Solar panels: The smart investment that gives you 20% returns

If you’ve spent any time online researching solar power, you will have read this one statement everywhere: ‘Solar power for home is an investment that will pay for itself within five years.’ Indeed, this is true. But what does it really mean? How can your solar panel system pay for itself and what financial benefits can you gain from it?

Investing in an efficiently planned solar power array will give you financial benefits in three main ways:

  1. Reduction in electricity bill
  2. Feed-in tariff, which is the rate you are paid for excess solar electricity you feed back into the grid
  3. Solar rebates resulting in cheaper technology

Of these three, it’s self-consumption of solar power and the resulting reduction in your utility bill that saves the most money. Simply put, simple payback indicates how long it would take for your savings on electricity bills to break even on the solar panel installation cost.

Saving on bills

Usage and electricity prices, both vary across different states and territories. Let’s assume that our home consumes 9,400 kWh per year —  the Australian per capita consumption of power. Further, let’s assume that we’ve installed a 6.6kW system: this is the most popular size that most families opt for and that can be accommodated by their rooftops. The output will also vary from state to state, depending on sunshine, but let’s assume an average output of 9,000 kWh per year.

In Brisbane, the average price of electricity is 21 cents per kWh. Without solar power, our grid electricity bill would come up to about $1,974. With a 6.6kW solar system Brisbane, your grid dependence would shrink and your bill would reduce to a mere $84 — this is a direct annual saving of $1,890!

In Sydney, the average power tariff is 26 cents per kWh. Relying on grid electricity alone would cost us $2,444, but with solar power Sydney, yearly savings could be up to $2,340. Similarly, in Melbourne, power is priced at 23 cents per kWh on average. With solar Melbourne, an average yearly electricity bill of $2,162 could be reduced to as little as $92 — a saving of $2,070.

Get paid for excess power

It’s unrealistic to assume that a household will always achieve 100% self-consumption. Unless the householders work from home, or run most of their appliances in the day time or use solar power to run their business, it’s more likely that they will use 20-50%, while the rest is excess power that can be exported into the electricity grid. In return, the power supplier then pays the householder a ‘feed-in tariff’ for this extra electricity. Unfortunately, the financial gain to be made from this feed-in tariff is not as great as self-consumption, since feed-in tariffs have fallen sharply across Australia over the past decade. Present-day rates vary between 3 and 20 cents per kWh, depending on where one lives. So, for example, while self-consumption of 1 kWh from your solar panels in Brisbane would save you 21 cents on the bill, exporting that to the grid would fetch, at best, 18 cents.

However, even with these lowered tariffs, if one were to do the math, it’s quite likely that a household would still break even on their solar system installation within five years. Even in the worst case scenario — if one were based in Perth, where the average feed-in tariff is just 4 cents, but they’re only able to use about 20-30% of the solar power generated — even in such a scenario, the solar system would still save them enough money to pay for itself in about five years.

Get subsidised solar panels

Some solar experts will tell you that if you intend to install solar panels, each year that you put it off, you lose a little money, since the rebate is being phased out. The Australian federal STC scheme — which works as a sort of solar rebate — has significantly reduced the cost of purchasing and installing solar arrays by about $500 per kW of solar panels. So 6.6 kW will fetch about $3,300 in rebates. All prices that customers see online already include this discount. Be sure to hire the services of CEC approved installers in order to qualify for the rebate! Also keep in mind that this rebate reduces by about 11% every January, until the STC is finally phased out completely and the rebate amounts to zero in 2031.

Smart investment, big returns

To wrap this analysis up, despite reducing rebates and feed-in tariffs, most households achieve simple payback of their solar array in 2.5 to 5 years. This is a very healthy 20% annual ROI or return on investment. Thereafter, you can, in a sense, enjoy solar power for free!

Even if you do not stay home during the day and your solar energy consumption is about 20%, at the most, this will push your payback period to 5-6 years. And that’s still a 15% rate of return, which is far better than simply letting that money lie in a bank account. Not to mention, the sooner you install a solar power system, the sooner you can move to clean, green energy and reduce your bills for the foreseeable future. To boost your savings even further, look out for the best solar deals available with Solar NextGen.