How Long Is The Payback Period For Solar Photovoltaic Panels?

If you are thinking of investing in a solar photovoltaic system then you will want to know what the payback period will be. Solar PV is still a relatively big investment and so you want to make sure your investment will make a good return. The cost of solar is coming constantly falling, in the last 3 years the price has dropped by about a third whilst at the same time the efficiency of the panels has increased.

Before we can work out the payback period we need to know our costs. I have researched solar panel cost previously and determined an average of £4250 per kilowatt installed. I have used the costing figures based on previous quotes for various system sizes which will be slightly higher or lower than this figure depending on the system size.

Next we need to know the savings and revenue you will receive from having a solar photovoltaic system installed. These figures are based on prices you would get today so over a 25 year period you should expect your earnings per kilowatt to increase. You should therefore treat these as an estimate for the lower end of your earnings and expect a higher return. The reason I am keeping these figures on the conservative side so that you can see how financially rewarding solar currently is.

The cost of your electricity is about 13 pence per kilowatt which is probably a little higher than average depending on what tariff you have. You will earn 43.3 pence for every kilowatt of electricity your panels produce. Any electricity that you export back to the grid you will also earn an additional 3.1 pence. It is assumed that you will only use half of the electricity that you produce. Unfortunately everyone's power consumption is going to be different but you can use these basic figures yourself to get a more accurate estimate.

The following examples will give you an idea of the numbers for four different sized array. I have used the typically smallest sized array and the largest array allowed under the feed in tariff scheme. At the current panel efficiencies and at the current prices solar PV is not financially viable. It is only because of the feed in tariff that people are currently able to invest in solar.

Payback period for 1.08kWh of installed solar

System size: 1.08kWh
Expected yearly power generated: 918kWh
System cost: £4,659.5
Annual bills savings: £59.67
Annual FiT payment: £397.49
Annual export earnings: £28.45
Total annual earnings: £485.61
Payback period: 9.59 years
Tax free profit after 25 years: £7,480.75
Average yearly profit: £299.23

Payback period for 2.16kWh of installed solar

System size: 2.16kWh
Expected yearly power generated: 1,836kWh
System cost: £9180
Annual bills savings: £ 119.34
Annual FiT payment: £794.98
Annual export earnings: £56.91
Total annual earnings: £971.23
Payback period: 9.45 years
Tax free profit after 25 years: £15,100.75
Average yearly profit: £604.03

Payback period for 2.88kWh of installed solar

System size: 2.88kWh
Expected yearly power generated: 2,448kWh
System cost: £13,070
Annual bills savings: £159.12
Annual FiT payment: £1,059.98
Annual export earnings: £75.88
Total annual earnings: £1,294.98
Payback period: 10.09 years
Tax free profit after 25 years: £19,304.50
Average yearly profit: £772.18

Payback period for 3.96kWh of installed solar

System size: 3.96kWh
Expected yearly power generated: 3,366kWh
System cost: £16,830
Annual bills savings: £218.79
Annual FiT payment: £1,457.47
Annual export earnings: £104.34
Total annual earnings: £1,780.60
Payback period: 9.45 years
Tax free profit after 25 years: £27,685.00
Average yearly profit: £1,107.40

Typical payback period for solar

The typical payback period for solar is about 10 years, 11 for some systems. It is assumed that the cost of electricity will go up which will also decrease the payback period and increase the amount of profit that you make. The export tariff will also increase which will also further reduce the payback period and increase the amount of money you earn through your solar investment. Most importantly the rate you are paid through the feed in tariff is guaranteed by the government to increase yearly. This will have the most impact on reducing the payback timescale.

If you take the largest system available you can see that the payback period is a little over 7 years. This will in all likelihood be less than this due to the year on year increase in the amount of money your solar system will earn you. The total amount of tax free profit you make from installing solar will also increase over the years. The 25 year estimate (25 years is the length of time the government guarantee the scheme) is over £27,000 in profit. This figure is likely to be much higher as over the next few decades as the feed in tariff rate increases yearly from the current 43.3 pence.