Householders keen to install solar panels are weighing up their options after the government unveiled new plans for the way people will be paid for supplying renewable energy. The scheme, which will be launched in January next year, works in a different way to its predecessor – and is likely be less lucrative. With solar photovoltaic (PV) panels – the most popular domestic option – costing between £5,000 to £8,000, and six months before the new scheme is up and running, should consumers buy now, wait or skip it?
What is the scheme?
All energy suppliers with at least 150,000 domestic customers (including the big six, such as EDF Energy and Npower, and smaller companies such as Ovo and Bulb) will be required to buy surplus solar, wind or other renewable energy generated by its customers under the smart export guarantee (SEG).
The companies will be able to set their own price for this energy. In the past, they paid into a shared pot to buy the renewable energy domestic households sold or “exported” to the grid. The export price paid was fixed by the government.
How did the old system differ?
It was called the feed-in tariff (FiT) and there were two payments – a “generation tariff” and an “export tariff”. The scheme was launched in April 2010 and closed for new customers at the end of March this year. Those with existing contracts are not affected and continue to be paid.
The “generation tariff” paid for all the electricity that households generated. Rates were set by the government and depended on when you signed up to the scheme and the size of your solar PV system.
Rates were much higher in the early years – some paid more than 50p per kilowatt hour, but were cut over the years and fell to around 4p for new customers by March this year. Once you had secured a rate it was fixed for the life of your contract, typically 20 or 25 years.
The “export tariff” paid homeowners for the surplus energy they exported to the grid. Rates were fixed by government for the entire contract term and were around the market rate for electricity. It was 3.82p/kWh until August 2012 and then 5.38p until the FiT scheme ended. For all households under the FiT this rate is paid on 50% of all the energy generated by the solar panels. The actual amount exported to the grid is not measured, so everyone gets this regardless of how much electricity they actually export.
By way of example, if a property’s solar panels generate 2,000kWh of electricity in a year and the owner has a FiT contract paying a fixed rate of 20p/kWh (for the generation tariff), they will be paid £400 for all the energy generated. Under the export tariff the same household is then paid a fixed rate (5.38p/kWh) on half of the energy generated (1,000kWh) – £53. The household will also be using much of its own solar energy, a saving potentially worth hundreds of pounds a year.
Is the SEG less generous?
It would seem so. Homeowners will only be paid for the energy they export back to their energy supplier. A smart meter is required to show exactly how much. There is no longer a “generation tariff” so it is likely to take much longer (potentially 20 years) before the initial costs are covered by the SEG payments and energy savings. Unlike the FiT, the export price is not set by government and there will be no long-term contracts. Typically, consumers will be able to secure short-term fixed rates or opt for a variable rate which will pay the “market rate” for energy at the time it is exported.
Should I still get solar panels?
Energy companies do not have to start making payments under the SEG scheme until January 2020, but one company – Octopus Energy – has already launched two tariffs. The first pays a fixed rate of 5.5p/kWh and the other a variable rate.
Solar panels installed now will be eligible for the scheme and consumers can sign up to suppliers as and when they offer tariffs, or wait until 2020. One benefit of installing now might be to avoid an increase in tax – from October this year VAT on solar panels and batteries will rise from 5% to 20%.
Natalie Hitchins, head of home products and services at Which?, expects solar installations will slow this year, but says that people invest in them for a number of reasons and often it won’t be about making the money back quickly, instead seeing the environmental impact as the most important thing. “Anyone hoping to make money under the smart export guarantee should think carefully. We don’t know what rates or contract terms will be offered and rates might vary widely between energy companies,” she says.
Anthony Kyriakides, head of renewables at the Energy Saving Trust (EST), agrees there is significant uncertainty. “How will people search for different tariffs and compare offers?” he says. “It is understandable that many homeowners will hold off until things are clearer.”
Can I store my solar energy?
A great idea – but it costs a lot more. One downside of solar panels is that you can only use the energy generated immediately – that is, when you are at home putting lights on and running appliances. With a battery system you can store electricity to use later or sell back to your supplier – either way making savings. But battery systems cost at least £4,000, so it will mean even longer until you have paid off the initial outlay.
‘You need to stick with it’
Staying in a property for a long time is key to maximising the benefits of solar panels, according to a couple who have had them for the last four years.
Ross Power, 38, and his wife Abi Gilchrist, 41, both professional musicians who run London and Kent Soul Choirs, installed PV panels at their home in Whitstable, Kent, in 2015. They got a fixed 12.8p/kWh rate under the generation tariff and earn about £600 annually. They also use the panels to heat a water tank and are paid the export tariff. Together with savings from using their own power, that adds up to around another £600 a year.
Yet despite the loss of the FiT scheme for new customers, they maintain there are still savings to be made – but you need to stick with them. “It does appear there is less incentive to install panels,” says Ross. “But if you want to be greener, do it. We have seen huge savings in our energy bills regardless of the money earned through the feed-in tariff.”
There are downsides: “The panels become less efficient over time, so earning potential will fall. You have got to keep the panels clean and this costs about £100 each year.”
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