Have consumers missed the boat on solar?

Part one of a series on the issues facing buyers of solar PV systems. First up, how much impact will the reduction of subsidies have on the economics of solar for consumers?

Many homeowners have concluded that ’they have missed the boat’ on solar, due to the publicity over the reduction in state and federal subsidies for renewable energy (and the imminent further reduction in STC credits for rooftop PV). But is this so?

The past downward trend in product costs and the competition between installers (now with less work) means that the out of pocket cost for homeowners may not be that much worse. Homeowners trying to find the answer to this key question face a plethora of conflicting information and advice. Quotes are often given in a way that makes comparison very difficult.

For example, Origin Solar ran a big promotion in Melbourne during September distributing leaflets to its customers and letterboxing the eastern suburbs, offering a 1.6kw Trina system for $2,490 on a two year interest-free plan. By October it had cut the price on its website to $2,240 and in November launched a new leaflet offering the same system for $1,990. These offers were advertised as valid until December 7.

However, the November announcement by the federal government of a cut in the solar multiplier resulted in Origin withdrawing the offer, even though the leaflet continued to be delivered to households. This was legal thanks to the fine print requiring full STC (small-scale technology certificates) eligibility.

The Origin Solar website price has now jumped to $3,265 – although confusingly it was also promoted as “from $2,990”. This increase (of $1,275) is more than the actual reduced subsidy of around $800 – which suggests other factors are at play.

A homeowner who ordered when the price was $2,490 might feel aggrieved by those who got the same product for $500 less a few weeks later – but then may thank their lucky stars that they hadn’t waited until the price hit $3,265.

The price changes are perhaps understandable in the light of the dramatic decline in the wholesale cost of equipment and the irregular, and far from parallel, reduction in the levels of government subsidy. The subsidies have been a major factor in driving industry growth and improving the economies of scale, which in turn have cut costs.

The Clean Energy Regulator publishes details of the out-of-pocket expenses incurred for small renewable units on a quarterly basis. This is a requirement under the Renewable Energy (Electricity) Regulations 2001 and the third quarter 2012 results can be seen here.

This data comes from the requirement that STC certificate claimants must provide the out-of-pocket expenses associated with the purchase, installation, and grid-connection of each small renewable generation unit. Although this includes small-scale wind or hydro systems, it is the solar PV panels that dominate the data.

Source: Clean Energy Regulator

Perhaps surprisingly, this data shows a consistent downward trend in the average out-of-pocket cost of both large (greater than 5kw) and medium (2-5kw) systems. The average out-of-pocket cost for small systems (less than 2kw) increased in both the second half of 2011 and the third quarter of 2012, but generally has eased down from around $2,500 to $2,000 a kilowatt.

The design of earlier subsidy schemes gave a marked advantage to small systems but the progressive withdrawal of subsidies has brought the average for different sized systems much closer. Consumers were often confused that two small systems were a lot cheaper than one double the size, but subsidies are only available for the first system at any property.

The withdrawal of the STC multiplier six months early will inevitably see a jump in the first quarter of 2013 – which would be around $800 if the full impact were passed on.  This may be offset by an increase in the value of STC certificates, although the downward trend in wholesale panel prices may be about to stall.

More detailed figures are produced by Solar Choice on a monthly basis (reproduced by Climate Spectator, for example, here) which track the average net cost of a solar installation showing the variation between cities for different size systems.

In November 2012 there was a 34 per cent differential between the most expensive – a small 1.5 kw system in Melbourne costing $2,500 per kilowatt and the cheapest, a 3kw system in Perth costing $1,860. Over time these figures also show a strong downward trend.

However, it is all very confusing for consumers – who have little idea of either the market price or the productive value of solar panels. The fact that individual quotes will also vary due to the complexity of each location and roof type means consumers have little way of seeing whether they are getting a competitive quote. Unexpected “extras” charged on the day of installation are a frequent consumer bugbear.

Few remember the days when similar sized systems cost $13,000 but attracted an $8,000 subsidy – leaving the out of pocket cost twice the level of today. Yet ‘going solar’ remains a major investment, relying on the buyer having sufficient income to purchase – even when interest free terms are offered.

Market demand remains strong, but the industry should be wary that growing consumer confusion will undermine confidence. Anecdotal stories of people who feel they paid too much or didn’t get the expected cut in their bills could quickly turn the public mood sour and end the remarkable growth record of the sector.

More information and advice on choosing the right solar system can be found in the Clean Energy Council Consumer Guide – here.

Monday: How big should my system be?