The cost of installation of solar panels in the UK has dropped to a great margin over the past few decades. This high margin is as much as a 90% reduction today in prices of solar modules or panels from 2009 as per IRENA . As per this year report  from the UK government, the mean cost of solar installations in the UK for a 0-4kW band is £1628 per kW.
Solar is getting cheaper and the reduction is happening in all the major renewable energy technologies. This reduction is happening due to continuous R&D of technologies, economies of scale and aggressive supply chains. The larger the solar PV system, the higher the costs and higher the electricity output with higher returns. Similarly, large scale solar power plants with very high investments have high returns but compared to residential solar power plants they are cheaper because of economies of scale.
Solar panel installation costs are not only about costs related to solar panels but the installation of the whole solar photovoltaic system. The process of installation of solar PV system starts from survey and designing of the system to choose the right components like the solar panels and inverter etc. The installation costs include the labour costs and other ancillary costs which can be discussed one by one in detail. However, two major costs which define the cost of solar panel installation are the solar module cost and the inverter cost. Other ancillary costs are important in their own perspective but make a small percentage of the total amount.
Solar Module and Inverter Costs
1. Solar Module
The most important component of the solar PV system is the solar panel and it costs the highest in the system. The cost of a single solar panel in the UK ranges from £350 – £500 , which depends on its type. It can be a mono-crystalline solar panel costing £500 each or a cheaper poly-crystalline solar panel costing £350 each. Depending on the size of the solar PV system and its design, the cost of solar panels is negotiated. If we assume a 4kW system is to be installed and each panel is of 250 watts which costs £350 each, then the cost of 16 solar panels for this system will be £5600. Similarly, a 250-watt panel can also cost £250 but the low quality and less efficiency of the solar panel will result in an inefficient design.
The choice of solar panels is the most crucial in the whole solar PV design as it defines the output, size and efficiency of the system. A cheap solar module will take more space and will be less efficient, resulting in an extended payback period. On the other hand, an expensive solar module will take less space to generate more electricity but due to high investment will again require more payback period. Ideally, the investment budget of the customer and the electricity load requirement of the household with space available for installation defines the type of solar panels to be used in the design.
The second most important component of the solar PV system is the inverter or grid-tied inverter for residential solar power plants. A typical grid-tied solar inverter for the home in the UK ranges from £500 – £1000. It depends on the type of inverter again, as it can be a string inverter connected to an array of solar panels or a micro-inverter on each solar panel. The cost of the inverter depends on its kilowatt rating and the functions it can perform. The life of a string inverter is around 10 years and that of a micro-inverter is 25 years. For a 4kW solar PV system, if we take a 3.6kW string inverter in the system and find costs. An SMA Sunnyboy 3.6kW inverter  will cost £790 with a 5-year warranty and the option to extend it for 20 years.
Similarly, if we choose a micro-inverter  in the same 4kW installation with each costing £120 then for 16 panels it would be £1920. The micro-inverters cost more and last more whereas string inverters cost less and last less.
Inverters with MPPT or Maximum power point tracker are a standard now which enhance the power output from the solar panels. Similarly, power optimizers are used with the solar panels or integrated into the inverter to refine the flow of current with minimum losses. The grid connectivity and efficiency of inverters define their cost which varies depending on system design and specifications.
Two major costs of modules and inverters comprise more than 90% of the whole system cost and others are costs that are necessary and are a very small percentage of the whole amount.
1. Racking and Mounting
To hold the solar panels in their place, racking and mounting are important, unless solar panels are integrated into the building envelope which is also termed as BIPV or Building Integrated Photovoltaic. Racking and mounting comprise all ramming profiles, assembly and foundation material. Similarly, combiner boxes and mounting structures for inverters are also included in this cost.
2. Cabling & Wiring
Solar panels generate direct current or DC and their wiring is different from AC wiring. All the components to carry DC current including cables, combiner boxes and connectors comprise this cost. Similarly all AC cables, wires and components are also covered in this cost. It is a small margin to the total cost of the system but is very important.
3. Monitoring Control
This cost is mostly levied on large scale solar power plants or solar farms and is of little use in small scale or domestic solar power plants. However, this consists of a monitoring system, irradiation sensor, temperature sensor and data systems. For small solar power plants, monitoring is possible via inverter controls and smartphone applications connected to the inverter via the internet.
4. Grid Connection
For residential or domestic solar power plants there are some costs related to connecting the solar power plant to the grid. Particular voltage cables and connectors are required to connect to the grid. A Control panel with circuit breakers is required for grid connection which comprises of grid connection cost. For large scale solar power plants cost like switch gears, transformers and substations etc are also included.
5. Safety & Security
For small scale power plants, safety components like the circuit breakers for the islanding effect are necessary. Other safety and security costs for large scale power plants include security cameras, fences, theft and fire protection equipment.
Installation & Labour Costs
1. Mechanical Installation
These costs for rooftop domestic solar power plant include construction of scaffolding to access the roof, making route for cables, installation of racking and mounting structures, installation of solar modules on mounts, installation of the inverter, connection to grid and transport of components to site. For large scale solar farms these costs include pavement of internal roads and cable route preparation. This includes labour costs that perform all these tasks.
2. Electrical Installation
All the DC cables and wires are that are connected including the solar module interconnection with deep precision are covered in these costs. AC wiring from the inverter to the household supply and the grid is also covered in this costing. These are all labour costs that connect all the wires and cables to make the solar power plant work.
Supervision of construction of solar power plant and check for any irregularities is done in an inspection by a certified supervisor. Health and safety constraints are also inspected during this inspection. The inspection of small scale power plants is less necessary as it is done by the installers themselves but utmost care should be given to find and fix any irregularities.
1. Financing Cost
It is not necessary to put in the full investment capital in cash from the pocket and financing the solar power plant is a better choice. There are costs involved in financing the solar power plant and are included in soft costs.
If there are permissions required to install solar power plants on rooftops in a certain area, these costs are necessary. However, these costs are usually related to large scale solar farms. These are permissions related to the development, construction and operation of solar power plants. Mostly these costs are related to environmental regulations.
3. System Design
These costs include the cost of surveying the location and the structure like the load-bearing capacity of the roof in the case of a rooftop solar power plant. The costs of surveyors undertaking all the surveys are included in the system design cost. The draft design and detailed design with the preparation of required documentation come under system design cost. Usually the installing company charges for these expenses in their installation contract.
4. Incentive Application
These costs are related to the application for government incentives like the Feed-in-Tariff (FiT) scheme in the past and Smart Export Guarantee (SEG) now available from the UK government. These costs are necessary to make the domestic solar power plant more viable with the possibility to sell/export excess electricity to the grid. The initial cost for incentive application results in faster returns from the solar power plant and reduce the payback period for the same.
5. Customer Acquisition & Margin
Any costs related to customer acquisition and margin on the sale of the solar power plant are all levied on the customer itself. The EPC companies doing the survey, installation and commission of solar power plants make money by gaining some margin in the whole deal. These costs are also included in the cost of the solar power plant.
Final Cost Of Installing Solar Panels In The UK
As discussed there are many costs related to the solar power plant in which costs of solar panels and solar inverters comprise the major costs and all other costs are minor costs. As discussed above for a 4kW system if solar modules cost £5600 and the solar inverter costs £790, this total comes out to be £6390. If all the other costs mentioned above comprise another 15% of the solar module and inverter cost combined, their costs come out to be £958.
This makes the total cost of installing solar panels in the UK for a 4kW system around £7348. However, this is not an exact figure for a 4kW solar PV system in the UK but an approximate value.