rss
21

Graphs of the Day: Australia’s plunging cost of solar

Print Friendly

It’s a pretty consistent theme on RenewEconomy, but given the apparent ignorance in the mainstream media, it’s worth banging on about: solar energy is delivering cheap energy to Australia’s home and businesses.

Here a few graphs that bring some new insight into the falling cost of rooftop solar PV in Australia – both for households and for businesses.

They were prepared by Patrick Greene, the business development manager for solar developer Ingenero at the 2XEP conference in Sydney. Some will be surprised by their conclusions.

Greene fed his calculations into the NREL online calculator to come up with estimates for the levellised cost of energy for rooftop solar at commercial scale rooftops (100kW or more), and for smaller rooftop systems.

It gives three figures on LCOE (levellised cost of energy), based on various estimates of the “discount rate” – the value of money over time – with around 7 per cent being about the standard. At this rate, and not including large scale renewable energy certificates, the LCOE of rooftop solar is 14.1c/kWh.

The second number shows what it means for smaller systems, which get another form of certificate, known as STCs, as an upfront payment. According to Greene’s calculations, the value of solar is now below 10c/kWh. To get the subsidy free price would require adding about 30 per cent back into the cost.

“People are told that solar is too expensive,” Greene says. “But we have seen a staggering reduction of the cost of solar in the last couple of years, so I hope that these graphs frame what the actual cost of solar is.”

ingenero lcoe

For what this means for people installing solar on their rooftops, the next two graphs are instructive.

The first shows the payback on a smaller system, one that qualified for STCs, for a business in Adelaide currently paying 33c/kWh for grid based power. The payback is less than four years.

ingenero rooftop 1

The next graph is for a larger system for a bigger user that gets a cheaper rate from the local utility – 15c/kWh. The installation still saves money, but it is a much longer payback, possibly too long for many businesses.

ingenero rooftop 2

All of this is causing some fierce push-back from the utility industry. Greene and other speakers cited numerous ways that distributors are seeking to slow down the uptake of solar – one is by drawing out the application process (taking 65 business days for each amendment or query), requiring systems to be installed to stop exports back into  the grid, or simply refusing the installation.

That, of course, leads to users thinking that they might be better off without the grid. How far is that away?

Ingenero’s Greene used this graph below to show that it was not as far off as some people think. It is from the Vector Energy offering in New Zealand, where the local distributor is offering solar plus storage packages on leasing arrangements with their customers. (Vector is doing this to avoid having to build new poles and wires).

The key figure comes in this table. Look at the bottom line, it is for the system with 5kW of solar and 12kWh of battery storage. That’s enough to look after all the needs for the average Australian house. The cost: $3,000 upfront and $115 a month.

It is likely subsidised to some extent by Vector under their trial, but it shows that solar and storage is not far from being a viable solution. And that, may just turn the industry on the head – instead of utilities dictating tariffs to consumers, it might be the consumers (with a viable alternative) that can dictate terms to the utilities. Imgine that.

ingenero vector 1

RenewEconomy Free Daily Newsletter

Share this:

  • Keith

    Giles, typo in the text re Vector. Should be $115/mth (not week)
    keep banging away!!

  • madankerr

    I’m dismally certain that governments and network incumbents aren’t the least worried about solar owners leaving the grid. They’ll just legislate for a compulsory ‘availability’ fee that applies to everyone who has the grid at their door, whether they use it or not.

    • RobS

      Good luck for any government that tries to legislate that once the number of households with solar hits 50%+

  • Bob_Wallace

    A 12 year ROI is a 6% return. That’s enough to get many businesses interested.

    • Ronald Brakels

      I’m afraid that businesses in Australia won’t touch a 6% return unless they have an ulterior motive such as the continued preservation of the planet’s ecosystem. But the good news is that things change quickly in the world of solar power and the 500 kilowatt example obviously had a high installation cost. The average price of installed point of use solar is now about $2 a watt. And that’s for a 3 kilowatt system. It should definitely be possible to get a lower price for a 500 kilowatt system, unless of course the people installing it get hit with unnecessary charges by the people running the grid. So at a $2 an installed watt in Brisbane where a flat roof installation will operate at about 22% of capacity and a 15 cent grid electricity price, assuming the system is sized to meet self consumption, then it will have a pay back period of a bit under 7 years, which is the the magic payback time for capital investments to be approved. We are looking at a situation where many businesses can install solar at under $2 a watt and where many are paying 30 cents or more per kilowatt-hour for grid electricity. This makes installing solar a no brainer for any business that consistantly draws power through the day, and for plenty that don’t.

    • http://www.CoastWideSolar.com.au Aaron

      How did you come up with a figure of 6%?
      As the ROI figure is Time to return on Investment, then I assume your are working on saving within time frame – investment cost? what is the time frame you are basing this on?

      Cheers.

      • Bob_Wallace

        Rule of 72.

  • Jo

    If find it strange when the graphs provide ROI but the unit is years!!!???

    I am unaware that my bank gives interest rates as years.

    • http://www.CoastWideSolar.com.au Aaron

      It’s the time it takes before you see a Return on Investment. Prior to this you are ‘paying’ off the system cost as opposed to paying for electricity.

      • Jo

        Thanks Aaron. This invalidates the economic credentials of the author of the graphs. ROI is defined as ‘return on investment’ see http://en.wikipedia.org/wiki/Return_on_investment and http://www.investopedia.com/terms/r/returnoninvestment.asp.

        Besides I find it really confusing that the investment quality of solar installations is measured in some kind of ‘payback time’ while all other investments are compared by interest rate or even better by the Internal Rate of Return (IRR). The legally required comparison rate for bank loans is actually an IRR.

        • Bob_Wallace

          I’m not seeing the initial purchase price so I have to take the author’s word that the first system’s annual savings pays off the system in less than four years.

          Four years (a little less than) pretty much tells you the rate of return on investment. Were it exactly 4 years then the rate of return would be 18%. An 18% return on investment.

          http://en.wikipedia.org/wiki/Rule_of_72

          You’ve earned back your invested dollars at an 18% rate and then you will start earning profits at 18% (assuming no changes). You’ve still got the system, so you’ve doubled your investment. (We’re overlooking depreciation and ‘wear and tear’ for simplicity.)

          • Jo

            Bob, according to my calculation an investment that pays itself back in 4 years has a comparison rate (IRR) of 24.8% if the life of the investment is 25 years (see calculator on http://cccommunityenergy.org/payback-time-converter/ )
            I don’t understand where your 18% come from. It may come from the ‘doubling time’ method you have chosen. 18% is what the spreadsheet is producing for the investment after 8 years. And that is the problematic situation with your approach: it does not consider the life time of the investment.
            (a solar system will last much longer than 8 years)

            Of course both our numbers are not yet realistic because they do not include inflation and the possible replacement of inverters during the life of the plant. But even after that correction such a 4 year payback time project would beat any other low risk investment by miles.
            This is why I strongly argue to replace this nonsense of payback time description for solar (only) by the use of a universally defined comparison rate (IRR)

          • Bob_Wallace

            If you put $100 in a ‘bank account’ that pays 18% per year at the end of 4 years you will have about $200.

            EOY 1 $120
            EOY 2 $143
            EOY 3 $171
            EOY 4 $204

            You’ve got your original $100 and a brand new $100. (Rule of 72 is not exact, but a great BoE tool.)

            You have doubled your money.

            That’s how the Rule of 72 works.

            If you purchase a solar system that pays for itself in four years (the second $100) then you’ve earned 18%.

            Yes, things are more involved than that. There’s inflation and system degradation. The panels and racks, etc. should last more than 40 years although the panels will drop in performance about 0.5% per year.

            The inverter is probably going to last more than 20 years and when it does need replacing inverters are likely to be much cheaper (in constant dollars). Some inverters come with a 15 year warranty and you can purchase extended warranties. (Remember, your car electronics are warrantied for three years.)

            IRR is fine if one needs to get that deep into the weeds. Most people don’t. Most people need to know a much more general number – “Install this system and it will pay for itself in X-Y years and that’s like getting your bank to pay you Z%”.

          • Jo

            Bob, my apologies for trailing off so far from the discussion of the above report, but this is really important in that context.
            We agree on the goal but disagree on the method to reach it. Your calculation has a serious flaw. Above calculation is assuming that you are also getting the money you invested back. ($100+$100). However in a case of a solar system that is not true. If it breaks down after 4 years when it has produced the “18%”, you actually have generated a return of $100 from an invested $100 which is now gone. (=0% return) The system needs to run another 4 years to produce another $100.
            So your 18% is correct after 8 years of installation which is consistent with my spreadsheet.

            I indeed do not want to confuse people with IRR but it is enough to use instead the ‘comparison rate’ which is legally defined http://www.gmcu.com.au/component/docman/doc_view/4-comparison-rate-faqs.html?Itemid=5 and a well known description for bank loans. And in this case the PV owner is the “bank”. This is the IRR, just with an easier to understand name. For instance if you had a comparison rate of 18% of solar it is equivalent to having an investment in any financial product and getting your money back after the investment period, so in the case of solar investing for 25 years, not 8 years.

          • http://www.CoastWideSolar.com.au Aaron

            I think I can see where you are coming from.
            I’m in the solar industry and I’ve always used it as time for the system to pay itself off, because that’s the way I’ve always seen it used in relation to solar.

            According to those sites, the ROI will change over time as it is based on how much is invested and how much is returned which will increase with time. E.G., at 4 years (if it took 4 years to pay itself off) the ROI is 0%, at 8 years it’s 100% at 12 years it’s 200%, etc.

            So really it should be stated as ‘Investment Return Time’ ?

          • Jo

            1) Correct. The acronym ROI in the above context is just FALSE! ROI is defined as return on investment’ which is the financial return divided by the invested amount and the result is a percent figure. What some of you call ROI is a investment return TIME. If you really need an acronym please pick another one, ‘ROI’ is already taken and is a defined financial term (see the links in my first reply). I have no issue with IRT for example but investment payback time is more precise. It just must be clear that this figure is a length of time.

            2) maybe you understand my frustration. I have the impression that the use of this kind of payback time is singling out solar and similar investments and makes them incomparable to other investment opportunities. For instance it will not help with the question if a home owner should spend some ‘spare’ $5000 in a term deposit or in a PV system; or if it makes sense to extend the home loan of say 6% to invest in a solar PV system. But using the comparison rate would answer precisely all these questions.

          • http://www.CoastWideSolar.com.au Aaron

            I do see your point.

            I guess it comes down to people using it as return OF investment. I’ll try to avoid it in the future, but I don’t think it’s a major issue if it’s clearly shown as a time frame, as it’s easy to differentiate the two and break it down to a percentage from there E.G., a rOFi 4 years would be a rONi of 0%… and 25% at 5 years.

            *Shrug* I think I’ll stick with saying it will save X dollars a year which results in paying for itself in Y years, and then you are X dollars richer per year.

          • Bob_Wallace

            Jo, at the end of 4 years you will have gotten your money back and you will own the solar system.

            You started out with “$100″. You ended up with “$100″ in utility bill savings and “$100″ worth of solar system.

          • 3PoL

            When comparing two investment opportunities, I’d be inclined to rather look at the total future earnings/savings than how quickly I get the money back. A system that pays itself back in longer time *may* be (and often is) the one that ends up saving you more money long term.

          • Bob_Wallace

            That’s fine. Expect your solar panels to still be producing 80% of the original output at the end of 40 years. It’s more likely that they will be producing 50% at 100 years as it is that the corporation whose stock you purchase will still be in business.

            Calculating a ROI does not include a measurement for likelihood that the investment will live. That’s a seat of the pants factor that one turns to after the calculation.

            Do remember that the return on a solar system is roughly a fixed rate of return (assuming electricity prices rise with inflation). Solar systems are much lower risk than securities. The most reasonable comparison is to a fixed rate, secured instrument.

            Enjoy the math.

          • 3PoL

            Compare a cheaper air-to-air heat pump that saves 30% of your heating costs (but is so cheap that it repays itself after 2-3 years), with a more expensive ground-to-water or air-to-water heat pumps that saves 70% of your heating costs (but repays itself after say 7 years). It is still possible that the latter one is a better investment as it saves you more money long-term. This is where you should not make a decision between two products only based on “the number of years it takes for it to pay off”. I was only pointing that out, as many people have used that metric in their reasoning.

            Thanks, I like math. :-)