Solar Panel Payback Periods Explained

The short answer is solar panels pay for themselves withing 7 – 15 years in most cases. The comprehensive answer is the payback period massively depends on your house, the energy usage, the manufacturer, the size of solar equipment plus the number of panels and/or solar batteries.

What is exactly a solar PV payback period?

The payback period when it comes to solar panels is essentially how long it takes for the savings on your electricity bills to cover the upfront cost of installing the panels. In other words, it’s the time needed for your solar investment to pay for itself.

How it Works:

1. Initial Cost: This is what you shell out for the solar panels, installation, and any other related expenses like maintenance or inverters.

2. Annual Savings: Once your solar panels are up and running, they start cutting down your electricity bills. The savings here are the difference between what you used to pay for electricity and what you’re paying now, thanks to your solar panels.

3. Calculation: You work out the payback period by dividing the initial cost by the annual savings.

The Solar Payback Period Formula:

Payback Period = Initial Cost / Annual Savings

Example:

– Initial Cost: £12,000

– Annual Savings: £1,200

– Payback Period: 12,000 / 1,200 = 10 years

So, in this case, it would take about 10 years for the solar panels to pay for themselves.

Why It Matters:

Investment Insight: The payback period gives you a clear idea of whether going solar is a smart financial move.

Planning Ahead: It lets you know when you can expect to break even and start seeing a return on your investment.

Comparing Options: It’s a handy way to compare different solar systems or other energy-saving investments, helping you choose the best option.

After you reach the payback period, any savings on your electricity bills are basically pure profit. That’s when you start really feeling the financial benefits of your solar panels.

How We Calculate The Solar Payback Period

The payback period is a crucial bit of information homeowners want to know when it comes to solar. Helpfully, the design software we use at Glenfield Electrical, OpenSolar, calculates the payback period for us.

Additionally, on OpenSolar we can provide hoemowners with multiple proposals so they can see the impact adding a battery or more panels makes on the payback period too.

Looking to save on your energy bills? You’re not alone, and with energy prices rising and the price cap hike planned for October 2024, the cost of energy is very much on our minds right now.

So, how can we heat our homes and keep the kids on wi-fi without it costing the earth? It’s not a quick fix, but one of the best long-term solutions you should consider is solar panels. Harnessing the  sun’s energy is proving an increasingly popular option for homeowners, and the maths for installation and returns is getting better.

With the improvement in battery storage technology, now homeowners can store their excess energy so they can use it when they need it. Batteries have bigger storage capacities, they’re far cheaper and more reliable than ever. 10 kWh batteries are available and don’t break the bank, costing a few thousand pounds. To put 10 kWh into context, the average UK home uses around 8 kWh of electricity a day.

In the UK, the smart export guarantee (SEG) scheme, launched in January 2020, enables households to get paid for the solar energy they ‘export’. This is the electricity you generate, but don’t use, so you can pump it back into the national energy grid. In short, you save because you use the electricity you generate with your own solar panels, and you earn because you can sell what’s surplus to requirements.

It helps to explain why, as of June 2024, more than 1.4 million homes in the UK have had solar panels installed. That’s nearly 5% of the UK’s 28.4 million households. This is a big leap from 2010, when there were only 28,211 solar households.

So, what’s holding you back? A really common question the team at Glenfield Electrical get asked is ‘how long will it take for my solar panels for pay for themselves?’ It’s an excellent question and if you explore the internet, the answers to this vary widely.

In the UK, in our experience, solar panels will typically take 8 – 15 years to pay for themselves. Typically, we install larger system systems (5 kW+ ) so the payback is slightly longer but the returns are better in the long run. On more standard sized systems e.g. 4 kW – the payback period is shorter. Exactly how long, however, depends on a range of factors. These include:

• Energy prices –  needless to say, if energy prices and inflation remain high, you will recoup your investment sooner because you are simply saving more by generating your own energy.
• Grants and schemes – low-income households may qualify for grants like the Energy Company Obligation 4 (ECO4), which can make solar panels more affordable. The ECO4 Order came into effect in July 2022, and it applies to measures installed from April 1, 2022. If the new government doesn’t change things, the program will run until March 31, 2026.
• System size – Larger systems may take longer to pay for themselves. In the long run you can save more, but the bigger systems will cost you more at the beginning. Talk to our friendly team of solar experts about the size of system you need.
• Installation costs – The cost of installation can affect the break-even point. It’s really important not to scrimp on the cost of installation. Get people in who really know their stuff. You need electrical contractors with the experience and skills to ensure your system is properly installed. Your panels will be there for a long time, so seeking savings with installation really is a false economy.
• Energy consumption – How much energy your household consumes can impact the payback period. If your household is ‘energy hungry’, you will be making more savings day by day. At the other end of the scale, if your panels are on a second property that sits empty for half of the year, you will not be recouping the initial costs very quickly.
• Local conditions – The climate in your area can affect how long it takes to see a return on investment. Yes, the weather is a variable that does have an impact on the amount of energy your solar panels can generate, but the effects are not as obvious as you might think. Cloud cover will reduce the amount of sunlight from reaching your panels, so they produce less than the peak generation. Rain, however, can wash away dust of dirt that block the light, and it can cool down your panels, improving their performance.
• Battery storage – If you have a battery to store excess energy, you may save more in the long run. Size does matter when it comes to your solar energy battery.
• Smart Export Guarantee (SEG) – As mentioned above, if you have an SEG-compliant system and an SEG tariff, you can sell excess energy back to the grid for around 5–6p per kWh. This can help your panels pay for themselves faster.

And it’s important to remember that solar panels also offer long-term benefits way beyond the payback period, such as reduced energy bills, increased property value, and environmental sustainability. If you look after them, solar panels are the investment that just keeps on giving.

Five top tips for solar panels

So, we’ve covered here some of the factors that have an impact on how long it takes for your solar panels to pay for themselves. Now, here’s five top tips for achieving some peace of mind over the decision to invest in solar.

1 Choose the best value for money system– efficiency is key in the solar industry, and slightly more expensive panels and batteries usually have a much better output. This is especially important on smaller roof spaces. Look out for performance and product guarantees too.

2 Get the number of panels right – it’s important to balance the right amount of panels to meet your energy needs. If you have too few panels, you’ll probably not generate enough electricity to save a significant percentage on your electricity bill. It’s also difficult for your system to pay back the installation cost.

3 Size matters with your battery and inverter – battery size matters when it comes to storing excess energy. Picking a battery that is either too small or too large for your needs can have an impact on energy storage and efficiency whilst pushing up the price. Too small a battery means you’ll export most of your free excess energy back to the grid, so you’ll be paid a small amount (around 5p per KW), which isn’t cost-effective. Inverter sizing can be tricky so make your sure installer hasn’t massively over or undersized the inverter.

4 Pay a deposit for a good installer – good installers will follow the MCS quality mark process and ask for a deposit once you give them the go ahead. The deposit is there to secure your installation date and help the installer order the materials needed. Your deposit is also protected by HIES or RECC’s insurance backed guarantee.

5 Register for SEG payments if you can – failing to register for Smart Export Guarantee payments is a missed opportunity to earn money by exporting surplus energy back to the grid. You can earn up to £300 or even more, every year by registering with an energy supplier to sell your excess energy.

To sum up

Solar panels are a long-term investment, not a quick fix. If you can afford that initial outlay, we strongly recommend that you consider them. A well-installed, high quality system will take just a few years to pay for itself, and then from there you are saying hundreds of pounds each year. Of course, you are doing your bit for the environment, too.

If you’re interested in solar panels, book in a no-obligation, free consultation with our friendly team of solar panel electricians.