Solar power is often described as free energy but this is misleading. The costs involved in converting solar energy into useable forms can still be very significant, although solar panel installation costs are continuing to fall.
There are two potential ways that solar energy can be used:
- Solar water heating panels can convert solar energy into hot water
- Solar PV panels can convert solar energy into electricity.
Solar water heating panels
As of 2013, a reasonable capacity solar water heating panel system can be installed for about £4,000 ($6,000) in the UK. This is likely to give energy savings when heating hot water of £60-£80 ($90-$120) over a gas boiler and circa £80-£90 ($120 – $135) over an electric immersion heater. In the UK the panels would provide about 20% of the hot water needed in the winter and around 80-90% of hot water needs in the summer. In locations further south in Europe, such as the Mediterranean, then this will increase the saving significantly.
To get your money back on the initial investment without any government subsidy could take 50 years. That is ignoring any of the maintenance costs for the solar water heating panels. Every 5-10 years the anti-freeze in the system needs to be replaced at a cost of £100 ($150) and every year the panels should really be washed down to remove grime and dirt which will otherwise reduce the efficiency of the system.
In the UK, Renewable Heat Premium Payments (RHPP) can help offset some of the cost of installation.
Also the Renewable Heat Incentive (RHI) is currently scheduled to come into effect in Spring 2014 and could offer a 17.3p payment per kWh (26 cents) generated. The payback of solar water heating panel installations with these subsidies is yet to be fully clear but the revised payback will be substantially better than the 50 years without subsidy.
Solar PV panels
As of 2013 a 4kWp solar pv panel system would cost around £5,000 ($7,500) to install on a rooftop. In a suitable south or south west facing location, annual power generation could be 3,000kW. At a cost of 15 pence (22.5 cents) this could potentially save £450/year on electricity costs ($675/year).There is a BUT. Much of this electricity will be generated when you don’t need it – at midday in the Summer when generally electricity demand in low. At the moment the cost of batteries, to store the unused electricity for later use, are prohibitively expensive. So your likely savings are £225/year ($340/year). This gives a payback on your solar pv panel investment of about 22 years, with the design life of the system assumed to be 25 years. Most solar pv panel systems currently have a 10 year guarantee.
So without subsidy the investment is not a great one, although it does give you a small degree of energy independence (not much use on a winter’s evening when the sun has set). In the UK the government are offering subsidies in the form of a Feed In Tariffs (FITs). If you are connected to the electricity grid then you will receive a 15.44p (23 cents) payment for every kWh of electricity you generate (even if you use it yourself). Also it is assumed that 50% of the electricity you generate will be passed back to the electricity grid and you will receive a payment of 4.64p (7 cents) for each kWh of this. These payments will give you a further £533 of income to go with your £225 saving giving a total benefit of £758/year ($1,137/year). This changes the payback to about 7 years, assuming no finance costs for the original investment. The UK government FIT payments are offered for the first 20 years.
Don’t forget to get the solar pv panels cleaned every year or the output of the panels will reduce. See Solar PV Panels for more details.
When will solar technology not need a subsidy?
It’s hard to predict how prices will fall over the next decade or two. Assuming that a 10 year payback is acceptable to householders then this will be achieved, assuming energy prices remain at their current levels (a big assumption I know), when the solar panel installation costs fall to :
- £800 ($1,200) for solar water heating panels from the current level of £4,000 ($6,000). To achieve this prices will have to fall by 80%
- £2,250 ($3,375) for solar pv panels from the current level of £5,000 ($7,500). Prices need to fall by 55%.
We still have a long way to go but bear on mind that a 4kWp solar pv panel installation was around £15,000 ($22,500) only 5 or 6 years ago.
One thing that would make a big difference to solar electricity generation would be the development of a new technology for battery storage, so that the excess electricity could be easily stored in the home for use later. Solar power could then provide some electricity during the night. There are a number of new developments that may deliver this in the next 10 years.
Read more about solar panels cost.
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