Does inflation help the case for solar and heat pumps?

A common argument for solar panels and heat pumps is that energy prices only rise, so money spent now protects you against inflation later. Ten years of published prices are enough to test it, and the answer is different for the two technologies.

Solar did better than inflation over the decade, mostly because of the gas crisis of 2022 and 2023. For a heat pump, general inflation made almost no difference, because what decides its running cost is the gap between the electricity price and the gas price.

What electricity and gas cost, 2016 to 2025

The figures below are the government's annual average unit prices for households paying by direct debit, including VAT. The third column is the consumer prices index, rebased so that 2016 is 100, and the last shows each year's electricity price in 2016 money.

Over the ten years electricity rose 95 per cent and gas 78 per cent, against 37 per cent for prices generally. In 2016 money, a unit of electricity went from 13 pence to nearly 19.

The rise came in two stages. From 2016 to 2021 electricity rose about 5 per cent a year faster than prices generally, while gas fell by a seventh in real terms. Then wholesale gas prices multiplied, the price of both fuels roughly doubled, and the government's Energy Price Guarantee held the unit rates at about 34p and 10p from October 2022 to June 2023. The 2022 and 2023 figures in the table include that support; without it, electricity would have averaged over 40p in 2023. Since the peak, prices have fallen by about a fifth in real terms and have not gone back to where they were.

A solar roof bought in 2016

Take a 4 kilowatt system installed at the start of 2016. The government's cost data puts the median price of a small installation that year at £1,667 per kilowatt, so about £6,670. A system that size in the middle of England makes about 3,400 units a year, and a household using 2,700 units typically uses around 1,300 of those itself and exports the rest.

Each unit used in the house is a unit not bought, so the saving each year is 1,300 times that year's unit price. That comes to £170 in 2016, £242 in 2021, £394 in 2023 and £332 in 2025. Over the ten years it adds up to £2,660.

If electricity had risen only in line with prices generally, the same ten years would have saved about £1,960. So above-inflation electricity prices added roughly £700 to the saving over the decade, a little over a tenth of what the system cost. About £540 of it was earned from 2022 onwards, and about £160 in the six years before.

Export payments are left out on purpose. A 2016 system was paid under the feed-in tariff, which went up each year with inflation; systems installed since 2020 are paid whatever their supplier offers, which is not linked to inflation and can be cut. Octopus's fixed export rate, one of the better-known ones, went from 15p to 12p in March 2026. Either way, export income is set by those payment rules, so it is left out of a comparison about prices.

It depended on when you bought

The 2016 buyer did well because they bought before the shock. Somebody who bought in 2023 paid more, since installation prices had also risen, to a median of £2,263 per kilowatt. They then watched the price of the electricity they were saving fall by 21 per cent in real terms over the next two years.

Anyone who bought in 2023 on the argument that energy prices only go up saw prices fall for their first two years, and their saving fell with them.

Heat pumps depend on the gap between the two prices

A heat pump replaces gas with electricity, so its running cost is set by the two prices together. A boiler turns about 85 per cent of the gas it burns into heat. A heat pump turns one unit of electricity into several units of heat, and its annual average is its efficiency, explained in COP and SCOP. To cost less to run than the boiler, the heat pump's efficiency has to be higher than the electricity-to-gas price ratio multiplied by 0.85.

Take a house burning 12,000 units of gas a year, which was Ofgem's typical figure until recently, and a heat pump averaging 3.5 units of heat per unit of electricity. The table compares the unit costs only, at standard rates, and leaves out standing charges.

General inflation does not appear anywhere in this. If both fuels rise by the same proportion, the ratio stays where it was, and so does the heat pump's position against the boiler. The worst years for a heat pump were 2020 and 2021, when gas was cheap and inflation was low. The best was 2023, when gas was expensive and inflation was high, but the gas price was the cause.

The ratio is also where policy acts. From April 2026 the government stopped funding one energy efficiency scheme through bills and moved most of the cost of an older renewables subsidy into general taxation, which took about 3.5p a unit off electricity and about 0.3p off gas. With the gas price rising again over the summer, the October 2026 cap puts the ratio at about 3.5, lower than the annual figure for any year in the table. The temporary removal of VAT from electricity, from October 2026 to March 2027, brings it nearer 3.3 while it lasts.

Cheaper overnight electricity tariffs move the ratio further, and smart meters and heat pumps covers those.

Against leaving the money in a savings account

The fair comparison for money spent on a roof is what it would have earned in a savings account. The Bank of England publishes average quoted rates on one-year fixed savings bonds. £6,670 put into one in January 2016, and renewed each year at the average rate, would have been £8,020 by the end of 2025. That is about £5,840 in 2016 money, so over the decade the savings lost an eighth of their buying power.

For most of those years the interest was below one per cent, while prices generally rose by between one and three per cent a year. In those years inflation did favour spending the money, because money left in the bank was losing value. The same was not true in 2023 and 2024, when a one-year bond paid over four per cent.

The solar roof had returned about £2,260 of its cost in 2016 money by the end of 2025, from electricity used in the house alone, and it has fifteen years or more still to run. Whether the whole purchase comes out ahead of the savings account will be settled over the rest of its life, at prices nobody knows yet.

Grants and payments that stay the same

Some of the figures in the sum are fixed in cash, and inflation reduces their value.

The Boiler Upgrade Scheme grant has been £7,500 since October 2023 for most households, with £9,000 for some off the gas grid since July 2026. Prices generally have risen by about a tenth since October 2023, so the grant buys less of a heat pump than it did. The median installed price of an air source heat pump under the scheme has stayed around £13,000 since 2022, which is a real-terms fall of about an eighth.

Solar installation prices have followed the same pattern. The government's median for small systems was £1,780 per kilowatt in the year to March 2026, a little above the 2016 figure in cash and the cheapest on its records once inflation is taken out.

The feed-in tariff, still paid to systems registered before April 2019, rose each April with the retail prices index until 2025 and has followed the consumer prices index since April 2026. It is the only payment in the whole picture that is linked to inflation.

Using this with a quotation

Many quotations project savings forward with an assumed rise in energy prices, often 3 to 5 per cent a year, compounded over twenty years. From 2016 to 2025 electricity rose by about 7.7 per cent a year on average, so for a 2016 buyer that assumption would have been cautious. For a 2023 buyer, prices fell by about 8 per cent a year over the next two years. That average includes the jump in 2022, and electricity now costs less in real terms than it did in 2022 and 2023.

Ask for the savings figure at today's prices with no rise assumed, and judge the purchase on that. Any later rise in electricity prices beyond general inflation adds to the saving from solar. For a heat pump, the figure to watch is the ratio of electricity to gas prices. Reading a quotation covers the rest of what a quotation should show.

Where the figures come from

Energy prices are the Department for Energy Security and Net Zero's annual domestic price statistics for 2016 to 2025 (direct debit, including VAT). Figures for 2026 are Ofgem's published price cap levels. Inflation is the ONS consumer prices index. Savings rates are the Bank of England's average quoted household rates. Installation costs are the department's solar cost data and the Boiler Upgrade Scheme statistics. The worked examples assume a 4 kilowatt roof, 1,300 units a year used in the house, a boiler converting 85 per cent of its gas to heat, and a heat pump averaging 3.5.