As scheduled, the feed-in tariff has been cut to 16p. This means every kWh, or hours-worth of electricity generated, is worth 16p. This means a profit of a few pence every hour, as opposed to buying energy from the National Grid for 14p per kWh. Although the tariff has been cut, solar PV still represents a great opportunity, says Paul Barwell. Read on to discover why.

Tariff cut to 16p, but PV's still kicking

The good news is that although the new feed-in tariff rate of 16p is lower than the previous 21p rate, the PV panels themselves have dropped in price to be the most affordable yet. This time last year the price of a 3kW PV system could cost up to £9k or £10k. It’s now possible to have a 3kW system for less than £6k.

The tariff rate has dropped at a time when energy companies are raising prices, so it’s also good news that as well as a superior ROI than banks or building societies (which typically offer around 4%), the earnings from solar PV panels carry other incentives: they are tax-free and index-linked for 20 years.

All the same, it’s a lot to ask of people to invest in something that does not seem certain. One month the tariff rate is 21p, the next it’s 16p. Why has the feed-in tariff rate been fluctuating?

The history of solar PV in the UK

The feed-in tariff was designed to be an incentive, lucrative enough to tempt people into early adoption of solar power. That’s why for a short while the feed-in tariff rate was as high as 43p.
But the Government grossly misjudged the public takeup of solar, allocating just 2% of its renewable energy budget to solar PV. To put that into perspective, by the time The Eco Experts went to Ecobuild in March earlier this year, PV had grown to occupy 80% of the UK renewables market. That’s some margin of error!

And at 43p, the Government’s PV budget had soon galloped out of hand.

Panicked, the Government tried to rein it in, reducing the tariff to 21p in March this year. And since then the mood in the industry is that Government has whipped PV solar soundly and jeopardised its future with more cuts and negative scrutiny. Even though it’s perhaps the most bankable renewable investment, solar PV has been made to look unreliable.

'PV still got it!' declares Solar Trade Association report

All in all, yes, the feed-in tariff rate has decreased, but I’ve read a recent Solar Trade Association (STA) press release that puts forward a compelling case for taking up solar PV nonetheless.

After making some back-of-the-napkin calculations of my own, assuming a 4kW PV array earning 16p per kWh (above the National Grid price of 14.5p per kWh) and with a 4.5p export tariff, I predicted that the savings could be as much as £1014 per year if you use 90% of the energy you generate, or more with a lesser 50% usage you could earn £877.

The STA's calculations

The STA has been more conservative than me with their calculations. Even so, using the Government’s own projected figures on electricity prices and average annual solar PV yields, the STA has shown that switching to solar can still provide a generous ROI - 9.2% - which is three times the rate of return offered on the high-street.

This 9.2% ROI means you double your money by the end of the 20-year feed-in tariff period. And, given that solar panels typically function very happily for 40 years, you will be preparing yourself for a future in which rising energy prices simply don’t affect you in the same way as they will the rest of the population.

Energy bills growing year-on-year

It’s common knowledge that energy prices are going up but most people wouldn’t be able to quote actual figures. That’s where the Renewable Energy Association (REA) steps in. By analysing Government statistics it has found that electricity bills rose 6.6% above the rate of inflation between 2005 and 2011, which bumps the ROI of a 4kW system from 9.2% to 11.4%.

STA Chairman: "A no-brainer investment."

In the STA report its Chairman Paul Barwell is quoted as saying,

"Our figures show that solar is a no-brainer investment. Compared to the returns you can get these days in banks and many other investments, solar provides a very solid and attractive return. This is particularly the case if your consider energy bills are rising faster than anyone expected… Nobody knows what electricity prices will be in the future but we do know they have gone up substantially over the past few years..."

"Solar gives people the opportunity to take control of their electricity bills and help us move away from damaging fossil-fuel dependence. We believe the smart money is on solar."

Did you know The Eco Experts now offers solar loans? Solar is such a good investment that we've partnered with Engensa to offer free upfront loans for solar PV.