Should you spend some of your pension pot on Solar PV?

Now you have more freedom to do what you like with your pension pot, you might like to spend some of it on solar panels for your home. You may think you won't live long enough to get the benefit but the average life expectancy for women of 65 is another 20 years, and men are not far behind. So, what about the solar panels? There are a number of factors to consider and estimating your benefits is not completely trivial. For a quick estimate, try the Energy Saving Trust calculator. However, if you like spreadsheets, download this from Transition Cambridge because then you can see all the assumptions clearly and adjust them if you want to. I have just brought it up to date. By the way this works equally well if you are less than 55 years old.

The three main variables are:

• Cost - depends partly on the shape of your house.
• Electricity yield - depends on the system capacity, your location, orientation, tilt and shading.
• Self consumption - how much of the power you generate will you use directly rather than exporting it to the grid.

Getting a quote from a qualified MCS installer will give you an accurate value for the installation cost and electricity yield. This will cost you nothing but your time. From the yield it is easy to work out your income from the Feed in Tariffs because this is based on how much you generate, not how much you use. You should check the latest rates from OFGEM. You can get useful data on typical installations costs from OFGEM as well.

Your bill savings are an increasingly important part of your benefit, as the Feed in Tariffs come down and the cost of electricity goes up. At current rates you get 15.8p/kWh generated (generator tariff plus half the export tariff) and you are probably paying about 14p/kWh - so when you use the electricity yourself you almost double your benefits. But it is hard to estimate how much you will use. It depends a lot on when you tend to use electricity: if you are out during the week and you are very good about turning things off when you go out then you will use very little of your panels 5 days out of 7. However, if you are retired you are probably at home during the day quite a bit and you can do even better by adapting your schedule depending on the weather -  for example running the washing machine when it is sunny. In practice most households are likely to use only 20% to 30% of their own power. If you are retired and at home this is likely to be closer to 30% than 20%.

You can also improve your self consumption rate with additional equipment. You can use otherwise 'spare' power to heat your hot water (see Should I use my solar panels to heat my hot water tank and Solar Hot Water for Combi Boilers). Also battery storage will soon be a complete game changer.

However, because you need to consider the investment over 20 years or more there are some more factors to consider, for which we could use a crystal ball.

• Inflation (RPI) because Feed in tariff rates are linked to this.
• Inflation in electricity prices - because this affects your savings on your bill and is likely to be more than the RPI.
• Gradual deterioration in your PV panels - they are typically guaranteed to generate 80% of their nominal rate after 25 years, so say 0.8%/year.
• Maintenance costs - you are quite likely to have to replace some part of the system during the 20 years, most likely the inverter. These are not often guaranteed beyond 10 years.

If you agree that energy prices are likely to increase faster than the RPI then your self consumption savings will at least partly offset the deterioration in the cells. The most difficult factor to predict is the maintenance cost. The inverter is the bit most likely to have a problem - but at least you won't need scaffolding to get to it. You can reduce your risk by using several smaller inverters rather than one big one, and this also helps to get round problems with shading. Micro inverters - one per panel - are increasingly common and often have a longer guarantee.

The Transition Cambridge spreadsheet model includes all of these factors so you can put in the numbers for your house and play with the assumptions. By default it gives you 4 kWp of south facing panels costing £8000 and with an annual return of 8.5% to start with. Over 20 years, with 2% RPI and 4% inflation for energy, after paying for the panels, you have cleared £7000 profit.

I plan to write about investing in renewables soon, because if you don't have room for solar panels you can opt for shares in a wind farm or a big solar farm.