2023 Guide to UK Solar Panel Incentives and Schemes

While the Feed-in Tariff (FiT) scheme closed to new applicants in 2019, the UK government continues to support solar energy adoption through various incentives and schemes. This guide outlines the current financial support available for homeowners and businesses looking to install solar panels in 2023.

Smart Export Guarantee (SEG)

The Smart Export Guarantee (SEG) is the primary scheme that replaced the Feed-in Tariff. It requires large energy suppliers (those with more than 150,000 customers) to offer tariffs to purchase excess electricity generated by small-scale renewable installations, including solar panels.

Key Features of the SEG:

• Eligible for solar PV systems up to 5MW in capacity
• Suppliers set their own export rates, creating a competitive market
• Rates typically range from 1p to 5.5p per kWh
• Requires a smart meter to track exported electricity accurately
• Solar system must be MCS certified

Unlike the previous FiT scheme, which offered fixed rates for both generation and export, the SEG only pays for electricity exported to the grid. This means the greatest financial benefit comes from using as much of your generated electricity as possible within your property.

Value Added Tax (VAT) Reduction

In the Spring Statement 2022, the UK government announced a reduction in VAT for the installation of energy-saving materials, including solar panels. From April 2022, the VAT rate on solar panel installations for residential properties has been reduced from 5% to 0% for a five-year period.

This zero-rate VAT applies to:

• Solar panels
• Heat pumps
• Insulation
• Wind and water turbines

This significant tax break makes solar installations more affordable, as VAT can add a substantial amount to the total cost of a system. For a typical residential installation, this could save approximately £1,000.

Energy Company Obligation (ECO4)

While primarily focused on heating and insulation, the Energy Company Obligation (ECO4) scheme can in some cases support solar PV installations for low-income households or those living in energy-inefficient homes. The scheme requires large energy suppliers to fund energy efficiency improvements in eligible homes.

ECO4 runs from April 2022 to March 2026 and focuses on supporting vulnerable households, particularly those:

• In receipt of certain benefits
• Living in social housing with poor energy efficiency (EPC rating of D-G)
• Referred under the local authority flexible eligibility

Business Incentives

1. Annual Investment Allowance (AIA)

Businesses can claim tax relief on solar panel installations through the Annual Investment Allowance. The AIA allows businesses to deduct the full value of qualifying plant and machinery (including solar PV systems) from profits before tax. The current AIA limit is £1 million until April 2023, after which it will be reduced to £200,000.

2. Super-deduction Tax Break

Until March 31, 2023, companies can benefit from a 130% super-deduction capital allowance on qualifying plant and machinery investments. This means that for every £1 invested in solar panels, your corporation tax can be reduced by up to 24.7p.

3. Business Rates Exemptions

Solar panels installed on business premises may be exempt from business rates increases if they are primarily used to power the building rather than for export. This exemption doesn't apply to standalone solar farms but can make commercial rooftop solar more financially attractive.

Local Authority Grants and Schemes

Many local authorities across the UK have their own grant schemes for renewable energy. These are typically funded through central government initiatives or EU funding and may offer grants or low-interest loans for solar installations.

Examples include:

• The Solar Together scheme (available in various regions including London, Suffolk, and Essex), which uses collective purchasing power to secure discounted rates for solar installations.
• The Warmer Homes Scotland scheme, which can include solar PV for eligible households.
• Various council-led initiatives targeting specific neighborhoods or housing types.

Combining Solar with Battery Storage

While there are no specific UK-wide incentives for battery storage systems, combining solar panels with battery storage can significantly increase the economic benefits of a solar installation by:

• Increasing self-consumption of generated electricity (typically from 30% to 70-80%)
• Reducing electricity purchased from the grid during peak price periods
• Providing backup power during outages
• Potentially participating in grid services and demand response programs (though these are still developing in the UK)

Future Developments

The UK government has committed to achieving net-zero emissions by 2050, and solar power plays a crucial role in this strategy. Several potential future developments could further enhance the financial case for solar installations:

• Time-of-Use Tariffs: As smart meter rollout continues, more suppliers are offering time-of-use tariffs that charge different rates depending on when electricity is used, allowing solar and battery owners to optimize their energy consumption.
• Flexibility Services: National Grid and Distribution Network Operators are developing markets for flexibility services that could reward solar and battery owners for helping to balance the grid.
• Green Financing: The UK Infrastructure Bank and private lenders are increasing their focus on green investments, potentially improving access to low-cost financing for renewable energy projects.

Conclusion

While the incentive landscape for solar has changed significantly since the closure of the Feed-in Tariff, there are still multiple ways to improve the economics of solar installations in the UK. With rising energy prices, the case for solar investment continues to strengthen even without substantial direct subsidies.

For most homeowners, the combination of avoided electricity costs, SEG payments for exported electricity, and zero VAT creates an attractive financial proposition. For businesses, the addition of tax incentives can make commercial solar installations even more compelling.

At Travyanaya-Treska, we help our customers navigate these various incentives and design solar systems that maximize financial returns while meeting their energy needs. Our experts stay up-to-date with all changes to government schemes and can provide tailored advice for your specific situation.