Owners of solar PV systems obtain value from their investments in three ways:
Generation Tariff - Firstly a subsidy, known as a Feed-in tariff or FiT is paid for each kWh of electricity generated by a PV system. For domestic size properties the FiT is currently set at 13.39p/kWh for systems installed on existing roofs before end June 2015. The tariff paid will rise each year with inflation The degression in levels of Feed-in tariff for new purchasers is intended to match the dropping cost of solar PV so that whenever you buy, you should receive a similar level of financial return.
An electricity meter, known as a “generation meter” is installed in the system to measure all the electricity that is produced by the PV system. FiT payments are made quarterly by the electricity companies and are paid on everything that is generated.
Energy Bill Savings - The PV system owner is however at liberty to use any or all of the electricity that has been generated. Domestic customers are generally charged around £0.12 to £0.14 per kWh for the electricity they buy, so if they use their free solar electricity instead they will save on their electricity bills as well as receiving an income from the FiT.
Export Tariff - The third area of value comes from any electricity that is generated by the PV system but not used within the premises. This electricity is exported from the property back into the electricity distribution network. At present the exact amount of electricity being exported is not usually measured, so the electricity companies make an assumption that half of everything generated is exported away from the property. Electricity companies currently pay 4.85p/kWh to purchase this exported electricity.
The Government has committed to pay FiTs for 20 years from the date of system commissioning and to increase the amount of FiT in line with inflation. Hence Solar PV systems can be seen as one of the few classes of investment that will offer long term inflation protection.
FiT income for residential systems is also tax free.
* Energy Efficiency Requirement – Where PV systems are associated with buildings an Energy Performance Certificate (EPC) level D or better must be obtained in order to receive the full level of FiT. A lower level of FiT is payable for buildings that do not achieve level D.
Typical Cost and Income From PV In a typical example of someone purchasing a 4kW of PV system on a south facing roof, the project economics may look something like this:
Purchase Price: £7,000
Annual electricity generated: 3,434kWh
Feed-in Tariff payments: £494
Energy Bill Savings: £240
Export tariff: £82
Total annual income and savings £816
Annual Tax Free Return (IRR): 12%
Total tax free income and savings over 25 years (assuming 3.5% inflation): £23,598 Payback period: 7.5 years