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Evening Standard
Evening Standard
Business
Meghann Murdock

Spring statement 2022: Everything you need to know about solar panels, insulation and heat pumps after VAT cut

Chancellor Rishi Sunak announced in his Spring Statement today that VAT on the installation of energy-efficient materials in homes such as solar panels, heat pumps and  insulation is to be cut from five per cent to zero.

The Chancellor said: "A family having a solar panel installed will see tax savings worth over £1,000 and savings on their energy bill of over £300 per year."

Solar panels come with a high initial cost of between £4,000 and £8,000 but the incentives for installing the panels include reduced electricity bills and a lower carbon footprint — with any extra electricity generated then sold back to energy suppliers.

Other energy-saving materials now exempt from the five per cent VAT for homeowners include heat pumps and home insulation. Although no details have been made available on which technologies or models qualify and whether there are any specific requirements that will need to be met.

Installing solar panels on your home

There are two main types of solar panels: the Photovoltaic (PV) system which generates electricity and solar thermal systems which absorb sunlight to heat water in your home.

PV systems can cost between £5,000 and £8,000 to purchase and install on average. Solar thermal systems cost between £4,000 and £5,000.

One of the incentives for getting solar panels is the Smart Export Guarantee (introduced in 2020) which requires energy suppliers to pay customers for the extra electricity they generate and export to the grid. This is only applicable for the electricity-generating PV panels.

Homeowners choose which energy supplier to sell their extra electricity to, with estimates for how much a typical household could make usually between £75 a year and £110 a year. To qualify, solar panels need to be certified and you need to have a meter that tracks how much electricity you export.

Key points to consider

Panels are now likely to be considered ‘permitted development’ by planners but it depends on the angle of your roof, whether your home is listed or in a conservation area.

The Energy Saving Trust estimates that recouping the cost of solar panels would take the average household between nine and 17 years. However, with the energy cap increases this time period will fall as costs for using electricity from the national grid continue to rise.

If you’re planning to move home in the next decade, therefore, costs are unlikely to add up - unless the panels add value to your home. The appearance of the panels, their age and efficiency will all impact any value they add — or don’t add — to the property. It’s generally advised that any value added will not match initial outgoings.

Panels are generally low maintenance. You’ll have to leave them behind when you move as their certification and any tariffs you have will depend on their roof position when installed and the quantity of electricity generated.

If your energy supplier goes bust, the smart export payments will stop and you will be required to find a new tariff with a different supplier. Your energy suppliers for incoming and outgoing electricity do not have to be the same.

Using the electricity you generate at the time it is generated is always better value than selling it to an energy supplier (often for not a huge amount) and using most costly, supplied electricity at other times of the day.

Is your home suitable for solar panels?

You need a predominantly south-facing roof, unshaded during the peak daylight period of between 10am and 4pm.

Diagonal roofs in good condition are best. Panels such as the medium 4kWp system commonly used on domestic properties usually need around 300sq ft of unshaded space.

It’s recommended that you get at least three quotes to compare costs and services, and check whether you will need planning permission, before progressing with solar panel installation.

Insulating your home

Insulation is good way to cut energy bills and keep as much heat in your home as possible.

The average blanket loft insulation costs for a detached house, including labour, is £600.

Blanket insulation is the cheapest per m2 (£5), followed by loose fill (£7.50), sheet insulation (£10), and spray foam (£55). The average roof insulation labour cost is £175, according to Checkatrade.

Pipe insulation keeps hot water hotter for longer. Avoiding frozen or burst pipes in winter is always a good idea.

The cost comes from hiring professional help, as some pipes may be hard to reach, but tradespeople should be able to do the job in a few hours. The insulation itself should be priced from around £20. Until a list of energy-saving materials is published by the Government, we won’t know whether lower cost measures are also included in the new VAT exemption.

Heat pumps

Air-to-water heat pumps are most commonly used in homes. They promise to lower fuel bills, cut carbon emissions and heat your home and hot water.

They work by transferring heat from outside air to water, which heats rooms via radiators or underfloor heating — or heats water stored in hot water cylinders.

Typical costs are around £7,000 to £13,000. Prices can go up to £20,000 for more advanced models.

Space for the unit is required outside your home, it will need to be fitted to a wall or placed on the ground.

Air-source pumps use electricity and need to run constantly during winter. Homes need to be well-insulated, with loft insulation in particular. Noise emitted by units can vary.

The Government’s Net Zero strategy, delivered in the run up to COP26, included targets such as no new gas boilers in homes after 2035 and grants of £5,000 for heat pumps.

Without properly insulating older properties — both owner-occupied and rental homes — it’s unlikely that the uptake on heat pumps will be as widespread as hoped for.

The supply and installation of an air source heat pump will cost in the region of £3,000 to £18,000, according to Checkatrade. Air-to-water is the more expensive option, costing an average of £13,000 for supply and install. Air-to-air on the other hand is around £3,100 for supply and install.

"In the past, investment in efficiency improvements has taken a long time to recoup through energy bills," said a spokesman from Checkatrade. "However, with rising costs, investment in insulation can be a canny and simple investment for homeowners."

"Draft regulations for the Government’s upcoming Boiler Upgrade Scheme (launching in spring 2022) shows that homeowners would have to ensure they have loft insulation installed in order to obtain a grant for a heat pump or biomass boiler. If you’re hoping to take up these grants, it’s a good idea to take action now."

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