How much would you save with PV Solar?
When we first moved into our awesome home 3 years ago the government was giving away Solar Panel Systems FOR FREE! You had to pay around $800 up front as a deposit, however you got that back after all the dust settled and the government paid out your grant, it was a fantastic deal. You got something – quite literally – for nothing and it was something incredibly valuable too so of course, it couldn’t last.
After performing some brief research to confirm its legitimacy I decided to pull the trigger and get the free 1 kW system for our new house… the very next day they announced they’d shut down the program months ahead of schedule due to “overwhelming demand”. Who’d have thunk it huh? So we franticly tried to submit our information in a futile bid to scrape in under the line but alas… it just wasn’t meant to be, we’d missed out on the freebie .
So after this sad revelation we started researching again what our other options were and ended up purchasing what has been a fantastic system from NU Energy. Costing $2,500 for a fully installed 1.5kW system it’s been installed now for just over 2 years time and has so far saved us… (drum roll please)… $1189.22! At that rate it’s likely to have paid itself off completely in another 2 years time. Not too shabby I think! Our system also isn’t setup in the optimum position either as our North facing roof is covered by tree’s, we had to have them facing West which can cut down on your power generation by about 20% or so.
Given the initial cost and how much it’s saved us we get a ROI of: $1,189.22 / 2 Years = $594.61/year. Thus $594.61 / $2,500 = 23.8%
Yup… almost 24% return on our investment each year! Now I must stress this fact now as I don’t want people racing out and buying solar assuming they’ll get 24% too. The amount of money you save is dependent on MANY things. The main point is what type of Feed-in Tariff you’re on, this varies with which state you live in and also when you got your solar panels installed but in general they FiT’s aren’t anywhere near as good as they were when we signed up 2 years ago. That being said though I wanted to investigate whether or not you could still get a fantastic return on investment by going solar.
Up, Up And Away!
Electricity costs are going up.
They’ve been going up for a while now and everyone’s clearly noticed it. Case in point, I constantly check that we’re on the best plan for our area every year (as you should too) but despite this our Peak Power Rate has sky-rocketed from just 15.7 cents to 29.1 cents in just 3.5 years, that’s an 85% increase! In 3 years! Furthermore it doesn’t look like these cost increases will be slowing down either what with the Smart Meter roll out, the Carbon Tax and the impending conversion to renewable energy sources and the infrastructure changes required to suit them. Power’s going to get expensive REAL fast. If that trend continues, we’ll be paying almost $1 per kWh in 7 years time and that’s not even including the Daily Service Charges. At this point you’re thinking:
Wow… $1 per kWh… that’s going to SUCK!
But it’s going to be even worse I’m afraid. You see solar and wind power is going to CRUSH fossil fuels in the next 5-10 years and I don’t just mean “cut down the profits of energy companies a little bit” I mean absolutely destroy every single cent of profit they make. In Germany right now they look to be about 3-5 years ahead of us in terms of Solar Panel roll out. They installed over 7.6 GW of photovoltaics last year alone and just look what it’s done to the use of their daily power consumption:
Power companies make the majority of their profits during times of peak demand (hence the higher peak rates). The peak hours for Australia (just like Germany) are during the hours of about 8am to 9pm… virtually the same time that the Sun shines meaning bye-bye profits. All of the profits.
Also note that Germany gets far less Sun than what we get here in Australia.
So what’s a power company to do then? Here they are with all these power plants and no one’s buying any power any more! Well, fortunately for them everyone still is connected to the grid… which requires them to pay a daily service charge… so what do you think’s going to happen? Daily Service Charge increases!! Now this is for Germany but you can bet every Australian energy provider is looking at the above charts with horror. This is their future and they seem to be pushing up the daily service charges almost in anticipation. Since 3.5 years ago our daily service charge has gone from 60.91 cents to 84.33 cents (a 38.4% increase). Now this is pretty bad but you can bet once the above scenario is happening here that charge will be sky-rocketing too.
What To Do?
This is all a lot of doom and gloom isn’t it? So what can you do? Can you make hundreds of dollars every year without lifting a finger by going Solar?
But Mortgage Mutilator, you’re always saying to SAVE money and put it towards the home loan not SPEND money and take it away!
This is true also. However a home loan is a multi-year affair and while you might be a bit out of money initially from the upfront costs, you might reap the benefits later on! You’ll also be doing your part to get rid of polluting the world (especially given that in Australia we mainly use highly polluting black and brown coal – 75% – to generate our electricity). Furthermore you can sit back and chuckle a little as the power companies pay YOU money every quarter. If they’re not paying you, you’ll likely be getting bills of $0.00 like we regularly do. So let’s get into running a few figures! How well does it really play out now that there aren’t as many rebates and awesome Feed-in Tariffs any more.
Cost of brand new, fully installed 3kW Solar Panel system from NU Energy: $5,590 (Note: This cost depends on your state, go here for exact cost)
Depending on where you’re located the output of the system will differ so I’m going to take a general, real world example of this 3kW system located in Mill Park, Victoria. pvoutput.org is a fantastic website so if you’re in a different location simple choose a 3kW system close to you in the search bar and that will give you more accurate data. For this system it produced 3,631kWh’s last year so that’s an average production of 9.95 kWh’s/day.
Again, depending on where you’re located, the Feed-in Tariff is different, so heading on over to here we find out that currently the FiT’s are:
|ACT||Their Electricity Feed-in Tariff Scheme closed on 13 July 2011|
|QLD||44 c/kWh (until 30th June 2013)|
|SA||16 c/kWh (until 30th September 2013)|
|TAS||Equal to the purchase price of electricity|
|WA||Their Residential Feed-in Tariff Scheme closed on 1 August 2011|
As I said before, the Feed-in Tariff schemes were a LOT better 2+ years ago, although the Queensland one is still very good at 44 c/kWh. So let’s look at a typical Mortgage Mutilating home that should already be doing all it can to cut down on its electricity bills as per this post. Now you might not be using the very low 3-4 kWh’s/day that we use but given the general audience of this site let’s go with 2 adults and 1 child in a modest gas heated and gas hot water system home. According to our Energy company an “Efficient Similar Home” uses roughly 6 kWh’s/day, whilst a “Similar Home” uses 12.2 kWh’s/day. Let’s go with an even 10 kWh’s/day.
So if Jack and Jill go up the hill and buy this 3 kW Solar Panel system for their 10 kWh’s/day using home and they live in VIC we get:
|Solar Panel Size:||3kW|
|Up Front Cost:||$5,590|
|Average Daily Production:||9.95 kWh’s|
|Average Daily Energy Use:||10 kWh’s|
|Cost Of Buying Power:||20 c/kWh|
|Cost Of Selling Power (FiT):||8 c/kWh|
So on average we have the house using 10 kWh’s and producing 9.95 kWh’s. Given that most electricity is produced during the day and some electricity will be used during the night, lets round those figures out and say that they use 7 kWh’s during the day and 3 kWh’s during the night time. As such we get an average day looking like this:
Day Time: Produce 9.95 kWh’s, use 7 kWh’s. Thus they save having to buy 7 kWh’s (7 * $0.20 = $1.40) worth of power + sell 2.95 kWh’s (2.95 * $0.08 = $0.236) back to the power companies.
Night Time: Produce 0 kWh’s and use 3 kWh’s. Thus costing 3 * $0.20 = $0.60.
Overall: $1.40 + $0.236 – $0.60 = +$1.036/day
So this solar panel system is saving/making them $1.036/day, or $378.14/year (like I said, the FiT’s were MUCH better 2+ years ago). Either way though, that’s a 6.76% return on investment for ever! Not to mention that as the cost of electricity goes up over the years, so does the ROI. If it was ever to hit that $1 per kWh of power mark they’d be saving $1,546.14/year or an ROI of 27.6%!
Unfortunately though for most this setup doesn’t make too much financial sense as it would take roughly 15 years to make your original money back. That said though the cost of solar panels are continuing to race towards lower and lower levels with massive utility sized solar power plants even costing LESS than coal power plants now. On average they seem to be reducing by around 15-20% per year, every year meaning that the $5,590 cost stated above could be around the $2,800 mark within 3 years time.
There’s also the very new and exciting V3Solar company that’s making a huge splash in America, possibly cutting the cost of solar panels by 5 times. Anyone want a 3 kW system for $1,200? They also look WAY cooler than just boring old flat panels and they also spin!
Furthermore you might not live in VIC, you might be in QLD where there’s more Sun, less clouds and a much better FiT. If you are in QLD that same 3 kW system would be saving/making you around $765.77/year and even MORE if the bulk of your power usage is at night time.
It is a big up front cost for most though and it’s very unfortunate that the government is content to subsidise fossil fuels instead of directing those resources towards renewable energy sources. The subsidies number in the billions and have been going on for the better part of a decade whilst residential FiT’s barely lasted 2 years.
So Should I Get Solar?
My decision was yes obviously. The price wasn’t too high and the FiT made it a very safe bet in terms of the return we’d see from the system. Not having any of our energy use generating pollution was also an important factor however times have changed. There are other solar panel systems that aren’t as expensive (or powerful) such as the 1.5 kW system for $2,890 (in VIC) which might reduce the upfront costs enough to make it worth your while.
Solar is a complex beast to understand given it’s different for all states, all power usage types and all sizes/orientation/location types. Eventually though I hope to see private companies offering complete, off-grid capable solar systems in the $1,000-$2,000 range. This might not happen for a number of years but when it does, when you can pay (as an example) $2,000 up front and NEVER pay ANY power bills again for the rest of your life… that’s when the energy companies will be in a LOT of trouble and the country will truly turn to renewable energy sources. Maybe by then Tesla Motors will have released their Model S to Australia too…
So do the figures work out for you? Have you been thinking about buying a solar panel system lately and if so, what’s stopping you?
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