Why should you be investing in photovoltaic solar panels?

Barely a week passes without the news leaking out that one of the six major energy suppliers is about to put their electricity prices up yet again. They all claim to be better than each other and to act independently, yet most of us have deep-seated suspicions that the playing field isn’t quite as level as it’s claimed to be. So whether you choose to have your electricity supplied by British Gas, Npower, Eon, EDF, Scottish Power or Scottish and Southern, the one thing you can count on is that your electricity bill will continue to rise exponentially, even though your wages probably won’t.

Still, it needn’t be all doom and gloom. There is a way you can fight back and offset some of these increasing costs. If you install photovoltaic solar panels you can save yourself an estimated minimum of £70 each year, according to figures released by the Energy Savings Trust, and earn an income for any excess energy produced by your PV solar panels which is underwritten by the government’s Feed in Tariffs (FITs). Now, that might sound too good to be true, but the simple fact is, it isn’t. Many families have already installed this form of green electricity generation in their property and are reaping the benefits.

So how does this system work then? Well for an initial investment of around £12,000 for an average property, home owners can install a PV Solar Panel system in their properties which will produce enough solar cell-generated energy to power most of your domestic needs. The government will then underwrite the costs of the solar cell installation by guaranteeing at least a minimum payment for all the energy that’s produced. The Feed in Tariff system has been designed in such a way that the average monthly income generated will significantly exceed the monthly cost of purchasing and installing the technology.

The FIT system works in 3 distinct yet interconnected ways:

Generation tariff

This is a set rate paid by the energy supplier for each unit (or kWh) of electricity households generate. This rate will change each year for new entrants to the scheme (except for the first 2 years), but once you join you will continue on the same tariff for 20 years, or 25 years in the case of solar electricity (PV).

Export tariff

PV households also receive a further 3p/kWh from their energy supplier for each unit they export back to the electricity grid, that is, when it isn’t used on site. The export rate is the same across all technologies. Domestic FIT installations are likely to have their export deemed (estimated) at 50% in most cases until smart meters are rolled out.

Energy bill savings

PV households also make savings on their electricity bills, because generating electricity to power your appliances means you don’t have to buy as much electricity from your energy supplier. The amount you save will vary depending how much of the electricity you use on site.

What this means in practice is that a typical domestic solar electricity system, with an installation size of 2.7 kWp could earn around:

• £990 per year from the Generation Tariff
• £40 per year from the Export Tariff
• £70 per year reduction in current electricity bills.

This gives a total saving of around £1,100 per year, assuming 50% of the total electricity generated is exported back to the grid. The figure obviously varies depending upon how much is exported. It should also be noted that this doesn’t take account of the cost of the PV solar cells and installation. It’s estimated that it takes on average just over 10 years to fully recoup the cost of the initial installation, though certain government grants are available to qualifying households. However, Feed-In Tariff payments will continue for 25 years after the installation so will still prove to be financially beneficial.  Anyone looking to invest would do well to look at PV solar cell installation: it brings superior financial rewards in both the short and the longer term.

However, there is one note of caution that should be added. Although the government scheme is guaranteed for 25 years, the levels of Feed in Tariffs are not. So the sooner a household invests in PV solar power, the sooner it can take advantage of these higher rates for the 25 year tie-in period. The government is set to review these rates again in 2012 and many people believe that due to the popularity of solar they may cut the rates as they will not need to encourage people as much.