Low-Cost Loans for Solar Panels Could Benefit Millions of UK Homes
Research by the New Economics Foundation and the Finance Innovation Lab indicates that millions of UK households could reduce their energy bills by hundreds of pounds annually if the government approved low-cost loans for solar panel installation.
Although solar panels with batteries offer significant benefits, their upfront cost of approximately £6,000 remains prohibitive for many financially constrained UK households, while other countries continue to advance their solar adoption.
The proposed scheme involves the Bank of England supporting a low-interest borrowing system, enabling solar panel installation on around 8 million homes without direct government expenditure. According to the thinktanks, households could save an average of £250 per year.
The mechanism would allow the Bank of England to provide commercial banks with access to funds at low or zero interest, contingent upon their use of these funds to offer loans to households for solar installations. These loans would be available at an interest rate near 2%, incentivizing high-street banks to participate and covering scheme costs.
Collaboration with energy companies could facilitate loan repayments through energy bills; alternatively, banks could collect repayments directly. Average monthly repayments are estimated at £45, offset by bill savings of approximately £66. Even accounting for loan costs, households would experience net savings on energy bills throughout the 15-year repayment period and beyond, during the remaining lifespan of the panels.
Implementing these proposals could also alleviate fiscal pressures on the government. The Department for Energy Security and Net Zero’s budget includes about £15 billion for the Warm Homes Plan, a scheme aimed at equipping low-income households with green energy and insulation. However, this funding is currently uncertain due to political developments involving the prospective prime minister, Andy Burnham.
Jesse Griffiths, chief executive of the Finance Innovation Lab, stated:
“You could then spend it on whatever you wanted.”
He further explained:
“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.”
Griffiths noted that previous government-backed schemes for green home upgrades, such as the Green Deal, failed due to their cost to the government. Utilizing the Bank of England’s ability to offer preferential interest rates could circumvent this issue. He cited the success of comparable schemes in countries like Japan and China.
Ed Miliband, the energy secretary, who has faced criticism from the Conservative Party and media amid speculation about his potential leadership candidacy, has consistently supported solar initiatives.
Recent heatwaves and the conflict in Iran, which has increased fuel prices, have contributed to a surge in solar installations. In March, 25,000 small-scale solar installations were registered with the Microgeneration Certification Scheme (MCS), marking the highest monthly total in 11 years. Approximately 125,000 installations have occurred so far this year, with projections suggesting this figure could at least double by year-end. In 2022, 258,000 homes, small businesses, or buildings were fitted with solar panels, bringing the UK total to over 2 million installations.
Despite the current growth, the UK’s home solar market experienced stagnation in the past decade due to inconsistent government incentives. The peak of over 203,000 installations in 2011, supported by feed-in tariffs rewarding households for supplying energy to the grid, was not surpassed until last year. Between 2016 and 2021, only about 50,000 installations occurred annually, according to MCS data.
Other nations have progressed more rapidly: nearly one-third of German households have solar panels, many installed as DIY projects, and rooftop solar capacity in the Philippines has doubled. Modern solar panels can generate electricity even on overcast days typical of the UK’s climate. Griffiths cited estimates indicating that approximately two-thirds of UK homes could benefit from solar panels, with at least half being highly suitable and an additional 17% having east- or west-facing roofs where installations remain effective.
Chris Hewett, chief executive of the Solar Trade Association UK, commented:
“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 promoting plug-in solar panels, which will soon be available in kits costing a few hundred pounds from retailers. However, these systems tend to be less efficient than rooftop arrays. Griffiths noted:
“They’re more useful for balconies and places where rooftop solar is difficult.”
Miliband stated:
“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 on the proposals.
