The UK has introduced many financial incentives for solar panels and other renewable energy systems. In this article we discuss the solar incentives available in the UK as of 2023, and how they benefit homeowners who decide to install a photovoltaic (PV) system.
As of 2023, the UK offers three nationwide incentives for solar panel systems, plus many more local and private incentives:
- Value-added tax (VAT) exemption for energy-saving materials.
- The Smart Export Guarantee (SEG), which is a type of feed-in tariff.
- The Energy Company Obligation scheme (ECO4), which offers energy efficiency grants for low-income homes.
The UK used to have the Feed-In Tariff (FIT) scheme, which paid you for both generation and excess solar energy. In spite of its name, the FIT scheme was actually a feed-in tariff combined with a performance-based incentive. The scheme was replaced by the Smart Export Guarantee (SEG), which only pays you for excess solar energy.
Valued-Added Tax Exemption for Energy-Saving Materials
The UK government introduced a VAT exemption for solar panels and other energy-saving materials on 1 April 2022. The UK normally charges a 20% VAT, which means that solar panels would have a much higher price without the exemption.
- The VAT exemption was first introduced in England, Scotland and Wales.
- Northern Ireland adopted the VAT exemption on 1 May 2023.
According to the Department of Energy Security and Net Zero, solar panel systems with a size range of 0-4 kilowatts (kW) have a mean price of £2,365 per kW. If this cost was subject to a 20% VAT, you would be paying an extra £473 per kW.
- At current prices, you can expect to pay £9,460 for a 4-kW solar panel system.
- With a 20% VAT, you would be paying a total price of £11,352.
The VAT exemption ends on 31 March 2027. However, energy-saving materials will be subject to a reduced VAT of 5% after this date, not the 20% rate that is normally charged.
To get the VAT exemption, you must purchase a complete PV system from a solar installation company. If you purchase stand-alone solar panels from a retailer and not an installed system, you must pay the 20% VAT.
SEG: Smart Export Guarantee
The Smart Export Guarantee (SEG) is a scheme that offers export tariffs for solar panel owners, allowing them to sell their excess generation.If you install a home solar system, you can choose among the SEG tariffs offered by energy companies.
You are allowed to pick different companies for your electric power supply and your SEG tariff. However, you can access the highest SEG tariffs if you choose the same company as your electricity provider and SEG buyer.
Electricity providers with at least 150,000 domestic customers are legally required to participate in the SEG, purchasing excess solar energy from homeowners who choose their tariff. Participation is optional for electricity providers with less than 150,000 domestic customers.
The Office of Gas and Electricity Markets (Ofgem) keeps an updated list of energy companies who participate in the SEG:
Electric Companies Participating in the SEG
Mandatory SEG Participants
E (Gas & Electricity)
The Utility Warehouse
Voluntary SEG Participants
If you plan to install solar panels and your home has a low energy consumption during the day, your choice of SEG supplier is very important.
- Some electric companies who are forced to participate in the SEG offer tariffs as low as 1 pence/kWh, which means that electricity sent to the grid becomes almost worthless.
- If your SEG company is not your retail electricity provider, the best tariffs you can get are in the range of 10-12 pence/kWh.
- If your SEG company is also your electricity provider, you can get solar export tariffs of up to 30 pence/kWh.
As a quick example, assume you install a 4-kW solar power system capable of generating 3,500 kWh/year, but you can only use 1,000 kWh directly. Here is a table showing how much you would get for the 2,500 kWh sent to the National Grid at different SEG tariffs. For the 1,000 kWh that are used directly, we assume you save 35 pence/kWh and £350 in total.
Value of 2,500 kWh
(After Adding £350 Saved with 1,000 kWh)
This is a very simplified example, but it shows how the annual savings of a home solar system can vary depending on the SEG tariff chosen. You only save the full value of solar generation that is consumed directly, and SEG tariffs apply for the kilowatt-hours sent to the grid.
SEG tariffs are less critical if your home has a high consumption during the day, and you can use most of the electricity generated by your solar panels directly. In this case you are saving the full value of each kWh, instead of getting a reduced export tariff.
Ofgem Energy Company Obligation (ECO)
The Energy Company Obligation (ECO) scheme offers direct incentives for homes that require energy efficiency measures and are currently facing financial hardships. There have been four previous versions of the program: ECO, ECO1, ECO2 and ECO3.
- The ECO3 scheme ended on 31 March 2022.
- The ECO4 scheme started on 1 April 2022 and will end on 31 March 2026.
Under the ECO4 scheme, energy companies must help their low-income customers reduce their heating costs. This is accomplished by funding energy efficiency measures partially or completely. When a home qualifies, the optimal measures are determined through a retrofit assessment. Homes that use electric heating may be eligible for free solar panels, but only in cases where biomass heating or district heating have been ruled out during the assessment.
The ECO4 scheme targets homes considered to be in fuel poverty. Specifically, the scheme is available for households who are current receiving at least one of the following benefits:
- Child Benefit
- Pension Guarantee Credit
- Income-related Employment and Support Allowance (ESA)
- Income-based Jobseeker’s Allowance (JSA)
- Income Support
- Tax Credits (Child Tax Credits and Working Tax Credits)
- Universal Credit
- Housing Benefit
- Pension Credit Saving Credit
The scheme is available for homeowners and renters alike, but renters must get approval from their landlord before implementing energy efficiency measures.
Households who are not receiving at least one of the benefits listed above can still qualify for the ECO4 Flex scheme if they are referred by the local government. In general, ECO4 Flex is available for homes that require energy efficiency measures and also meet one of the following conditions:
- Having a combined gross annual household income below £31,000.
- Having a household member who has a severe or long-term health condition, who is affected by living in a cold home. This applies for cardiovascular conditions, respiratory diseases, limited mobility or immunosuppression.
The ECO4 Flex scheme can be accessed through local authorities (LAs), or also through the Scottish and Welsh governments. The program normally requires referral from your LA, but self-referral may be available depending on your location. Also note that LAs may refer homes for ECO4 Flex based on other criteria beyond income level or health conditions.
Energy companies can also refer their customers who are struggling with fuel debt, or customers with prepayment power metres who cannot stay connected continuously due to financial hardships.
The Ofgem website has a list of energy companies who participate in the ECO4 scheme:
- British Gas
- E (Gas & Electricity) Ltd
- E.ON UK Solutions
- Octopus Energy
- Outfox the Market
- Scottish Power
- Shell Energy (formerly First Utility and formerly Hudson)
- So Energy (Including ESB Energy)
- The Utility Warehouse
- Utilita Energy Ltd
Ofgem keeps a record of energy efficiency measures completed under the ECO scheme. As of 1 September 2023, Ofgem reported 8,081 home solar installations under the ECO4 scheme and 102 installations under the ECO3 interim scheme. Across all project categories, the ECO4 scheme had completed 42,650 home energy efficiency upgrades.
Home Energy Scotland Solar PV Grants
The Home Energy Scotland Grant and Loan scheme covers a wide range of home energy upgrades, including solar PV systems. This scheme covers up to 75% of the combined cost of eligible measures, up to a maximum amount of £7,500 per project. In some rural locations, the maximum incentive increases to £9,000. Note that this scheme is only available in Scotland.
- Solar panels are eligible, but only if they are installed along with other energy efficiency measures. You can get a grant of up to £1,250 and an optional loan of up to £4,750.
- Energy storage systems are also eligible and they qualify for the same incentive: a grant of up to £1,250 and an optional loan of up to £4,750.
If you install both solar panels and an energy storage system, you can get a combined grant of £2,500 and a combined loan of £9,500. Note that solar panels and energy storage are just two of the measures covered by the Home Energy Scotland Grant and Loan scheme. You can check the complete list of eligible measures and their incentives at the official program website:
Solar Panel Loan Schemes
There are many banks and institutions in the UK that offer loan schemes for installing renewable energy or carbon reducing technology such as solar panels. These are typically available locally, but can be available from large companies, and typically have the same interest rates as most bank loans. In some cases, you may also be able to secure a no-interest or low-interest loan.
Banks – Most local banks are more than willing to work with a lower interest rate for a solar panel installation. You should discuss your options with your local bank if you are interested in taking out a loan. However, as loans have high interest rates, this may negate your return on your solar panels.
RHI for Solar Thermal
If you are installing solar thermal rather than solar PV panels, you may qualify for a Renewable Heat Incentive. This is similar to the Feed in Tariff, except you are paid quarterly for a period of 7 years. Applicants submitting to the RHI between October and December 2016 will receive 19.74 pence p/k Wh of heat produced.
In some cases, you may also qualify for a government grant or public funds through your local City Council for the installation of solar thermal.
Free Solar Panels
If you cannot afford the upfront costs of installing solar panels but still want some of the benefits, free solar panels are an alternative. However, they come with several drawbacks, including that you will not keep any of the Feed in Tariff funds produced by the panels. These programmes are also known as “Rent a Roof” and are available from a number of companies around the UK.
How Does It Work – Companies like Isis Solar, HomeSun, and A Shade Greener review your property, decide if your home is appropriate for solar panels, and then install panels at their own cost. They then have you sign a power purchase agreement, which ensures that they get the rights to all of the Feed in Tariff rates produced by the panels over the next 25 years, and sometimes the lifetime of the panels. This contract is tied to the home, so you cannot bring the panels with you if you move.
In most cases, you can save anywhere from £75-250 on your electric bill per year depending on the size of the array but that’s it. The average homeowner can expect to see about a 10-30% drop on yearly electric costs.
Is It Worth It? – If you can afford to purchase and install your own system, you can earn a great deal more in terms of returns by installing your own panels. However, if your primary goal is to go green rather than earning or saving money, a free solar panel scheme may be a great fit for you. You can still save some money, and will reduce your carbon footprint, but the tangible benefits will be low. If you or a family member is frequently at home during the day, then you can expect to save more, by using more electric while the sun is producing it.
Solar Panel Grants in Ireland and Scotland
If you live in Ireland or Scotland, there are more solar panel grants available to you than in the rest of the UK. The government provides multiple solar grants and incentives designed to make solar panels more accessible, and you can take advantage of many of them.
Energy Saving Trust (HEEPS) – The HEEPS loan scheme is available for homeowners and for landlords and helps with interest free loans, helps with getting tax breaks and benefits, and sometimes offers support for making homes warmer or cheaper to heat.
Home Energy Scotland Renewable Loans – You may qualify for a zero interest loan of up to £2,500 for solar PV and up to £5,000 for solar thermal.
Affordable Warmth – Affordable Warmth offers solar PV and solar thermal panel grants to applicants in Northern Ireland.
Community Solar Panel Grants
Community solar panel projects are growing in size and in popularity as communities can earn money through investing in large scale solar projects. There are also a number of solar panel grants designed to help communities install solar and other renewables but most are available locally through local or regional groups.
Rural Community Energy Fund (RCEF) – The RCEF is a community fund of 15 million set up to provide assistance to feasible community renewable projects. The programme is specifically designed for rural communities and offers up to £150,000 in grant money to projects which offer economic and social benefits to the community. Currently not taking more applications.
Commercial Solar Panel Grants, Funds, and Loans
Commercial solar panel grants are available for schools, colleges, universities, public sector buildings, agricultural buildings, and small to medium sized businesses. Many small to medium sized businesses can also qualify for a 0% interest loan to help with the installation of carbon reducing technologies including solar panels and solar thermal.
Energy Efficiency Financing scheme (EEF) – The EEF was founded as a partnership between investment firm Siemens and Carbon Trust, and offers renewable energy grants and 0% interest loans to small to medium sized businesses. The EEF provides £550m of solar financing on a first come-first serve basis. Loans are given on a 7 year basis and start out as low as £1,000.
The Carbon Trust Green Business Fund – The Carbon Trust Green Business Fund offers up to £10,000 to small businesses with fewer than 250 employees for installing solar panels or installing new technology to become a greener business.
City Council Funds – Schools, universities, colleges, and public sector buildings can attempt to get a grant or an interest free loan from the local city council. While these solar grants are not available everywhere, they are common, especially in areas with large solar initiatives. However, they are available in limited supply, and are typically only given to public buildings.
Interest Free Energy Efficiency Loan Scheme – Businesses in Northern Ireland can apply for the IFEELS to receive a loan of £3,000-400,000 depending on the project.
While there are very few options for domestic solar panel grants, you can still qualify for a number of different types of assistance for installing solar on your roof. With low interest loans, FITs, tax cuts, and some other subsidies available, you can earn your money back as quickly as possible. However, if you do not have the capital to invest in solar, you can also choose a Rent a Roof programme and still benefit from reduced energy bills.
If you choose to install the panels yourself and pay your own costs, you can earn considerably more because of the Feed in Tariff. However, it is important to ensure that you are getting the best solar panels if you want to maximize your returns.
You can use our free tool to find and compare the top MCS certified solar panel installers in your area so you can choose the best deal. We can help you to get better quotes from top companies, so you can save up to 47% on the cost of installation.