Will your solar system pay off?

There is much talk of a 'payback period' for those homeowners who 'go solar'. But can it really be measured and if so, what is it likely to be? The final part of a series dedicated to buyers of solar PV systems.

This is the third and final part of a series on the issues facing buyers of solar PV systems. Part one can be found here. Part two can be found here.

There is no doubting the innate appeal of solar energy to the green aware households and the idea of being self sufficient at a time of increasing electricity prices has considerable buzz.

As Climate Spectator observed recently, there is also great political advantage for politicians to spruik solar subsidies and talk up the sector. Quite high proportions of homes in marginal seats have solar panels installed – and potentially many other homeowners are contemplating following their neighbours.

This is particularly the case in the sunnier states of Queensland and WA where the proportion of homes with solar panels ranges from 10-20 per cent. In “green” communities like Maleny, Queensland the proportion has hit 47 per cent. By comparison Victoria is mostly below 10 per cent and even inner suburban, green-leaning seats like Northcote manage only 4 per cent penetration.

Emotion therefore plays a big part in the buying decision. People are looking to ’go solar’ because they want make their contribution and demonstrate a green commitment.

Anecdotally, a bigger factor in people deciding to go solar is to escape from reliance on utilities as a form of insurance against ever increasing charges. However, recently electricity companies have introduced higher fixed charges to reduce the marginal benefits of reduced consumption (either from energy conservation or local solar generation).

Such a willing audience is easy prey for sharp salesmen and those prepared to stretch the truth to make a quick sale. The public are poorly informed about solar economics and the technology but are generally aware of two main messages in the media – solar costs are tumbling yet government subsidies are being reduced.

The current Climate Change Authority proposal in the RET Review to enable easier accreditation of installers to a range of third party organisations, (currently controlled by the Clean Energy Council) is a concern. It is also problematic that the current motive for accreditation is mainly to access STC payments. Ideally all installations should require an accredited installer.

Few people have any real concept about what a fair price for a solar panel is.

For this reason the poorly understood economic concept of ’payback periods’ has come to the fore. It is understood that the retail side of the industry finds that quoting a payback period is a big selling point for cutting through complicated explanations. If their out-of-pocket sticker price looks unfavourable compared to smaller or lower quality products the sales pitch can focus on how soon the panels will pay for themselves.

Claiming a payback period of three to four years makes the deal sound very attractive – particularly with the ominous headlines about future electricity price rises. A payback in around seven years seems to be a sellable proposition. After all, it is a tax-free return of close to 15 per cent even at today’s electricity prices and the method of calculation does not include any allowance for the residual value of a PV system..

However governments appear to be setting subsidies on the basis of a more daunting 10-year payback. This seems a long time to many families – remembering that the average family moves house more frequently than that. There is no clear measure as to whether a home with a solar system can draw a higher price at auction.

A number of issues impact on how reliable estimates requiring 10 years’ steady performance may be. Inverters only come with a five or 10-year warranty although panels will potentially last much longer with some decline in efficiency over time.

It will take time to measure the long term performance of the surge of equipment installed in recent years – some of which was installed by inexperienced people or companies which have since gone bust.

It is not clear whether homeowners will maintain equipment and many may need to make significant supplementary investments to keep their system going, which will impact on their expectations of a payback on the original investment. On the other hand, electricity prices are expected to continue increasing for some time.

The subsidy arrangements create further complexity in determining the payback period – some may appear reasonable to consumers – others very confusing. These include:

-- The different geographic zonings adopted to roughly approximate the amount of sunlight and hence the likely output from panels;

-- The state-by-state differences in subsidies and feed-in tariffs; and

-- Most vexingly, the variations over time in eligibility for subsidies and the different arrangements for existing customers between schemes when feed in tariffs are unilaterally changed or withdrawn.

Another big unknown is the electricity pricing policies that will apply in five years and beyond – which could look very different to today.

The discussion of payback periods is further complicated by the diverse range of financing options. Some providers – particularly the utilities offer interest free loans with modest up front costs. For example Origin is offering its systems for $125 upfront and $3.25 per day over 24 monthly credit card payments.

Hence the assumptions made in calculating the payback period are critical and consumers can have little faith that the claims being made by rival suppliers are comparable or applicable to their situation.

Consumers have limited options for getting independent advice. Choice Magazine has printed occasional articles on the estimated payback period for solar panels, based on calculations provided by the Alternative Technology Association.

It is evident these are based on a series of assumptions applying at the time of the article and struggle to explain the enormous variations between and within each state. As pointed out by comments on the website, in practice these articles only give useful tips for purchasers but a lot of specific knowledge is required for purchasers to make informed decisions about their location.

Monthly reports are available from both the Clean Energy Regulator and the Solar Choice website. These give average out of pocket prices per kilowatt installed, but are helpfully broken down geographically and for different size systems allowing some comparison to see whether a quote is realistic.

In other sectors, like home loans and personal loans, credit providers are required to cite a "comparable basis" price. There is a strong case for this for domestic solar PV systems. There needs to be a set of consistent rules for the calculation of payback periods and how these are applied to different areas considering the insolation rates, orientation, slope and local tariff structures.

Consumers would be greatly aided by an energy price disclosure scheme that required every quote for new solar panels to provide on a comparable basis, in addition to the actual price, the:

-- Out of pocket consumer cost per kilowatt installed (after subsidies);

-- The feed-in tariff eligibility;

-- The electricity prices and share of exports assumed; and

-- The estimated payback period for the tariff on which the panel is being installed.

Such a scheme would give homeowners more help in comparing or understanding what they are signing up for. This would be a positive move to build confidence in a shaky market and ensure the major players were confident that they were providing potential customers with accurate and comparable advice.

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

Andrew Herington is a Melbourne freelance writer.

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