The Economics of Home Solar PV

Friends, you may find this hard to believe, but someone posted something incorrect on Twitter the other day. They suggested that home installations of solar PV will soon become uneconomic.

I commented that I didn’t agree. But to my surprise, several people commented further suggesting that Home Solar was not only uneconomic, it was tantamount to theft!

At first I was bewildered: How could these people be so wrong? But then it turned out these people were economists, and so were quite un-phased by being wrong.

But after an extended exchange, I began to understand their perspective, and that is what this article is about. I still think they are wrong, but the perspective shift was interesting.

Home Solar PV: Simple Economics

The economics of home solar PV are fairly straightforward. A system of 10 panels (~£5,000) and a 5 kWh battery (~£5,000) will conservatively generate around 3,500 kWh/year of electricity which is roughly the annual usage of electricity by a household. The system will generate (on average) about 15 kWh/day in summer and perhaps just 2 kWh/day in winter depending on local shading.

Typically around 2,000 kWh will be used within the home saving (at current prices) 2,000 × 34p/kWh ~ £680/year which would otherwise have been purchased. Additionally, the extra 1,500 kWh will be exported earning a much less impressive 5p/kWh or £75 /year. So a roughly £10,000 investment has a return on investment of ~£750/year, a nominal 7.5%/year return. It’s possible to do a bit better or a bit worse depending on panel orientation and battery size.

By any conventional economic assessment, this is a reasonable investment.

Home Solar PV: Simple Carbonomics

Considering the carbon dioxide emissions avoided, the home solar PV system above might involve roughly 2,100 kg (2.1 tonnes) of embodied carbon dioxide emissions. That’s based on:

  • Panels: ~400 kgCO2 per peak power (in kW) of a panel – leading to around 1.6 tonnes of emissions (Links 1, 2).
  • Battery: ~100 kgCO2 per kWh of storage – leading to around 0.5 tonnes of emissions for a 5 kWh battery (Link)

Each kWh of electricity generated might avoid nominally 0.23 kgCO2 emissions. And so the system would avoid 3,500 x 0.23kg ~800 kgCO2/year. Additionally, by using the battery to avoid consumption at peak hours, the system could also help reduce grid costs and the use of ‘peaker’ plants.

This is a pretty reasonable carbon investment.

Home Solar PV: How could this not make sense?

So from an economic and carbonomic point of view, Home Solar PV systems with or without batteries definitely make sense. So what was this Twitterista going on about?

Well it turns out that they were not talking about the UK but were instead referring to (if I recall correctly) Belgium or Holland. In these countries the majority of people do not pay fixed price tariffs on their electricity. Instead they pay tariffs which change every 30 minutes depending on market conditions. In the UK this practice is not at all common.

And the situation they were referring to was the situation where there was so much solar power being made available by large solar farms, that while the sun was shining, solar power would cover the majority of electricity required. At this point, the economic market value of any extra solar generation would be zero.

This is a situation that will become increasingly possible as we expand renewable generation and the market will need to evolve to cope with this reality. But in the UK it would not make much difference. Most of the electricity generated on a rooftop is used within the home, and this avoids paying the market rate, so the savings would be unchanged. However, the price paid for exporting electricity might possibly fall to zero, but since that was only worth £75/year, it doesn’t really significantly the economics.

If consumers were exposed to market electricity prices that varied every 30 minutes through the day, then the cost of buying electricity when the Sun shone might fall to zero, and so consumers would be able to have free electricity whether or not they had a solar PV system on their home. In this situation, having a home battery would make a lot of sense because one could fill it for free!

But that is not the situation in the UK. I think it is good to have relatively fixed tariffs so that people can budget for likely electricity costs. In this way, professional traders take calculated risks for which they earn a reward. I think that is better than exposing us to the risks of a market which when under stress can become extremely volatile, and potentially bankrupt people who keep their electricity on when the system is under stress. For example, in the 2021 power crisis in Texas, in between blackouts, the price for some customers rose to $9/kWh – up from a few cents per kWh resulting in some customers facing bills of $1,000/day.

So the situation in which half-hourly market prices sometimes falls to zero is unlikely to affect the UK market directly. And even it did, people with home solar would still be getting free electricity at times when the market cost was not zero.

At the heart of this persons argument was an economic rationale that any investment in an economic activity which is sub optimal – represents a waste. This is based on a hyper-capitalistic view of society in which optimal capital deployment will result in optimal outcome. This is patently, just not in correspondence with reality.

Home Solar PV: Theft?

Theft! Surely I was dealing with an idiot here? But here is their argument.

The tariffs we pay for electricity are divided into two parts:

  • a so-called ‘standing charge’ typically about £0.40/day and
  • a ‘unit’ charge of typically £0.34/kWh.

Originally the idea was that this reflected the cost structure of the electricity supply industry.

  • The ‘standing charge’ would pay for the costs of the electricity network that gave us the possibility of buying electricity, whether we used 1 kWh/day or 100 kWh.
  • The ‘unit charge’ would pay for the extra costs – notably the fuel – used to generate every extra unit of electricity.

So with this structure, using solar PV to go ‘off grid’, I would still pay the standing charge, and so contribute my fair share to the maintenance of the electricity network.

However, standing charges are no longer just a way to pay for the fixed costs of the electricity network. They now include costs of paying for the mass failure of electricity companies in 2021/22, and elements of subsidy for ‘greener’ generation. And some elements of the unit charge actually reflect fixed costs.

So if I avoid paying for units of electricity, I am avoiding paying for some of the fixed costs of the network, and thus forcing those costs to be paid by people who can’t install solar PV. In short, by using solar PV I am stealing from the community and increasing the cost of electricity for everyone else. At this point I would understand if you wanted to just stop reading – why read words by a social reprobate like me?

Except of course that this is just nonsense. There is nothing that I – or anyone else – can do about the assignment of fixed costs to standing/unit charges. The whole mess is the combined result of weak regulation, energy industry lobbying, and government meddling. All no doubt undertaken with the aim of ‘making things better’. But if the side-effect of these historical changes is to cast someone trying to reduce carbon dioxide emissions as a thief, then I think that view is non-sense.

From a wider perspective, we see that the costs of regulatory failure have been assigned to electricity bills rather than gas bills. This political choice drives people to continue to use gas for heating when using heat pumps would save the country money AND reduce carbon dioxide emissions. So by a similar argument, gas users are ‘stealing’ from electricity users.

In short, our energy supply market contains distortions. All the companies that went bust made large profits which were privatised, but their losses are now being spread over all our bills. In other words, the profits were privatised and the losses socialised: standard operating procedure in a mis-regulated monoply. This is a failure of market design and regulation and it’s not my fault!

Home Solar PV: But I’ve got no roof?

Of course if you don’t have a roof, you may feel excluded from this discourse. But by using Ripple, you can buy a fraction of a solar park, and a pro-rata share of the profits will be deducted from your energy bill.

Having previously built one wind turbine (Graig Fatha), and commenced construction of the 8-turbine Kirk Hill Wind Farm, Ripple are now (Spring 2023) looking for people to contribute money to build a solar park in Devon.

The deal is this:

  • You can buy a share of the solar park from £25 to a value equivalent to 120% of annual electricity consumption priced at roughly £1/kWh.
  • So if annual electricity usage is 2,900 kWh, then if you pay roughly £3,000, you will own a fraction of a solar park that will generate as many kWh as you use in a year.
  • Their financial projection is summarised below:

It’s clear the projected savings are modest (~ £180/year) which for a £3,000 investment amounts to about 6%/year.

But it is interesting to compare these cost with the costs of the home solar PV system described above. The Ripple investment is cheaper per kWh generated and gives you less to worry about. For example, you don’t have to worry about pigeons. Of course, none of this is financial advice: honestly: don’t listen to me. I only care about the carbon dioxide.

Keep your eye on the carbon

If you are fortunate enough to have a few thousand pounds to invest, then putting your money into renewable energy projects either on your roof or remotely via Ripple is – in my estimation – a pretty reasonable thing to do. Whatever the location, this reduces the demand for electricity generated by gas-fired power stations and so reduces our country’s carbon dioxide emissions.

Arguments about this being unfair are – I think – spurious. We live in a society in which almost all economic activity generates a ‘trickle-up’ effect that enriches the already wealthy and in general gives rise to net carbon dioxide emissions. In this context, spending resources on renewable energy projects is amongst the least worst things we can do – and helps to build a renewable energy infrastructure from which we will all benefit.


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20 Responses to “The Economics of Home Solar PV”

  1. Rob Cannell Says:

    In the UK we have a long way to go before there is so much solar generation that the price falls to zero during the day, except maybe in very peculiar circumstances.
    Furthermore, rooftop solar will be a substantial contributor to that generation – without it there would be less generation so the price would rise!
    Solar critics are always complaining about the land use of “mega” solar farms. Rooftop solar, both on commercial and domestic roofs, is surely pleasing to them?
    ……you can’t please everyone.

    • protonsforbreakfast Says:

      Rob, I share your bemusement. And you are most certainly correct: you definitely can’t please everyone!

      All the best


  2. Simon Says:

    Economists are the only profession that can consistently get a prediction wrong (sometimes for decades) and still be top of their field! Anyone else that is consistently wrong gets binned!

  3. Greg Says:

    In Colorado, our electric Co-Op has the highest standing electrical charges of any co-ops or electricity providers in this state.

    Grid tied renewable energy customers such as myself have a net-metering arrangement with the co-op where excess energy is sent to the grid and it’s “Banked” for us. I keep track of the banked kWh and my monthly electrical bill tracks closely to what I monitor and at the end of the fiscal year, a check for remaining banked kWh is paid at the wholesale rate.

    I use less energy in the spring/summer/fall seasons but consume more with my electric boiler in the winter and I try to consume my excess kWh before the end of the fiscal year since banked energy has more value.

    All customers have a standing monthly charge whether you have renewable energy or not and I willingly pay this even if it is the highest in the state. Recently, the Co-op is considering adding a delivery charge per kWh regardless of any banked energy and according to my calculations, my yearly energy charge could be twice what I currently pay. Fortunately, an organization has been started where we can elect renewable energy friendly board members to the co-op.

    • protonsforbreakfast Says:

      Greg, Good Morning. It’s always interesting to see how other countries do it. And I am curious that you speak about you ‘Co-op’. So presumably that is a not-for-profit organisation that maintains your local network. In the UK there is no direct equivalent.

      Our grid is split into two parts: a National Grid (from generators to towns) and local ‘district’ networks (from substations to homes). Both are run by regulated for-profit companies. But most consumers never deal with them. They buy electricity from national energy companies – there are several to choose from. Each one has slightly different prices and terms and conditions for re-sale: most of them don’t want to buy back electricity at all, but the largest companies are obliged to.

      Do you have any choice about whether to join your Co-op? Could you get electricity from somewhere else?

      All the best


      • Greg Says:

        Hi Michael,
        We do not have a choice regarding electricity suppliers. They are the only game in town at the moment. We can either choose to connect with them or not have service.

        The Co-op determines the cost (very often without consumers’ input). The last proposal has had an effect of getting consumers (low income and renewable energy) to voice our opinions regarding these rate proposals. We were able to stop these changes last year through renewable-friendly board members elections. We will elect additional renewable energy friendly board members this year. This is the main reason I am so interested in getting a heat pump for my all electric house. If I can determine the energy usage with a heat pump, I could conceivably invest in energy storage to be completely off grid.

      • protonsforbreakfast Says:

        Greg, good evening.

        Hearing you describe your situation I reflect on just how large the world is – and how around the world we address the same problems in different ways.

        In many ways you are lucky that your local co-op has any kind of public representation. And I hope that this democratic ethos wins out.

        In the UK, each household can subscribe to different electricity providers offering different deals, but consumers have have absolutely >zero< input.

        I wish you good luck.

        In the UK we have relatively mild winters and the combination of solar/battery/heat pump works well.

        Over the summer, my typically suburban house gets to go off-grid generating hot water from solar energy. In the winter we buy cheap-rate electricity at night and heat the house at very low cost.

        I hope you can find a suitable solution for your home – and let other people know about it!

        Best wishes

  4. Ken gordon Says:

    Love your posts!


    div>Here’s another factor

  5. ianringrose Says:

    If it was easy to get planning permission for large solar farms and grid connections in the UK I would agree with them, as the cost per kWh installed is lower for large solar farms.

    • protonsforbreakfast Says:

      Ian, Good Morning.

      I think the point at which the spot-market price of renewable energy falls to zero is approaching. And this will be a challenge, because actually we need to incentivise people to keep building renewables way past that point. We need to build renewable capacity to where the average generation matches demand, rather than stop when the peak generation matches demand.

      If we achieve this, we will live in a world where, for those people who can exploit it, energy will be available at very low cost – but not for 100% of the time. For those industries that can exploit this, there will be massive savings to be made.

      But I doubt that all this will very strongly change the UK consumer market. But of course, I could be completely wrong.

      Best wishes


  6. travisb Says:

    Octopus Energy have a 30 minute variable tariff in the Uk, it’s called Octopus Agile.

    • protonsforbreakfast Says:

      They do indeed, but my guess is that not many people use it. But this system has a relatively low cap on maximum energy prices, and even so, during last year’s energy crisis, I seem to recall that they suspended the tariff because it would have been unfair on consumers.

      This kind of pricing may work for some consumers, but most people don’t want to think too hard about just using electricity.

      All the best


  7. Paul Says:

    Another great and interesting discussion Michael. It is a little like saying that by working from home and not needing a car, that you are stealing from the public road network. It’s for government to adapt regulation and policy here, not the other way around. Otherwise change is impossible. If energy pricing was restructured to to a “national grid tax” and lower standing charges/other energy tax then it would all be “fine”.

    • protonsforbreakfast Says:

      Paul, Thank you for your kind words.

      Yes! I would be much happier with central control of the grid, and personally, I think it should be nationalised as well. But that is another story!

      Best wishes


  8. Gary Says:

    This is really helpful as we live in a conservation area and have a planning application in for solar and will fit a battery in our move towards renewables. The Ripple option seems a good contingency should we be rejected by the planning gods and it seems if our use increases through ASHP tech we can invest more to offset. Thanks for posting.

    • protonsforbreakfast Says:

      Gary, good luck with your endeavours. Many people have related to me their difficulties installing renewable technologies in the face of planning regulations: as I have said elsewhere, to me it seems that planning authorities have a crystal clear vision of how to preserve the past, but have no vision at all when it comes to creating a new future for us all.

      All the best


  9. TheDuchess Says:

    Michael I thought you would be pleased to learn that thanks to your blog I have now invested in Ripple’s solar generation project. I think community renewable energy generation is a terrific concept and I’m so grateful to have the opportunity take action now, rather than endlessly debate the pros and cons of attempting to install on the roof of my own 300 year old home. We hope to build an extension in a few years and will install solar at the same time. In the meantime, I’ve been able to reduce my carbon emissions now and I’m thrilled.

    • protonsforbreakfast Says:

      Your Grace, I hope the investment will bring you continuing happiness. I invested in the previous scheme, a wind farm in Scotland, and I am enjoying progress reports as the site is built and the components are assembled. I hope you get same with the solar park – and it should happen very quickly!

      Best Wishes


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