Wednesday, May 26, 2010

How to work out the payback for installing solar panels

We are all being presented with the idea of installing solar panels. In some states you even receive nearly three times the rate you pay when you generate excess electricity which goes back into the grid. Does this mean you'll end up getting paid for the excess electricity you generate?

One electricity company is offering a 1.5kWh solar panel system fully installed for $2,990. Payments over 24 months with a 10% initial payment and the remainder is paid interest free. Sounds pretty good doesn't it. I thought so. I've also seen companies offering to install similar sized solar panel installations for twice the price or more, so it is good to shop around.

I decided to do some rough calculations.

First I needed to find out what the real world figures are for a 1.5kWh system. From a bit of research I found in general, the amount of electricity that would be generated per day to be estimated at 4 times the kWh rating. I read other figures stating from 3 and going up to 7, perhaps more in summer. To look at this more simply, whilst the sun shines during the day, we effectively get around 4-7 hours of sun generating electricity per day depending on the season. We can then use an average of 5.5 hours per day for our calculation.

Using the electricity cost calculator and plugging in the figure of 1,500W (1.5kWh system) for 5.5 hours the total dollar value of the electricity generated will be $605.26 per year.

In addition, if you are spending $2,990 and decided instead to keep the money in the bank, you'd earn interest on the money. Since the payments are over two years you'd lose approximately $150 in interest based on a 5% interest rate.

Thus the total cost without any additional charges being incurred would be approximately $3,140.

The saving of $605.26 would take approximately five years to recover.

"But what about the 60 cent rebate I get back when I generate electricity back into the grid", you might ask.

This is where I think the government has been very clever by providing this incentive, but the question becomes, is it a real incentive.

All you need to do is to check your electricity bill and determine your average usage per day. I've read the average electricity usage for Australians is around 14-17kWh per day.

In winter the solar panels are expected to generate 4 hours at 1.5kWh, which is 6kWh per day and in summer it will be 10.5kWh. Based on these figures, for most Australians, for most of the time, they won't be getting any rebate. The easiest way to know is to check your bills and how much electricity you use during each quarter. I have heard of one person getting a rebate and I must say I was impressed. The couple both work and are rarely at home during the day. If your electricity usage can be lowered to below the amount the solar panels generate, then yes you should get a rebate. Even then however, I don't expect it will be much.

In summary the payback on investing in solar panels can be expected to be around five years. To me a five year payback is a long time and makes the decision whether to install or not much harder.

Other things that may be worth considering are:
  • Electricity prices are expected to increase over the coming years.
  • Whether people will see the solar panels on your home and consider them to have increased or decreased the value of your home. I love the idea of solar energy and solar panels, but most installations I've seen tend to look ugly.
  • I've read and haven't yet confirmed, that during a power outage the solar panels won't supply electricity.
  • If you are at home most of the time during the day, then the chances of you getting a rebate would appear to be reduced.
  • I've read where people have lost their off-peak electricity as a result of installing solar panels. With their electric hot water systems they end up paying more for electricity than they did before installing a solar system.
  • I've read that any rebate received by pensioners will be considered income.
  • I haven't read the contractual obligations which I believe people should read carefully.
  • A person expressed concern to me should an installer damage a tile which isn't identified at the time and it if causes damage, the damage may not be covered by insurance. I've previously had work done which caused unexpected damage, as well as a tradie breaking tiles, so I understand this concern.
  • We are now saving an estimate $400 a year by reducing electricity usage with little or no outlay. Even if you do consider solar panels, you should also consider reducing your electricity usage. The benefit of this is you also increase your chances of getting the rebate.
I hope this information helps others to determine their situation and aid in making a better, more informed decision with regards to solar panels.

- Kelvin Eldridge

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