Solar panel earnings to be halved from February – are they still worth it?

After considering more than 55,000 responses to a consultation on proposals first announced in September, the Department of Energy and Climate Change (DECC) today unveiled its final decision.

The feed-in tariff – which is a state payout for the energy you produce via solar panels – will be cut by 64% from 8 February. DECC had initially proposed cutting the tariff by 87%.

The change means that when payments for energy that you generate and that is sent back to the grid are factored in too, average earnings from panels will drop by 53%, from £505/year to £235/year (currently it's £520/year but the rate drops marginally on 1 January anyway).

DECC says current funding arrangements for solar panels will end on 14 January. That means if you're in the process of installing panels you'll have to go quick to register them.

In effect, the deadline has already passed to start the application process to get the higher rates because you need to have the panels installed and registered by 14 January, as installation can take four to five weeks anyway, and the Christmas break could make it longer.

'It's touch and go whether you'll earn enough to pay back the cost of the panels'

Martin Lewis, founder of MoneySavingExpert.com, says: "The original government proposal meant it wasn't even worth consumers considering getting solar panels for financial reasons.

"Now that the tariff hasn't been cut so much, it certainly isn’t automatically a good deal. Based on our calculations, it is touch and go whether you will earn enough to pay back the cost of the panels within the 20 years that the feed-in tariff is guaranteed for (it goes up with RPI in the same way as it did before).   

"So while at this new level solar panels aren't quite a write-off they're unlikely to be a particularly good use of savings. However for those who like the idea of their own renewable energy and having access to their own energy supply, they are unlikely to lose money over the long run, just not make too much."

How will solar panel payments change?

To make the impact of the changes clear, we've listed the three key ways you can benefit from solar panels – the cuts announced today will slash the earnings in point two below. (The figures below are based on averaged data from the Energy Saving Trust.)1. A lower electricity bill. When your solar panels are generating electricity, you can use their energy. This can typically save around £65/year on energy bills.

2. The 'feed-in tariff' – this is the bit that's changing. This is a payment you receive for all the electricity the panels generate, even if you use it yourself. The rate's currently 12.47p/kWh and drops slightly to 12.03p/kWh from 1 January. But from 8 February it'll be just 4.39p/kWh. So what now pays £435/year (£420/yr from 1 January) will pay just £150/year.

3. The 'export tariff'. You're paid this for energy you don't use and export back to the grid. That's generally assumed to be 50% of what you generate. This is set at 4.85p/kWh and isn't set to change. This can earn roughly £85/year.

The rates are linked to RPI and rise with inflation. The Government had proposed changing this so that it was linked to CPI, but said today it's now decided not to.

Solar panel earnings to be halved from February – are they still worth it?

So are solar panels still worth it?

The Energy Saving Trust says a typical homeowner can currently earn and save around £585/yr in total (£570/yr from 1 January). Based on panels costing an average of £6,500 currently, that means you'd be able to pay off the panels in around 11 years. Not only that, but over the 20-year life of the feed-in tariff you could make a profit of around £5,000.

Yet with the feed-in tariff cuts coming in, the average amount you can earn and save is likely to drop to just £300/year.

The amount you are paid for the electricity your solar panels generate is guaranteed for 20 years. But based on the new rates being offered, it's likely to take you more than 21 years to pay off the cost of the panels, making it a much more risky prospect.

Why is this happening?

The changes follow Energy and Climate Change Secretary Amber Rudd's pledge in July to cut household bills while reducing emissions.

Payouts to solar users – which some view as too generous – are effectively passed onto all energy users via slightly higher bills as suppliers pay a green levy to the Government to fund this. According to the Solar Trade Association, the feed-in tariff currently adds around £7/year to the average household energy bill. By cutting it, it could mean lower bills.

You may ask yourself how this helps cut emissions given solar panels are environmentally-friendly. Well, some commentators argue that as the cost of panels has come down over the years, the Government doesn't need to give so much back through subsidies.

They typically cost £5,000-£8,000 per home to install compared to £10,000-£12,000 a few years ago.

Unsurprisingly, the steep cuts have been met with anger from the solar industry. According to the Solar Trade Association, an estimated 6,500 jobs have already been lost.

Is there still time to beat the tariff cut?

DECC has announced the current scheme will close on 14 January. To get in before the deadline, you need to register for the feed-in tariff before then with an energy supplier.

The amount you are paid is based on the rate on the day you register for the feed-in tariff, which happens after you've had the panels installed.

Some firms can install and fit panels within four to five weeks, but it can take longer, so it's unlikely you'll be able to beat the cuts unless you're already in the process of having your panels installed and registered.

What if I already have solar panels? If you've already signed up to the feed-in-tariff, the rate you get depends on what was in place the day you registered your panels. These new proposals won't affect you.