How To Get Funding For A Paid Solar Photovoltaic System

Most people do not realise what a good investment a solar photovoltaic system can be and many are unaware of the financial benefits such an investment may bring. The returns for investing in solar are currently very attractive due to the tax free solar panel grants known as the feed-in tariff. There is only a short time to lock in the highest rates of grant before the 2012 deadline, after which the tax free profit that you can make will be lower.

Whilst free solar panels are a good idea for many situations if you can invest in solar the returns are much more beneficial. Not only do you get the free electricity but you can also benefit from the tax free government solar grants which can add up to £1,400 a year for a guaranteed 25 years. This payment is also index linked so the amount you get every year actually increases. These payments will easily cover the cost of your initial investment and it is a tax free income.

Funding solar PV

The stumbling block for many people is the lack of funds, not many people have the savings available in order to invest in solar which can cost up to £14,000 for the largest system available. The costs are much lower for smaller systems but it is generally better to buy the largest system you can as the cost per kilowatt is lower the larger the system you install. This means you will make more profit the larger the solar PV system is that you install.

If you already have the funds to invest then you are in the best situation in order to take advantage of the scheme. If however you have no savings or not enough to cover the total cost of the system you can still borrow the money and still make a profit. This is possible because the government initially set the grant levels very high in order to encourage people to invest in solar and to be able to do so if they had to borrow the money.

Low interest mortgage and loans

At the moment in the UK we have had a long run of low interest. Whilst this has been great for many people wanting to borrow money and those on variable rate mortgages it hasn't been very good for savers. It is possible to get a low interest loan or a remortgage in order to invest in a solar photovoltaic system and be able to pay off the repayments with the feed-in tariff payments.

Initially I was prompted to write about remortgaging to pay for solar when I had spoken to an electrician who had recently gained his microgeneration certification that qualified him to install solar systems that qualify for the feed-in tariff. He explained that as he was newly qualified he wanted to test out his new skills by installing a system on his own home.

At the time I wasn't able to write down the exact figures but in essence he would be able to cover the cost of a remortgage and still come out with a monthly profit afterwards. He was able to buy a solar kit for a little over £9,000, with the cost of the install on top it would have come to around £14,000 but he could deduct the cost of his own labour although he still had scaffolding costs and some other costs to cover. You can get a better idea of how much solar panel cost based on the different sized systems available. He worked out that after paying the extra cost of the monthly mortgage payments he would be about £50 better off a month.

Obviously most people would not be able to do the work themselves but they would still be able to get a low interest loan or mortgage and still cover the costs whilst making a profit. As I am not a financial advisor I am not able to give any financial advice and you would need to take proper financial advice beforehand.

Sample mortgage calculations

To give you an idea I have run through some example figures based off of information from the internet. Again these are for illustration purposes and you really do need to get independent financial advice before taking out any sort of loan or mortgage.

Our starting figure is £1,400 which is the amount that you would earn in feed-in tariff payments over the course of a year based on a 3.96kWh solar PV system. I have taken the interest rate for a mortgage or remortage to be 4% which I have taken from Google's mortgage comparison site. To get the monthly payments I have used the BBC mortgage calculator to work out how much extra you would add to your monthly repayments.

• Solar PV system cost £14,000
• Yearly tax free FIT earnings £1,400
• Repayment period 15 years
• Interest rate 4%
• Monthly repayments £105 (£1,260 over a year)

Based on these figures if you added £14,000 to your mortgage you would be paying an extra £1,260 a year on your mortgage. You would receive £1,400 a year for 25 years from the feed-in tariff payments. This would mean that you would be better off by £140 a year for the first 15 years whilst you are repaying the additional money that you have borrowed. As the feed-in tariff scheme runs for 25 years this leaves another 10 years where you will receive a tax free profit of £1,400 a year giving a total of £14,000 profit for those 10 years. So after 25 years you would be £16,100 in profit after covering all your repayment costs.

Solar loan considerations

Whilst it is possible to borrow the money to buy a solar system there are going to be several considerations to take into account. Firstly a remortgage is going to be the most cost effective option. Not everyone however is going to be in a situation where a remotgage is practical especially if you are locked into your existing mortgage for a set period which means there may be an early repayment charge from your mortgage provider.

If you are going the route of a low cost loan you are likely to only be able to get a loan over a maximum of 10 years which will mean a higher rate of interest and higher monthly repayments. This means that over the first 10 years your costs will be higher than the grants you will be getting and so you will have to find the extra money to cover the difference. For the remainder of the 15 years after your loan has been repaid you will continue to get the fee-in tariff payments as tax free profit. Overall you will be financially better off over a 25 year period but you are going to have to find the extra money to cover the difference in your loan for the first 10 years.