Wednesday, August 24, 2011

Why installing solar panels may not be a good investment.

I have to be frank, but I'm really struggling with investing in solar panels and here's why.

I read that in Melbourne the average amount of sunlight for solar energy production per day is 4 hours. The average solar panel kit is 1.5kWH and whilst a basic installation until recently was around $3,000, with the reduction of the grant it is now around $4,500.

The first concern I have is by taking a grant I am in effect taking other people's money.

The second is if the government instead invested in large scale developments (I've read two are underway) then the savings from building on a large scale means no government grant would be required to achieve better returns.

I've read the amount of energy used in making the solar panels takes about 7 years to break even.

The basic installation when I reviewed information provided at a meeting run by the local council wasn't what I'd end up paying. There were potentially other costs. There is also a maintenance cost and the inverter if it dies, is very expensive to replace.

But let's forget about all the above and just do a quick financial review. Using the Energy Cost Calculator and my current energy retailer's price of around 21 cents per kWh, a 1.5kWh system would generate 6kWh's per day or roughly a saving of $469 a year.

At current prices that's around 10 years just to pay back the money I invest. In 10 years if I left the money in the bank I'd have increased the money and if I applied the money to a mortgage the savings off the loan would have doubled the money.

Now to complicate things more, there is an attractive rebate for energy you pump back into the grid. But for most people that won't be very much as their base load may even exceed the electricity the panels generate. But worse, by putting in the panels you go on a split tariff system that charges a higher rate for two thirds of the day and a lower rate for only a third of the day when usage is lowest. Overall the tariff change will increase your electricity costs.

The picture I'm seeing is you gain some savings but that is reduced by the increased costs due to the higher tariffs.

It is hard to get an accurate idea of how much better off you'll be, but if I'm to go by the 11 people in the local area who appeared in the newspaper, the savings for them only averaged around $200 a year.

For many that means installing solar panels may never end up paying for themselves.

For those who justify installing solar panels because it is environmentally good then perhaps think about the very large scale projects which can achieve a better result at a lower cost for the benefit of everyone with no grant required.

Installing solar panels just doesn't make sense.

Now don't get me wrong. I'm a fan of solar energy and have been for decades. I just think we need to make sure we're doing things for the right reasons and in the most appropriate ways.

The approach I've been taking is energy reduction which has reduced our electricity usage to around 40% of the average. I’ve found a number of ways to save money which pay for themselves in a few months to under and year. I'm also investigating the appropriate use of solar energy where there is a better payback so I have definitely not given up on solar.

Kelvin Eldridge

PS. If you have verifiable savings with your solar installation you'd like to share with others, please feel free to contact me with the information. So far people haven't been jumping up and down to brag about their savings.

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