pay-off periods - the wrong question?

When looking into installing solar panels you'll probably read about the pay-off periods. How long will it take your to get your money back - 7, 10, 12 years? 

On the face of it it's a fair question, but is it the right one when thinking about whether or not to install solar panels?

Even if you're only interested in the financial side and not interested in the environmental benefits, I think it's the wrong way to think about it.

At £5,000-£10,000 solar panels are a significant investment for many. A recent FCA survey showed that almost half of UK households had less than £5000 in savings or investments. Prices are falling and financing is increasingly available, but it’s a big investment to most. And that’s exactly how we should think about it; an investment.

So rather than asking ‘how long until I get my money back’, let's look at it like an investment. [P.S. I'm a professional economist working for a major bank in London]

How do solar panels compare to putting the money in a savings account, ISA or investing elsewhere?

As it turns out, rather well. At least, that’s my experience so far based on my real-world data. My gross rate of return so far is a little over 13% for a solar panel system + battery in the UK - tax free! You can read about my first year of solar here, or follow my live stats here.

Of course, returns will depend on your system and location, and the weather! There's often not much you can do about the last two, but two good rules of thumb for your system are:

1.  More panels usually means a better return. Why? Something economists call 'economies of scale'. While you may have thousands for your panels to be installed, most of the cost is actually the scaffolding, electrician etc. while the panels themselves are pretty cheap. A few extra panels may cost you very little but increase your production by quite a bit.

2. Batteries help with returns, especially in the winter! Unlike panels, which are fairly cheap, batteries are expensive. However they can really boost your savings. Using some of the power you generated through the day to cook dinner, even after the sun has gone down, can be much more valuable than selling it to the grid. And batteries may allow you to access tariffs that let you fill up cheaply overnight and sell back at more expensive times, boosting your returns further.

As I said, for me a (gross) rate of return of around 13% is a very attractive return.

What are the alternatives?

Instead of spending your £8000 on solar panels you could earn interest in a bank, invest it or perhaps just enjoy a very nice holiday! 

A one-year savings rate currently earns around 4% which may or may not be taxable depending on your situation.

Alternatively, you might consider stocks and shares. Returns vary and there’s risk involved, but many see 5–8% as a realistic average return. Again, tax status will depend on your situation.

Neither of these are good comparisons in my view. Why? In both cases, you can change your mind and use that money for something else. Not with solar panels. In finance we expect a lower rate of return when our cash is easily accessible than when it's locked away - called 'liquidity premium' - all else equal. So they're lower, but with good reason.

A better comparison, where my money would be 'locked away' for a long time would be something like an investment property or a 10-year bond.

At the moment a 10-year UK government bond earns around 4.6% (July 2025), while a major UK bank says that a “good rental return [on buy-to-let properties] is around 5–8%”. I might also expect some house price growth, typically 3% per year in recent times. Let's call it 10% in total then. But rental property income and price growth are almost certainly taxable, so it likely becomes more like 6% after tax. 

So if we think about solar as an investment instead of just how long until I get my money back, it looks pretty good! Of course, it will depend on your personal circumstances, but with prices of solar falling it's likely to be getting even better!