Are Solar Panels to the Home Economically Viable?

For those of you thinking about getting solar energy for your homes, perhaps this posting may be of some help. I got my 1.5kWh solar panel (total of six panels) installed on my roof a couple of weeks ago. To date it has produced more than 50kWh, not that it means anything much but it just means I have actually saved or contributed (depending on how you look at it) 50 kWh back to the electricity grid, in effect doing my bit for the environment.

Now the Australian government gives huge subsidies and buy back schemes to encourage people to take up solar power if you can afford the remainder that needs to come out of your pocket, that is. As I understand it (it’s still a bit of a blur), my panel costs about $8k and I paid $2k and the government paid $6k (not bad eh!). Yes, that’s not a misprint; I paid slightly above $2k for a $8k, 1.5kWh solar panel system installed on my roof. That’s on the smallish side but the government rebates only apply to a maximum size of 1.5kWh.

So the upfront costs seem attractive as you pay $2k but receive something worth $8k, if you can afford the $2k that is. Now what about the payback period/ return and all that jazz? Well we’ll get to that but let us first look at it from this perspective. If you were to put your $2k (if you had it) into the Commonwealth Bank, that $2k will be worth $2.1k after a year (at 5% interest the bank pays you). Now, I’m almost positive I will be able to save more than $100 a year by installing an $8,000 solar powered electricity system. If you can’t do that, then solar is a dud. So looking that way it’s already a good investment (if you had the money to invest in the first place).

Now, the state government was promising the most generous of buy back schemes in the nation but like all government promises this came up short. Initially, the government was going to buy back the gross and not net electricity generated by your solar system. Now what difference does this make you ask? Well there is a difference because the buy back rate is different than the usage (or import) rate. Essentially, the government buys back the electricity from you at 47c (40c government and 7c Synergy) but when you consume electricity you pay a lower rate, about 18c.

So under a gross system if you produced 6kwh per day you would export ALL of this back to the grid and a credit of $2.82 will be due to you. On the same breath, if you used 12kwh per day, your consumption costs will be $2.16 per day effectively putting 66c in your pocket.

Under a net system, the calculation is based on the ‘net’ import/ export of energy in the home at the time of generation. So assume once again if you produced (export) 6kWh of energy and consumed (import) 12kWh per day and out of the 6kWh produced 4kWh is produced net and the other 2kWh was produced for consumption the calculation will be somewhat less exciting than the net calculations. That is net exported is 4kWh ($1.88) and consumption is no more 12kWh but just 10kWh now as 2kWh was bought back from your own self at 47c!! You would have then consumed $1.80 per day and would only be on top 8c compared to 66c if it was net.

There has been complains also that while the state government was touting this to be the most generous scheme available in Australia, it was more smoke and mirrors where the tax payers were basically funding the electricity company (Synergy). Remember, the export to the grid is being funded by two schemes, the feed in tariff from Synergy (at 7c) and the “Buy Back Scheme” from the state government (40c). Before 1st August the “Buy Back Scheme” never existed and solar panel owners only received a credit from Synergy of around 18c for every kilowatt hour of energy exported to the grid. When the “Buy Back Scheme” was announced, most solar owners expected the same feed-in tariff rate from Synergy plus a higher than 40c buy back rate from the government, something above 60c for every kilowatt hour exported but the new feed in tariff reduced to 7c (from 18c) after 1st August and the government foots out 40c. So while the solar owners export rate has increased from 18c to 47c, the taxpayer is footing most of the bill while Synergy’s buy back rate dropped from 18c to 7c effectively meaning the taxpayer has funded Synergy indirectly.

Nevertheless, the scheme is generous enough although as I understand it the buy back only lasts for ten years to help recoup the initial costs for the panels. The costs for the unsubsidized panels above 1.5kWh will be much much more than the $2k I forked out. The only thing to remember with a net feed in tariff is that to get the most credits you will want to minimize your usage while your solar is producing energy at its strongest during the middle of the day so the “net” effect is more significant and if possible use the energy when the sun goes down where you will be buying energy at the selling rate of 18c, otherwise by using energy you would otherwise sell back to the grid effectively mean you are foregoing the 47c opportunity cost or buying back the energy at 47c which you would otherwise buy at 18c when there is no energy produced whichever way you look at it. This suits mostly working families who are not home during the day and use most of their energy at night.

So those of you considering purchasing solar panels, my take is apart from the fact that solar energy is good for the environment and that a solar installation invariably adds some value to your home, the subsidies and various schemes available are a huge incentive assisting this “investment” and well worthwhile and may put a few quid back into your pockets if you're an electricity nazi like me.