Solar Panels and Battery Storage: A 25-Year Investment with Up to 12% Annual Return for High Energy Users and 6% for Low Energy Users

Installing solar panels and battery storage is an attractive proposition for many homeowners, but the financial benefits can vary depending on your energy consumption. This article explores the costs and savings associated with installing a solar photovoltaic (PV) system with battery storage for low, average, and high energy users, including those with electric vehicles (EVs). We'll calculate the effective Annual Percentage Rate (APR) over 25 years for each scenario, demonstrating how this investment can yield annual returns ranging from approximately 6% to 12%.

Overview: Tailoring Solar Investments to Your Energy Usage

Why Energy Usage Matters

Your household's energy consumption significantly impacts the financial returns of a solar and battery installation. Higher energy usage means more opportunities to replace expensive grid electricity with solar power, leading to greater savings and higher returns on investment.

Scenario 1: Low Energy User — A 6% Annual Return

Household Profile

• Annual Electricity Usage: ~2,000 kWh1

• Average Electricity Cost: £0.28 per kWh2

• Annual Electricity Bill: 2,000 kWh x £0.28 = £560

Proposed Solar PV System

• Solar Panel System Size: 2 kW

• Estimated Annual Generation: ~1,700 kWh3

• Battery Storage Capacity: 3 kWh

• Total Installation Cost:

  • Solar Panels: £3,000

  • Battery Storage: £2,500

  • Total: £5,500

Financial Analysis Over 25 Years

Assumptions

1. Electricity Price Inflation: 3% per annum4

2. System Degradation: 0.5% per year5

3. Self-Consumption Rates:

   • Without Battery: 35%

   • With Battery: 60%

4. Export Tariff: £0.05 per kWh6

Year 1 Savings

• Total Generation: 1,700 kWh

• Self-Consumed Energy: 60% of 1,700 kWh = 1,020 kWh

• Exported Energy: 680 kWh

• Savings from Self-Consumption: 1,020 kWh x £0.28 = £285.60

• Income from Exported Energy: 680 kWh x £0.05 = £34.00

• Total Year 1 Benefit: £319.60

Calculating Effective APR

• Initial Investment: -£5,500

• Total Cumulative Benefit Over 25 Years: £11,000

• Calculated IRR (APR): Approximately 6%

Scenario 2: Average Energy User — A 9% Annual Return

(Details from the previous analysis are maintained here.)

Household Profile

• Annual Electricity Usage: ~3,600 kWh1

• Annual Electricity Bill: £1,008

Proposed Solar PV System

• Solar Panel System Size: 4 kW

• Estimated Annual Generation: ~3,400 kWh3

• Battery Storage Capacity: 5 kWh

• Total Installation Cost: £9,000

Financial Analysis Over 25 Years

• Total Cumulative Benefit: £25,300

• Calculated IRR (APR): Approximately 9%

Scenario 3: High Energy User with Electric Vehicle — A 12% Annual Return

Household Profile

• Annual Electricity Usage: ~7,000 kWh (Home: 3,600 kWh + EV: 3,400 kWh)7

• Average Electricity Cost: £0.28 per kWh2

• Annual Electricity Bill: 7,000 kWh x £0.28 = £1,960

Electric Vehicle Energy Consumption

• Annual Mileage: 12,000 miles

• EV Efficiency: 3.5 miles per kWh

• Annual EV Energy Usage: 12,000 miles / 3.5 miles per kWh = 3,429 kWh

Proposed Solar PV System

• Solar Panel System Size: 6 kW

• Estimated Annual Generation: ~5,100 kWh3

• Battery Storage Capacity: 10 kWh

• Total Installation Cost:

  • Solar Panels: £7,500

  • Battery Storage: £5,500

  • Total: £13,000

Financial Analysis Over 25 Years

Assumptions

1. Electricity Price Inflation: 3% per annum

2. System Degradation: 0.5% per year

3. Self-Consumption Rates:

   • Without Battery: 50%

   • With Battery and EV Charging: 85%

4. Export Tariff: £0.05 per kWh

5. EV Charging Primarily During Solar Generation Hours

Year 1 Savings

• Total Generation: 5,100 kWh

• Self-Consumed Energy: 85% of 5,100 kWh = 4,335 kWh

• Exported Energy: 765 kWh

• Savings from Self-Consumption: 4,335 kWh x £0.28 = £1,213.80

• Income from Exported Energy: 765 kWh x £0.05 = £38.25

• Total Year 1 Benefit: £1,252.05

Calculating Effective APR

• Initial Investment: -£13,000

• Total Cumulative Benefit Over 25 Years: £42,500

• Calculated IRR (APR): Approximately 12%

Comparative Summary

Interpretation of Results

• Low Energy Users: Benefit from solar but have lower returns due to smaller systems and less consumption to offset.

• Average Energy Users: Achieve a solid return of approximately 9%, making solar a worthwhile investment.

• High Energy Users with EVs: Maximize the benefits of solar and battery storage, achieving returns of around 12% due to higher self-consumption and greater savings.

Environmental Impact

Carbon Emissions Reduction

• Low Energy User: Saves ~0.7 tonnes of CO₂ annually8

• Average Energy User: Saves ~1.5 tonnes of CO₂ annually

• High Energy User with EV: Saves ~3 tonnes of CO₂ annually (including EV emissions reduction)9

Sensitivity Analysis

Factors Influencing Returns

1. Electricity Price Inflation: Higher inflation increases returns.

2. System Costs: Lower installation costs improve APR.

3. Self-Consumption Rates: Higher self-consumption significantly boosts returns, especially for high energy users.

Financing Considerations

• Mortgage Financing: With APRs ranging from 6% to 12%, financing through a mortgage (with interest rates around 4%) can be financially beneficial.

• Green Energy Loans: Some lenders offer favorable rates for renewable energy installations.

Investing in solar panels and battery storage offers varying levels of financial return depending on your energy usage. Low energy users can achieve an effective APR of approximately 6%, average users around 9%, and high energy users with electric vehicles can reach returns of 12%. These rates outperform many traditional investments and offer the added benefits of energy independence and environmental sustainability.

Next Steps

• Assess Feasibility: Schedule a professional assessment to determine the suitability of your property for solar installation.

• Obtain Quotes: Request detailed quotes from multiple certified installers.

• Evaluate Financing Options: Explore mortgage refinancing, green loans, or other financing methods that align with your financial goals.

• Consider Energy Usage Habits: Analyze your consumption patterns to maximize self-consumption and returns.

By tailoring your solar investment to your energy usage, you can achieve significant financial returns—ranging from 6% to 12% annually—while contributing to a more sustainable future.

Footnotes

1. Ofgem - Typical Domestic Consumption Values ↩ ↩2

2. UK Power - Average Electricity Prices ↩ ↩2

3. Energy Saving Trust - Solar Panels ↩ ↩2 ↩3

4. Statista - UK Electricity Price Inflation ↩

5. NREL - PV System Degradation Rates ↩

6. GOV.UK - Smart Export Guarantee (SEG) ↩

7. Energy Saving Trust - Electric Vehicle Charging ↩

8. Carbon Trust - Carbon Savings from Solar PV ↩

9. UK Government - Greenhouse Gas Reporting ↩