Solar panels still make financial sense for many households, despite the sharp reduction in government subsidy rates that took effect from midnight last night.
That is the view of the Solar Trade Association (STA), the industry's trade body which yesterday argued that under the new incentive rates available through the popular feed-in tariff scheme a domestic solar installation can deliver a tax-free, inflation-linked return on investment of around five per cent.
The group said the calculations suggest solar panels offer a higher return rate than most savings accounts. It added that a competitively priced system, costing around £6,400 could see the initial investment paid back in around 13 years.
As of midnight yesterday, all new solar instalments under 10kWh in capacity - covering most domestic systems - will be eligible for the government's reduced FiT rate of 4.39p/kWh, a drop of 67 per cent from the previous rate of 12.03p/kWh.
The industry has warned the steep cuts to incentives could lead to a sharp contraction in the UK's solar market, while the government's own impact assessment predicted that thousands of jobs would be lost.
Paul Barwell, chief executive of the STA, said that while the industry maintained the cuts were excessive and counterproductive, solar could still represents a good investment for householders.
"The changes to the solar feed-in tariff are significant but solar technology is exceptionally reliable and attractive and the solar industry has proved itself to be the best energy sector in the world at bringing down costs and developing innovative products," he said in a statement. "We know that solar power is the UK's most popular energy technology and we are confident that, while solar may be less financially attractive than previously, we remain on track and determined to deliver a solar revolution that will benefit everybody."
Although the new tariff bands took effect at midnight last night, accreditation under the new rates has been paused for the next four weeks while the government irons out the details of the system's new quarterly cap mechanism. Households applying for the FiTs during this time will be placed in a holding queue for the new tariffs when they become available on February 8.
The industry is still awaiting the results of a consultation proposing to increase the VAT rate for solar panels from five per cent to 20 per cent, a move campaigners claim could add £900 to the cost of domestic solar projects.
The rate hike was proposed by the government in December after the European Union ruled earlier in the year that the current five per cent level violated its State Aid rules. The consultation on the new rates closes on February 3 2016 and if approved, the new rules would come into force on August 1 2016.
However, Energy Minister Andrea Leadsom confirmed earlier this month that the government would look again at the new FiT rates in the event of an increase in solar panels costs.
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