Are solar panels worthwhile today?
Solar panels price continues to fall every year as the demand surges. It is almost certain that the rising supply chain and increasing worldwide demand will push the price down even further in the future. If you want solar for your home, how long should you wait? Is there a right time to purchase?
Not too long ago, 1-kilowatt system would have cost more than $5000 in Australia. Today, you can buy a lot more for the same price.
Just to give you an idea on how far we have come along, solar panels price in 1975 was almost 227 times the price it is today. At the same rate, a car priced at $50000 back in 1975 would’ve cost only $220 today.
The price per watt of a solar panel shown in the graph below are in USD.
The price above doesn’t include the cost of installation and other components such as inverter. So, it doesn’t directly translate to how much you would actually pay for a system.
The latest “installed” price of solar panel systems in Australia is shown below. This data was collected by SolarChoice from their installers network database.SolarChoice - Solar panels price - September 2016
The amount shown is the out-of-pocket cost, which means the solar rebate is already applied. (Batteries are not included.)
If you haven’t heard of STC solar rebate, STC stands for Small scale Technology Certificate. It is a government run scheme (although paid by utility companies) and applies to all solar systems below 100 Kilowatts.
1 kilowatt of solar panels receive approximately $700-$800 in rebate (location dependent); a 5-kilowatt system will receive around $3500-$4k. If there were no rebates, you would be paying that much more for solar panels.
By significantly reducing the upfront cost, STC rebate makes solar affordable for many Australians.
Do you want to read more about the rebate and the phase out that’s set to kick in starting Jan 2017? Go to my other blog post: Solar panel rebate
So, is paying $6371 for a 5-kW solar system in Melbourne cost-effective?
The answer to whether the value of investing $6371 in solar panels is worthwhile today lies in this understanding; what is your expected savings in power bill each month or year from that investment, and how long it takes to recover the money spent (payback time)?
Let’s take a look at that…
If I bought a 5-kilowatt system for six grand and ended up saving only $20/month in power bill, you can do the math, but that’s 25 years of payback. Forget it, right? However, if I saved $60/month, that’s about 8 years of return period – which I think is pretty good considering the panels continue to save $720/year for another 15 years at the least.
So, what determines how much I can save on my electricity bill? There are three major factors:
- Cost of existing electricity rate.
Cost of electricity…
If you lived in Idaho (USA), where electricity is much cheaper (about 10 cents/kWh), investing in solar panels today may not be cost-effective. Meaning, it will take significantly long time to recover the capital.
In Australia, no matter where you live, our conventional coal powered electricity is one of the most expensive among the developed nation (25 cents/kWh on average). In fact, according to CME’s international price comparison done in 2011, household electricity price in South Australia, NSW, Victoria, and WA were only behind Belgium and Germany. But that was 5 years ago.
Let’s talk about self-consumption…
What I meant by self-consumption is; are you home to consume the solar power while its being generated? You can be a high power user, but only certain portion of that may be between 9-5pm. More self-consumption in the day means less import from the grid, which means more savings on the power bill. That’s a high score for solar cost-effectiveness.
And finally, the location…
More clear skies is good for solar panels. Although Melbourne doesn’t have as good weather as most other Australian cities, Australia generally is considered a solar friendly country.
I can’t really answer the question of whether spending $6371 on 5kW solar is cost-effective for you, mainly for one reason – your self-consumption. If you were looking for “Yes” or “No” answer, sorry to disappoint. But I don’t have your self-consumption information. However, I will make up an assumption and give you some idea.
Let’s look at a scenario when, if you were to consume 50% of the daily solar generation from 5kW solar panels in Melbourne, what happens:
Daily estimated solar production from 5kW system in Melbourne = 18 kWh (5kWx3.6PSH),
50% self-consumption is 9 kWh. That would replace 9 kWh grid electricity that cost 25 per kWh.
Remaining 9 kWh exported at 6 cents per kWh.
Savings per day = 9 X $0.25 + 9 X $0.06= $2.79,
Annual savings = $1018.35,
Payback = $6371 / $1018.35 = 6.25 years or 16% annual return.
Will you be happy with 16% annual return? I know I will be.
There are two more things…
Is your solar system sized accurately?
Any system that produces more power than you need is overkill. Unlike before (or more like six years ago) when systems were installed only to export electricity at high FiT rate, today you can only export what is excess to your need, however, only for fraction of the price. So, investing in over-sized system will only increase payback time.
You can read my dedicated post on this topic, How to size your solar power need? . However, if this is too complex and confusing, don’t sweat. Simply let your solar company expert know and he or she will be able more than happy to size it up for you. Make sure you have your electricity bill handy.
A system that is designed specific to your need will be the most cost effective solar system of all.
Storing solar power in a battery for night time usage is a great way to consume more solar power. The only problem is that the batteries are still quite expensive. For example: a 7kWh Tesla power wall battery today can cost up to AUD$8000. Over the expected life of the battery, cost of one kWh of energy delivered by battery is expected to be between 40-50 cents. This is significantly more expensive than what you pay for your utility today. The price of batteries have to drop by half just to be on par with the grid, and more than half to make it a cost-effective investment.
Due to the high electricity cost, solar panels in Australia were already cost effective to many Aussies long before rest of the world caught up.
Regardless, what I would recommend to you though is check and see if solar is cost-effective for you: check the power bill for unit cost of electricity, estimate how much of the total energy is being used during the day between 9-5pm, and calculate the approximate size of the system that is needed. Then, get out and get multiple quotes from different solar companies. And remember, cheapest system is never the most cost-effective solar power system.
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