UK Households Could Save Hundreds on Energy Bills with Low-Cost Solar Loans

Millions of UK households could save hundreds of pounds a year on their energy bills if the government were to approve low-cost loans for solar panel installation, research has found.

Solar panels with batteries are one of the cheapest ways to generate electricity and reduce energy bills, but with an upfront cost of about £6,000 they are still beyond the reach of most cash-strapped UK households while other countries forge ahead with installation.

But if the Bank of England were to back a system of low-interest borrowing, they could be installed on about 8m homes at no direct cost to the government. Households would save about £250 a year on average, according to the thinktanks New Economics Foundation and the Finance Innovation Lab.

The scheme would work by allowing the Bank of England to offer commercial banks access to its funds at low or no interest, on condition that they used the facilities to provide loans to households for solar installations. The loans would be available to households at about 2% interest, giving the high-street banks an incentive to take part and covering the costs of the scheme.

Cooperation with energy companies could allow the loans to be recouped through bills; otherwise, the repayments – likely to be about £45 a month on average, offset by bill savings of about £66 – could be collected by the banks. Even with the cost of the loan, households would save money on their energy bills for the 15 years of repayments, and more for the remaining life of the panels.

Adopting the proposals could also help the government out of a fiscal hole: the budget for the Department for Energy Security and Net Zero includes about £15bn for the Warm Homes Plan, a scheme to equip low-income households with green energy and insulation. That money is now under threat as the prospective prime minister, Andy Burnham, seeks to expand defence spending.

Jesse Griffiths, chief executive of the Finance Innovation Lab, said that offering solar upgrades through the Bank of England would free up Warm Homes Plan cash. “You could then spend it on whatever you wanted,” he said.

“The government’s (warm homes) plan relies on government spending to subsidise cheap loans, but our research shows that, for rooftop solar, cheap loans can be delivered without direct costs to government. This makes the potential take-up of the scheme far larger than what limited public budgets could subsidise, meaning that anyone with a suitable rooftop could benefit – over 8 million households,” said Griffiths.

Previous government-backed schemes for green home upgrades, such as the scrapped “green deal” offered by the Conservative/Liberal Democrat coalition, failed because they carried a cost to the government, Griffiths added. By using the Bank of England’s ability to offer preferential interest rates, this could be avoided. He pointed to the success of similar schemes in countries such as Japan and China.

Ed Miliband, the energy secretary, who has come under ferocious attack from the Tories and sections of the media since rumours swirled that he could be a candidate to serve as Burnham’s chancellor, has long championed rooftop solar as a bright solution to the cost of living crisis.

Heatwaves and the war in Iran, which has sent fuel prices soaring, have encouraged increasing numbers of people to seek out solar: in March, there were 25,000 small-scale solar installations registered with MCS, the standards body, which was the most in a single month for 11 years. So far this year there have been about 125,000 installations, with that number likely to at least double by year-end. Last year, 258,000 homes, small businesses or buildings were fitted with panels, bringing the total number of installations in the UK to more than 2m.

While the UK’s home solar market is booming again amid the oil crisis, the stop-start nature of previous government incentive schemes depressed uptake in the last decade. The high of more than 203,000 installations reached in 2011, when “feed-in tariffs” that rewarded households for sending energy to the grid were in place, was not surpassed until last year, and from 2016 to 2021 only about 50,000 a year were installed, according to MCS.

Other countries have forged ahead: close to a third of households in Pakistan now use solar systems, mainly DIY installations; and rooftop solar in the Philippines has doubled. Modern panels can generate power even on overcast days in cloudy countries such as the UK, and Griffiths quoted estimates that about two-thirds of UK homes could benefit: at least half are “highly suitable” for panels, and a further 17% have east- or west-facing roofs where installations can still work well.

Chris Hewett, the chief executive of the Solar Energy UK trade association, said: “The UK’s rooftop solar market has never been healthier, and it’s no wonder, considering that the price of solar and battery installations is almost the lowest on record, while the cost of power from the grid remains stratospheric. But we must go further and faster.”

The government is also keen for people to buy plug-in solar panels, which will become available in kits for a few hundred pounds from supermarkets and other retailers, but such systems tend to be less efficient than rooftop arrays. “They’re more useful for balconies and places where rooftop solar is difficult,” said Griffiths.

Miliband said: “Amid another fossil fuel crisis, the British people are continuing to show record demand and break clean power records with a new rooftop solar panel installed every two minutes in 2025.

“We are going further and faster on our rooftop revolution, with the Warm Homes Plan set to bring in zero- and low-interest loans for solar panels – and quick, low-cost plug-in panels will be in shops within months.”

The Bank of England declined to comment.