the deal on offer this week after the government finally revealed what it will pay those who install electricity generating solar panels – in and around their homes – through the new "Feed-in Tariffs" (FITs).

After years of campaigning by environmental groups – helped in small part by this newspaper – the government has finally agreed to reward households and businesses installing electricity-generating measures with enough of a return to make it a serious financial, as well as an environmental, investment. If you've got the money and, crucially, a sunny, south-facing roof, you can earn a 7%-10% tax-free return, an income that will rise in line with inflation. At the same time, you get to do more than your fair share in reducing the UK's carbon­ emissions.

In the week that the energy regulator,­ Ofgem, warned the nation to expect 20% electricity price hikes by 2020, and warned future supplies were in jeopardy, investors in solar panels will have the added benefit of being a net provider of electricity, and largely insulated from future price hikes that could see household bills top £2,000 a year by 2020.

Announcing the new tariffs' introduction this week, the energy and climate change secretary Ed Miliband said the guaranteed income would be a big incentive for householders "to make the move to low carbon­ living".

"The feed-in tariff will change the way householders and communities think about their future energy needs, making the payback for investment far shorter than in the past."

Although Milliband announced a number of tariffs – including what the government will pay those installing wind turbines – the one that will appeal most to the average UK householder will be for installing photovoltaic (PV) solar panels – at a typical cost of £12,500.

From 1 April, households with approved­ schemes will be paid for the electricity they generate, even if they use all of it themselves.

The level of payment depends on the technology and whether it is being fitted to an existing­ home, or installed as part of newbuild. Importantly, future payments are guaranteed for the next 25 years and have been, unexpectedly, linked to inflation.

Anyone fitting a typical £12,500, 2.5kW PV system to their existing home will initially be paid 41.3p per kilowatt hour (kWh) generated. Enough, according to Miliband, to reward them with up to £900 in the first year on top of a £140-a-year saving on their bills.

The measure, which is inevitably quite complicated, is designed to reward those who reduce their own electricity consumption by installing low-energy lighting and A-rated white goods, and to ultimately export excess electricity generated back to the grid.

Households get an extra 3p for each kWh they export on top of the 41.3p they get paid for all units generated. Those building PV roof panels into a new-build home get a slightly lower tariff (36.1p per kWh). The fact that the payments are not taxed make it a particularly rewarding investment for higher-rate taxpayers – those earning more than just over £43,000.

The feed-in rates change depending on which year you install the technology. They will also apply to installations commissioned since July 2009 when the policy was announced. Early adopters, who have installed grant-assisted PV and registered­ for the ROC scheme, will also receive payments, but at just 9p/kWh. The payments will physically come from your existing electricity supplier, but will be overseen by the regulator Ofgem.

Reference: The Guardian

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Homeowners with flat roofs may well find they can install a system, as will those with conventional roofs that face a few degrees either side of south, east or west. Panels perform best in unshaded sites angled towards the sun at a pitch of 30-40 degrees.

Prior to this week's announcement, grants of up to £2,500 had been available to those installing PV panels under the terms of the government's Low Carbon Buildings Programme. There are still grants available for other green technologies. FITs now provide the entire financial incentive for PV installers.

These new tariffs will allow people to turn their homes into mini-power stations. For householders who have a south-facing roof, PV panels are really worth looking at. Not only are they a sound financial investment, they will also allow you to do your part in tackling climate change.

Our homes are responsible for over a fifth of UK emissions, but by fitting renewable electricity systems and wind turbines, we can be part of a greener, safer future.

0% interest instalment payment program available for domestic solar thermal and photovoltaic systems.

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