How big should my solar system be?

One of the first questions the buyer of a solar panel system has to answer is ‘how big should it be?'

Salesmen give different rationales for how this should be determined but their strategy seems to be driven more by their assessment of a buyer's motivation than what is in the customer's interest.

Buyers motivated by environmental concerns are easily coaxed into a larger system and the idea of self sufficiency and proudly exporting to the grid. Those anxious about money will be hard to shift from the smaller systems, which are more heavily subsidised. They are quick to see that on the current much reduced feed-in-tariffs, exporting to the grid produces very limited returns.

The right size for a domestic solar system has changed dramatically over time as feed-in tariffs have tumbled from a high of 60 cents gross in some states to around 8 cents net today.

Anecdotal evidence is confusing because the financial outcome for people with PV systems depends very much on when they were installed. The relationship between the initial out-of-pocket costs, the savings made in reduction of bills and the amount earned from net exports to the grid is complex.

Those enjoying mandated or grandfathered feed-in tariff rates are likely to be seeing good payback periods, despite having originally incurred higher out of pocket expenses.

Those looking at today's rates will be well advised to size their system to match their own daytime consumption and not over-invest. They could end up exporting at 8 cents a kilowatt hour electricity that is effectively costing 15-20 cents (if the marginal cost of an extra $2,000 per kilowatt is amortised over 10 years).

Different formulae are used to estimate the average output from a solar cell. Some salesmen use a figure of four hours average effective production a day at 90 per cent rated capacity to give 1,314 kwh a year output per kilowatt installed. Others talk of 15 per cent or 16 per cent overall efficiency and multiply this by the local insolation rate to get a similar figure.

The Clean Energy Regulator has a calculator, which for Melbourne produces 1185 kWh/annum/kw – (the same figure used in the Clean Energy Council calculator) – about 10 per cent less than some salesmen are prepared to claim.

Each method is of course an over-simplification. Moreover, actual production will vary considerably day to day and between seasons and this is significant depending on the match to a household's consumption pattern.

For a family home averaging around 11 kwh per day, a 1.5 kw solar system could contribute about half the total consumption. A large part of day time usage will come from the panels and any surplus will be exported. All night time usage will still be billed at utility rates – and of course PV output declines in the late afternoon, when many people arrive home. The benefit of off-peak rates is only felt on weekend evenings.

This is significant, particularly in Victoria where new solar installations are required to adopt time-of-use charging.

There is great variation in what consumers actually pay, but a typical current Melbourne flat tariff (including GST) of around 28 cents/kwh  must convert to an off peak rate of 14 c/kwh and a peak rate of 38 c/kwh – applying 6am to 10 pm Monday to Friday.

Short of having previous records from a smart meter for the home, there is no reliable way to predict just how much will be saved in avoided utility charges and how much energy will be exported. Hence there is no way to calculate the optimum size solar system for that property.

Many people are disappointed with the reductions in their bills being less than expected – particularly where they have moved to time of use charging. Others are disappointed with the limited returns from exporting power – although not usually the case for those who signed up to some of the earlier generous feed-in tariff rates.

The time of year that the installation happens can greatly colour the attractiveness of the apparent early returns. People who rely on neighbours anecdotal experience with earlier installations may experience greatly different outcomes and some angst as a result of operating under very different subsidy/feed-in tariff arrangements.

Despite these uncertainties there is a distinct trend towards larger systems. The data collected by the Clean Energy Regulator in administering the STC payments demonstrates most of the recent sales have been larger than 2kw.

The solar industry has historically cried poor in trying to stave off reductions in subsidies – mostly without effect. There have been repeated forecasts of the imminent demise of a growing employment sector should governments reduce subsidies as panel prices tumble. In fact, the industry has gone from strength to strength in the long-term, albeit with bursts of activity.

Source:  Clean Energy Regulator

Over the past two years, sales have fluctuated between 60,000 and 120,000 units a quarter – and the trend to larger systems means more panels are sold for each unit.

The government is expecting savings of $80-100 million from the withdrawal of the STC multiplier for small systems. This suggests it still expects around 100-120,000 solar systems to be sold in the next six months. This compares to about 160,000 systems sold in the first half of 2012. A downturn, but not a disaster.

The increased prices may make it harder to sell systems but the forecast does not suggest the industry is about to hit any brick walls. The rapid rise in electricity prices and “bill shock” will keep consumers thinking about the solar option.

Ensuring the integrity of the industry, which has seen many players come and go, and building up a professional workforce for the long-term are perhaps greater challenges.

A market where consumers are interested but poorly informed is a magnet for fly-by-night operators and those specialising in heavy sales techniques.

To protect the reputation of the industry the major players should act quickly to ensure better, more authoritative advice is provided and that up-selling homeowners to larger systems that will not leave them better off is actively discouraged.

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

Part one can be found here.

Tomorrow: Will I get my money back?