Let the power of the sun shrink your energy bills

The Prince of Wales is the latest to take the solar energy route for his home. Prince Charles – who has just completed two weeks of campaigning on green issues – was granted permission last month to install dozens of solar panels on his home at Clarence House.

It's his latest move to cut his carbon footprint. The palace panels are expected to produce around 4,000 kilowatt hours of electricity a year – about the same as the electricity used by the average London household.

Record numbers of householders are installing solar panels, according to energy regulator Ofgem. But the increase in popularity is less to do with families turning green and all to do with a government scheme that pays you for generating your own energy.

The last government introduced what are known as feed-in tariffs for energy in April. Under the scheme, energy suppliers make regular payments to households and communities which generate their own electricity from renewable or low-carbon sources such as solar panels or wind turbines. To be part of the scheme for solar panels, your home needs to have a roof that's south-facing, unshaded and a minimum of 30 square metres.

The scheme guarantees a minimum payment for all electricity generated by the system, as well as a separate payment for any electricity exported to the national grid. The payments are in addition to any bill savings you make.

The feed-in tariffs give up to £758 a year for all the electricity generated from solar panels. On top of that, there is an additional £27 a year for electricity exported back to the grid and a £110 saving a year on electricity bills, according to EDF Energy.

In other words, installing the panels could mean savings of almost £900 a year. However, against that is the cost of installing the panels – around £12,500 for a typical home. But with the feed-in tariff set to be in force for up to 25 years, it means after around 12 years or so, the payments will have paid for the panels. So families could pocket the remaining income from the tariff plus savings, meaning they would be better off by around £12,500 after 25 years in this example.

The savings would depend on the type of house you have and how much you're charged for energy. But the cost benefits of creating your own energy are clear.

For instance, a simple 1kWp (kilowatt peak) domestic system costing under £5,900 could pay you around £400 a year – or £10,000 over its lifetime, according to the Low Carbon Energy Company.

Such a system will typically generate about 25 per cent of an average household's electricity requirements for free – and that can be maximised by using energy-guzzling appliances like washing machines and dryers during daylight hours when the input form the panels is at its highest.

If you're put off by the initial set up costs there is a cheap solution – pay nothing for the panels. There are several firms that will install the panels for free. But there is a major drawback – they will take all the cash from the government scheme. It means you would save the initial cost and benefit from the yearly savings on energy costs of £100-£200, but lose the £800 or so from the Government.

"The monetary return that people receive from the feed-in tariff makes this kind of arrangement a lucrative opportunity for utility companies," says Richard Garth-Jones of the Low Carbon Energy Company. He believes people would be better off taking out a loan for the panels and then benefiting from the payments.

"While the idea of taking out a loan may not seem an attractive solution at first, once they do the sums, we expect most householders will change their minds," says Mr Garth-Jones.

Consumer Focus has also warned people to understand their choices fully before signing a free-panels contract. "Free solar panels could cut consumers' electricity bills and allow them to produce green energy at no cost, but they need to go into these deals with their eyes open," says Liz Laine, the charity's energy expert. "These long-term contracts need to be considered carefully. Asking the right questions and getting legal advice could help customers avoid the pitfalls."

On the other hand, having a company cover all the costs, including the equipment, installation and maintenance of the panels, which could lead to savings for you of hundreds of pounds is an attractive option.

One firm that installed its 2,000th free solar panels this week – in a home in Glastonbury – is Isis Solar, part of the Oxford Sustainable Group. "Isis Solar aims to make domestic solar energy accessible to as many people as possible, not just the few who have upfront cash to invest," says a director, Lawrence Buckley. "Anyone with a suitable roof can benefit from the feed-in tariff, and make considerable savings, guaranteed for the long term. What's more, everyone who joins in will enjoy the reassurance of producing clean, sustainable energy and reducing their consumption of fossil fuels."

He claims the company's system could reduce an average house's electricity bill by up to £340 a year. The firm is giving away solar panels to 20,000 homes in return for snaffling the properties' government payments.

Meanwhile, rival HomeSun plans to give away solar panels to 100,000 homes over the next three years. "We are planning to take solar power out into the mainstream," says Daniel Green, the chief executive.

To qualify for free solar panels you need to confirm that your roof is suitable. If your home doesn't have a south facing roof then it is unlikely that your property will be suitable. Also, if your property is a listed building then you should check if planning permission is needed as some companies will not offer free panels to listed buildings. Equally, if your house is on a main road then it would be worth checking with your local housing office if you need planning permission.

But do ask questions before signing up, such as; who is liable if anything goes wrong? What happens if you want to sell your house and the buyer doesn't want to inherit the deal? What happens to, and who owns, the solar panels after the 25 year benefit of the feed-in tariff runs out?

"Before agreeing to let someone install a small electricity generating station on the roof of your home, householders and community organisations should be asking the right questions about the risks and liabilities," says Simon Roberts, the chief executive at the Centre for Sustainable Energy.

Plug into the sun

Keen gardeners Alastair and Elizabeth Riddell have just installed solar panels on their Somerset home to save money and to help the environment.

They made the move after Alastair retired and was looking for a sensible investment for the lump sum he got from his pension.

"I didn't want to leave the cash in the bank earning no interest," says Alastair. "I felt that by investing in solar panels we could actually generate money by future-proofing against energy price fluctuations."

The couple used EDF Energy's Eco Renew scheme to install solar photovoltaic panels, which convert sunlight into electricity that can be used to run appliances, and solar thermal panels, which convert energy from the sun to heat hot water.