Incentives & Financing

2023 UK Solar Incentives and Grants Explained

May 10, 2023 By Emily Chen 9 min read
UK Solar Incentives and Grants Map

Investing in solar energy for your home or business is a significant decision with long-term benefits for both your finances and the environment. To encourage wider adoption of renewable energy, the UK government has implemented various incentives and support schemes that can substantially reduce the upfront costs of solar installations. This article provides a comprehensive overview of the current financial incentives available in 2023 for those considering solar energy in the UK.

The Smart Export Guarantee (SEG)

Following the closure of the Feed-in Tariff (FiT) scheme to new applicants in March 2019, the Smart Export Guarantee (SEG) was introduced as its successor, coming into effect on January 1, 2020.

How the SEG Works

The SEG requires licensed electricity suppliers with more than 150,000 customers to offer an export tariff to small-scale renewable generators, including solar PV systems up to 5MW. Under this scheme, you get paid for each unit (kilowatt-hour or kWh) of electricity you export back to the grid.

Unlike the previous FiT scheme where rates were set by the government, SEG tariffs are set by individual energy suppliers, creating a competitive market. This means rates can vary significantly between suppliers, and you're free to shop around for the best deal.

Current SEG Rates

As of May 2023, SEG rates typically range from 3p to 12p per kWh exported, depending on the supplier. Some innovative tariffs offer higher rates during peak times or variable rates linked to wholesale electricity prices. Here's a snapshot of rates from major suppliers:

  • Octopus Energy: 4.1p - 15p/kWh (with their "Outgoing Agile" tariff offering dynamic pricing)
  • E.ON: 5.5p/kWh
  • EDF Energy: 3.5p/kWh
  • Scottish Power: 4.0p/kWh
  • British Gas: 3.2p/kWh
  • OVO Energy: 6.0p/kWh
  • Bulb: 5.57p/kWh

It's worth noting that the supplier you choose for your SEG payments doesn't have to be the same as your electricity provider, allowing you to select the best export tariff regardless of who supplies your electricity.

Eligibility Requirements

To qualify for the SEG, your solar PV system must:

  • Be installed by an MCS (Microgeneration Certification Scheme) certified installer
  • Have a maximum capacity of 5MW (5,000kW)
  • Be connected to the grid
  • Have a smart meter or export meter that can accurately measure exported electricity

VAT Reduction on Solar PV Systems

In the Spring Statement 2022, the UK government announced a significant VAT reduction for energy-saving materials, including solar panels.

0% VAT Rate

From April 2022 to April 2027, the installation of solar panels, batteries, and other energy-saving materials in residential properties will benefit from a 0% VAT rate, down from the previous 5%. This represents a direct 5% saving on the total installation cost.

For a typical 4kW residential solar system costing around £6,000, this VAT reduction saves approximately £300 compared to the previous 5% rate (and £1,200 compared to the standard 20% VAT rate).

Eligibility Criteria

The 0% VAT rate applies to:

  • Solar panels
  • Battery storage when installed with solar panels
  • Wind turbines
  • Heat pumps
  • Insulation
  • Controls for central heating and hot water systems

The reduced rate applies to both materials and installation costs when installed in residential or charity properties. Commercial installations generally remain subject to the standard 20% VAT rate, though there may be opportunities for businesses to reclaim this VAT depending on their circumstances.

Local Authority Grants and Schemes

Beyond national incentives, many local authorities and regional bodies offer their own grants and schemes to support renewable energy adoption.

Solar Together

Solar Together is a group-buying scheme run in partnership with local authorities across England. The scheme helps homeowners and small businesses purchase solar PV systems at a competitive price through a reverse auction process where installers bid for the opportunity to install multiple systems in a given area.

Participating regions have included London, Suffolk, Essex, Norfolk, Warwickshire, and parts of Yorkshire. The scheme typically saves participants 20-30% on installation costs compared to typical market rates.

To participate, you register your interest (for free and without obligation) when a scheme is active in your area. After the auction, you receive a personal recommendation and quote based on the information you provided. You then have several weeks to decide whether to accept the offer.

Regional Energy Efficiency Programmes

Various regions have their own energy efficiency schemes that may include support for solar installations:

  • Warmer Homes Scotland: Provides funding for energy efficiency measures, potentially including solar PV for eligible households.
  • London Community Energy Fund: Supports community energy projects, including solar installations.
  • Greater Manchester Green Homes Grant: Offers support for various green home improvements, including solar in some cases.

These schemes often have specific eligibility criteria, such as income thresholds, property energy ratings, or residence in particular postcodes. Contact your local authority's energy or sustainability department to find out what might be available in your area.

Commercial Solar Incentives

Businesses investing in solar energy can benefit from several specific incentives designed to make commercial solar installations more financially attractive.

Enhanced Capital Allowances (ECA)

While the dedicated Enhanced Capital Allowances scheme for energy-saving technologies ended in April 2020, businesses can still benefit from the Annual Investment Allowance (AIA). The AIA allows businesses to deduct the full value of qualifying plant and machinery (including solar PV systems) from profits before tax, up to an annual investment limit.

As of 2023, the AIA limit is set at £1 million per year until March 31, 2023. This means a business can potentially deduct the entire cost of a solar PV system from its taxable profits in the year of purchase.

Super-Deduction Tax Break

Until March 31, 2023, companies investing in qualifying new plant and machinery (which can include solar PV systems) can benefit from a 130% super-deduction capital allowance. This means for every £100 invested, the company can reduce its corporation tax bill by up to £24.70 (based on the current 19% corporation tax rate).

Business Rates Benefits

The installation of solar panels on commercial buildings can potentially affect business rates. However, since April 2023, eligible low-carbon heat networks and certain renewable energy equipment (including solar panels) used for self-supply have been exempt from business rates.

Energy Storage Incentives

As the UK moves toward a more flexible energy system, incentives for energy storage are becoming increasingly important.

Battery Storage VAT Reduction

Battery storage systems installed alongside solar panels in residential properties now benefit from the 0% VAT rate mentioned earlier. This represents a significant saving compared to the standard 20% VAT rate that previously applied to standalone battery installations.

However, it's important to note that battery storage systems installed separately from solar panels may still be subject to the standard 20% VAT rate, unless they qualify under specific conditions.

Time-of-Use Tariffs

While not a direct incentive, many energy suppliers now offer time-of-use tariffs that can significantly enhance the value of a solar-plus-storage system. These tariffs offer lower electricity rates during off-peak hours, allowing battery owners to charge from the grid when electricity is cheap and use that stored energy when rates are higher.

For example, Octopus Energy's Agile tariff offers half-hourly pricing based on wholesale electricity costs, with prices sometimes going negative during periods of excess renewable generation. Combined with a battery system, this can lead to substantial savings on energy bills.

Community Energy Schemes

For those interested in community-based approaches to solar energy, several incentives and support mechanisms exist for community energy projects.

Rural Community Energy Fund (RCEF)

The RCEF supports rural communities in England to develop renewable energy projects. The fund provides:

  • Stage 1 grants of up to £40,000 for feasibility studies
  • Stage 2 grants of up to £100,000 for business development and planning applications

While the focus is on rural communities, similar initiatives exist in urban areas through local authority-led schemes.

Community Benefit Societies and Cooperatives

Community energy projects structured as Community Benefit Societies or Cooperatives can offer tax advantages for investors:

  • Some community energy investments may qualify for Social Investment Tax Relief (SITR), offering income tax relief of 30% on eligible investments
  • Inheritance tax benefits may apply for investments held for at least two years

Green Mortgages and Solar-Friendly Finance

Financial institutions are increasingly recognizing the value of energy-efficient homes and offering preferential terms for properties with renewable energy installations.

Green Mortgages

"Green mortgages" reward homeowners for energy-efficient properties, often with preferential rates or increased borrowing capacity. Several major UK lenders now offer green mortgage products with benefits for homes with solar panels, including:

  • Nationwide: Offers cashback on mortgages for properties with an EPC rating of A or B
  • Barclays: Provides lower interest rates for energy-efficient homes
  • NatWest: Offers preferential mortgage rates for homes with higher energy efficiency ratings

Specialized Solar Loans

Some lenders offer specialized loans for renewable energy installations, often with lower interest rates than standard personal loans. These products are designed specifically to finance solar PV systems and may offer repayment terms aligned with the expected savings from the system.

Maximizing Your Benefits: Tips and Strategies

Combining Multiple Incentives

For maximum financial benefit, consider how different incentives can be combined. For example:

  • Install solar panels with 0% VAT
  • Sign up for the most competitive SEG tariff
  • Add battery storage (also at 0% VAT) to increase self-consumption
  • Switch to a time-of-use electricity tariff to optimize battery charging/discharging
  • If you're a business, utilize available tax benefits

Timing Your Investment

With incentives changing periodically, timing can be important:

  • The 0% VAT rate is confirmed until April 2027
  • Business tax incentives like the super-deduction have specific end dates
  • Local grant schemes are often time-limited and operated on a first-come, first-served basis

While it's generally not advisable to delay a solar installation too long (as you miss out on energy bill savings), being aware of upcoming changes to incentive schemes can help you make the most financially advantageous decision.

Working with MCS-Accredited Installers

Most incentives, particularly the SEG, require that installations be carried out by MCS-accredited installers. Working with certified professionals not only ensures eligibility for these schemes but also provides assurance about the quality of your installation.

Looking to the Future of UK Solar Incentives

As the UK works toward its net-zero carbon goals, we can expect the landscape of solar incentives to continue evolving. While the generous Feed-in Tariffs of the past are unlikely to return, the government remains committed to increasing renewable energy capacity through various support mechanisms.

Future developments may include:

  • Enhanced support for solar-plus-storage systems as grid flexibility becomes more valuable
  • Improved frameworks for peer-to-peer energy trading that could increase the value of exported solar electricity
  • Potentially more localized incentive schemes as part of regional decarbonization strategies
  • Further integration of solar incentives with electric vehicle and heat pump support schemes

Even with the current incentives, solar PV systems represent an increasingly attractive investment for UK property owners, with shorter payback periods due to rising electricity prices and falling installation costs. By taking advantage of the available support schemes outlined in this article, you can significantly enhance the financial case for your solar installation.

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