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Why You Should Be Investing In Solar Panels

It was only in the beginning of 2010 that the government decided to replace the existing solar panel grants system with the feed in tariff. Ever since then interest has grown at the potential benefits householders can get from installing a solar photovoltaic system on their roof. In fact a typical installation could mean a return of almost a thousand pounds a year and that is all tax free.

There has however been a lot of interest in the media, particularly the press. Some of which has only been successful about spreading misinformation about the governments feed in tariff scheme and the offers of free solar panels by some solar installation companies including the British Gas free solar panel offer.

How the feed in tariff works

The feed in tariff is a scheme whereby small scale renewable energy producers can get paid a tariff for all the green energy they produce. The tariff for small scale solar is what has caused all the interest. Small scale is defined by being less than 4kW, the highest rate is paid out to people who have solar panels retrofitted to an existing property. You get less if it is installed on a new build home.

This rate is being offered to people who install a system before the end of March 2012. It is important the in order to get the guaranteed high rate that is being offered at the moment is to get your panels installed before this date. The good news is that this payment will increase every year in line with inflation. The rate up until this date is 41.3 pence per kWh. After this date the payments for every kilowatt of electricity that you produce will be reduced to 37.8 pence for a new system installed after March 2012 so getting in early is essential.

Many people are concerned that the government may stop paying this tariff. It has been guaranteed that the payments will continue for 25 years. However they may stop the scheme for any new installations but they have to continue to pay out for the existing ones.

Who pays for this feed in tariff?

There is also a lot of confusion about who actually pays you the money. Although the government created the scheme it is your energy supplier who will pay you the money. The confusion comes as to exactly where this money comes from. The truth is that it is being funded by an increase in fuel bills to the tune of about £8.50 per household per year.

This essentially amounts to people not choosing renewable energy subsidising those that do have some type of small scale renewable energy system installed. This is another reason it makes financial sense to have solar installed sooner rather than later.

How you will benefit from installing solar panels

If you decide to install now and lock in the highest rate of 41.3p then you will be guaranteed to receive this payment for the next 25 years. Every year this payment will be inflated so year on year you will earn more. The money you earn from this scheme is tax free. Electricity prices are going to rise over the next 25 years so you will continue to save more and more on electricity costs. Everyone will be paying an extra £8.50 a year on their energy bills to fund this scheme (predicted to total 8.6 Billion Pounds). So in real terms people with solar PV installed will benefit year on year whilst everyone else will be worse off.

The true cost of FiTs

You may think that this is another example of the well off benefiting at the cost of the poor. Anecdotally there is going to be more middle class households that are going to be more likely to install solar for varying reason we won't go into here. However an even greater number of people are benefiting in social or council housing as this seems to be the sector that is actually taking advantage of this scheme.

This is obviously a smart move by social housing organisations and councils. They invest the up front cost of installing the panels. They can benefit from economies of scale as they will have greater buying power. Whilst the tenants get free electricity thus cutting the cost of their electricity bills the councils and housing associations earn a nice tax free return easily doubling their investment. I think this is what the government had in mind for the scheme rather than it benefiting those that could already afford solar.

There is however concern that business investors, particularly foreign investors are looking at setting up large scale solar farms specifically to benefit from the generous tariffs now available in the UK. The Minister of State for Energy and Climate Change, Greg Barker, has confirmed that there are a large number of applications pending for large scale solar schemes. If there does turn out to be a large scale abuse of the system then the government will take action to stop this.

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