Solar payback: Smaller is better

With varying government programs and changing panel prices, what's the best strategy to hasten your solar payback time?

With all the talk about continuing cost reductions for solar PV, just how good-a-deal is solar power now for electricity consumers?

The Alternative Technology Association has crunched the latest numbers on payback times for solar PV systems across Australia.

Whilst PV module prices have continued to drop, so too have the STC incentives and feed-in tariffs (FiTs) for residential PV in most states, and with these shifts comes a change in optimal system sizes for different homes.

We know from Climate Spectator’s recent articles that consumers are continuing to purchase medium to larger sized systems. The question though is: should they? With FiT rates now lower than retail energy prices in most states, exporting that clean, green electricity doesn’t make quite as much sense as it used to economically.

So let’s have a look at where things are at.

The ATA considered payback times in each state, and within each state – taking into account the best and worst of the payback range within some states. Many rural areas within jurisdictions such as Queensland, WA and Victoria have faster payback times due to better solar insolation and therefore increased eligibility for a higher number of Small Technology Certificates (STCs).

As an example, Perth is in Zone 3 for the purposes of STC creation, however the rural WA town of Laverton is in Zone 1 – and eligible for almost 20 per cent more STCs – providing a material additional discount off the installed system cost.

Aside from the relevant STC zones within each state, ATA used the following fixed parameters for the model:

Graph for Solar payback: Smaller is better

With regard to the assumed parameters, we know of course that assuming a single flat tariff for all locations is a bit of a shortcut, but for the purpose of optimising system size for illustrative purposes, it makes little difference compared to using the full range of tariffs available.

In addition, in all of our consumer advice, ATA is always at pains to impresses upon consumers the long term value of ensuring quality when considering the purchase of any technology.

With respect to solar PV, this means obtaining a high quality system with good warranties for panels and inverter and a minimum of a 5-year installation warranty from a supplier with a strong track record and evidence of good after sales support and service. This typically means paying a little more than the lowest market rate, and so we have set our installed cost figure for this type of system at $2.50 per watt, before STC discount.

For this exercise, we chose 2.0 kW as being reflective of the average size system that consumers are installing. It should be noted that as there is no longer an STC multiplier for the first 1.5 kW installed, paybacks are linear for different system sizes with the same export percentage.

That means that if a 2.0 kW system and a 3.0 kW system both have a 40 per cent export percentage and the same installed cost per watt, both will have the same ROI or payback period. A different export percentage will end up with a different payback outcome. For net FiT customers, an accurate estimation of likely export percentage is now critical to the consumer achieving a cost effective installation.

For those customers who can still access either a gross, or a ‘1 for 1’ net FiT, payback remains constant across all export percentages as all solar generated electricity is worth the same per kWh.

ATA set the consumption tariff at 35 cents per kilowatt hour, and this time, has chosen not to include a projected tariff rate increase over time. There is currently a wide range of electricity price projections from a range of market analysts, generally forecasting a small increase to a small decrease in retail prices out to 2020. It should therefore be borne in mind by the consumer that any increase to their future retail tariff will slightly improve the payback times listed below.

ATA also used the following rates for feed-in within each state:

Graph for Solar payback: Smaller is better

As is well known, the majority of states have reduced their FiTs to somewhere down around wholesale market-reflective value – with only the NT now offering a gross FiT with a value that reflects the retail price of electricity.

As pointed out earlier, given the now relatively constant parameters across most of the economic aspects of PV, export percentage (the portion of energy sent out to the grid) is now one of the major determinant of payback times in net FiT jurisdictions.

The other main factor determining the economics of a solar installation is the consumption tariff that new solar owners end up with – this is a key issue for new solar owners and a wide variety of consumption tariffs are on offer (see ATA’s recent Climate Spectator article: Solar customers need a better deal, August 16). Prospective solar owners need to shop around to ensure that they can get the best retail deal possible before committing to a solar project.

The table and subsequent graph below shows payback times starting at roughly between 4 and 6 years for all states and territories. However, for those on net FiTs, this is when export rate is down around 10 per cent. This means that the clear majority of the solar-generated electricity is being consumed on-site – i.e. average to high energy users with small PV systems.

While for gross and ‘1 for 1’ FiT customers, the payback times obviously remain constant, for net FiT customers the payback times increase with higher export to the grid.

From the consumer’s perspective, the key thing to remember is how much of the solar electricity you are realistically likely to consume on-site, at the time it is generated. For many households and families who are out all day at work and school, it is likely that not much more than your fridge and some stand-by loads will be running. And unless your fridge is ancient, it’s not likely to consume much more than a kilowatt hour or two over the course of a day.

It is pretty common for these types of households to export more than 50 per cent of their generation, even with PV systems of 2kW and under. At 75 per cent export, the payback time is for most systems is between 10 and 15 years.

So when it comes to getting the best return on your investment in PV, smaller seems to be increasingly better!

Graph for Solar payback: Smaller is better

Click to enlarge

Damien Moyse is the energy projects and policy manager for the Alternative Technology Association.

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