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Bigger is now better for rooftop solar – even for low energy users

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One Step Off The Grid

With Australia in the grips of what appears to be a second rooftop solar boom, a new report has suggested that bigger is better for homes and businesses when it comes to investing in a PV system, even for small energy users – and even if all the power generated is sent back to the grid.

The report, by the Alternative Technology Association (ATA), says that current market indicators, including falling technology costs and rising feed-in tariffs, mean that the economics now favour larger rooftop solar systems – 5kW and above – for almost all types of households in almost all locations.

“Traditionally the ATA has advised people to consider (the size of their grid-connected solar systems) carefully based on their electricity consumption,” says the report, which is authored by ATA analyst Andrew Reddaway.

“However, things have changed. Nowadays we generally recommend a big solar system even if electricity consumption is low.”

How have things changed? The chart below helps put this in perspective, showing that while larger systems have halved in price over the past five years, the cost of smaller systems has dropped by just one-quarter.

As the ATA report explains, larger rooftop solar systems have always enjoyed economies of scale compared to smaller systems, because while the installer is on the roof it’s relatively easy for them to
add more panels.

But that price gap has opened up, it says, as the price of solar panels has fallen faster than other components.

Further, it notes, the industry has also become more familiar with large systems, as they are now more frequently installed than small ones.

But why install more panels than you need – even if it’s cheap to do so – when you’re paid such a small amount for the energy you export to the grid?

The answer, according to the report, is that larger solar systems offer both bigger cuts to increasingly expensive grid power consumption, and a better return on energy sent back to the grid – particularly as solar tariffs around the country are being raised in line with soaring power prices.

These cumulative bill savings, in turn, add up to a shorter payback time on the system – i.e. the number of years until bill savings recoup the installation cost.

“We studied these economics by simulating a large number of scenarios in half-hour intervals for a whole year using Sunulator, our free solar feasibility calculator,” the report says.

The research also considered common grid tariffs in each capital city for a variety of household consumption profiles; included panel degradation over time and likely tariff changes; with panels assumed to be north-facing with a 20-degree tilt.

As the first chart, below, shows, for a stay-at-home family using 23kWh per day on average, on a flat tariff, “in no location did a 2kW system pay back quicker than a 5kW one.” The ATA also ran scenarios for 3, 4 and 6kW systems, and found those “to obey the same trend.”

Another study, comparing a range of household types with different load profiles, returned similar results.

In the chart below, “LU” is a large electricity user, “SH” is a stay-at-home family, “WC” is a working couple and “SU” is a small user. The following two digits denote their average daily electricity consumption in kWh.

The report found that for a 5kW solar system, payback time varied from four to eight years depending on the household’s consumption profile.

“Households with higher consumption achieve payback more quickly,“ the report says. “Again, there are no cases in which a 2kW system pays back quicker than a 5kW.”

All in all, the ATA says it found that a 5kW system achieved payback in less than 10 years in all but a few scenarios, with the exceptions being the lowest-consumption households in some Tasmanian locations.

Perhaps most excitingly, the report also suggests that with state and territory feed-in tariffs at, and heading to, new higher levels, a solar system can now be economic even if it exports all its generation to the grid.

“For example, an export-only 5kW system in Melbourne should generate around 7000kWh and earn $790 per year. If the system costs $6400 on the simplest calculation it achieves payback in less than nine years,” the report says.

“Because of this, low-consumption buildings such as holiday houses and storage sheds have become a new market for solar systems.”

But the report also stresses that “to make the best use” of a rooftop solar systems, households and small businesses should use the energy it is generating “while the sun is shining where practical.”

And it suggests that as gas appliances wear out, solar households can install efficient electric appliances instead – a measure that would save even more money, by eliminating the gas connection charge.

On the subject of battery storage, the report notes that batteries are getting cheaper, and could prove cost-effective to store excess solar, for use at night time, in just a couple of years.

“A big solar system will support this,” the ATA says. “Similarly, in the future you may want to charge an electric vehicle from solar power too.”

This article was originally published on RenewEconomy’s sister site, One Step Off The Grid, which focuses on customer experience with distributed generation. To sign up to One Step’s free weekly newsletter, please click here.  

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  • Chris Schneider

    If only Energex(or whoever it is) removes the limits on the size of solar! I know I want to fill my roof! and I’m sure there are others. There could be limits with out battery but if we install large batteries why do they really get a say?

    • Trent Deverell

      Think outside the square, if you have a consistent sort of load like a home office or pool it might make major sense to add a 2nd “off-grid” [UPS] system and connect up this load in quasi-off-grid form…

      That way you can remove self-consumption from the primary system thus maximising your feed-in recovery and most importantly benefit from having a PV array in excess of the 3.5/5kwh inverter limit which was only ever imposed as a “grid feed-in” limit by Qld Distribution companies.

      As a final note over-quota your current inverter rating with the maximium array size (~133%) that you’ll score green-credits for… and that combination will hopefully make that inverter work its ass off on more days..

  • Jo

    if only the author was not talking about payback time. This is just confusing to the normal user.
    Installing solar PV is an investment. Let it treat like one. Nobody describes a savings account by its payback time. It is the interest rate. And you can easily calculate an interest rate for your investment in solar PV by using a spreadsheet and the IRR function (Internal Rate of Return). if you want to know more, see my website: http://www.sun2steam.com.au/index.php/solar-pv-investment-calculator/

    • Nick D

      You are right Jo.
      Someone mentioned the same thing a couple of months back (could of been you) and it clicked with me. It’s true. We should be looking at the return. I have been spreading this way of looking at it to others since.

      Thanks

    • Kyle

      Yep, you nailed it. People need to be in this for the long term.

      • Bettyjsieg

        I earn 85 bucks per hour for freelancing at home. I never thought that it was legit but my good friend earns $10k monthly doing this and she recommended me to try it. Check it out by visiting followin link>>OnlineNetMoneyLink..

      • Bobbiemwells

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        • Tom

          WTF is this shit? Giles, block this crap please!

          And no – I didn’t click the link.

          • Calamity_Jean

            I reported it to Disqus, so we can hope it will be blocked systemwide.

          • yep, it’s annoying, overwhelming majority are blocked – but they come through occasionally and we delete them when we see them.

      • Jonathan Prendergast

        There is always more than 1 financial metric to consider when considering an investment. ROI and IRR are important ones.

        Simple payback is another that has value, as it takes into account people’s horizon. Many people may consider moving house in the future, but if it is a 4 year payback, it overcomes this risk.

        • Jo

          My point is that the use of payback time (some solar guys call this even ROI) is misleading and distracts people from regarding solar PV as a worthwhile investment. I do not want just my money back. I want much, much more. And solar PV gives me that.
          For instance: is a payback time of 9 years good or bad? (I know, todays solar systems are at about half of that), Well this payback time compares to an IRR of 10%. This is as good as putting your money into a savings account of 10%. And yes, you will also get so much more than 10% per year that you will virtually get your money back as well.

          If someone has $5000 sitting around he/she needs to be able to compare if this money is better put into an investment account, used to purchase bonds or is paying for a solar PV system.
          And If someone is planning to move house he/she can still install solar PV because this will increase the value of the house in the same was as e.g. a renovated bathroom would.

    • Greg Hudson

      From personal experience in Melbourne, I have to dispute the figures above.
      Melbourne receives on average, 4 hours of sunshine per day. Multiply this by the 5kWh (export only) system mentioned above, gives you an export figure of 20kWh/day, or 7,300kWh/year. Using the Vic State Govt FIT of 11c/kWh, this gives you a yearly return of $803. Close to the above figure of $790, but it does not represent the ‘real’ value to the user, which is the SAVINGS on power they are not paying for. As an example, prior to going solar, my yearly bills (6 years ago) were around $1800. After installing a 2kW PV array (with Premium FIT) my bills dropped to $161/year (or less). If I had installed a 5kW PV array, I would have been making a large profit, however 2kW was the largest array my roof could handle. If an ‘average’ user (without solar) consuming 23kWh/day had to pay ‘MY’ retail rate ($0.20c/kWh), it would be $4.60/day. With solar, it would drop to 3kWh/day they would have to buy ($0.60c) (excluding transmission fees of around $1/day). This means the actual saving is really $4/day. Take the $6400 system cost (which is also too high IMO) then the payback period is really 4.38years, which technically *IS* less than the stated 9 years, but more closely approximates reality.

      All figures generated on back of envelope while I was drunk, in the dark, riding on the back of a motorbike 😉

      • Jo

        After reading the last sentence I could finally understand why I did not understand.

        • Greg Hudson

          Funny, the last sentence is the only bit I didn’t understand, and I wrote it 😉

          • Hettie

            LOL

      • Hettie

        Not apropos of this article, Greg Hudson, but referring to our previous “conversation,” I want to let you know that after further research and advice I cancelled my deal with Hello Solar and am contracted with Metro Solar.
        Hello claimed the battery was 4.5 kwh, but it was the Enphase 1.2 kwh unit. They also claimed that a 5kw system would produce an average 35kwh.
        Their panels were not even tested in the last Choice review, just a couple of months ago and the inverter was some brand I’d never heard of. The price was for a single array, all north facing.
        New deal is the LG panels with microinverters, the only ones recommended by choice. No inverter, they just feed directly into the Enphase battery. $199 special. Total price slightly cheaper even though I will have some west facing panels.
        As Armidale has some 6.5 average sunlight hours, and my roof pitch is 24 degrees, I am confident that with the new, higher fit and hopefully time of day metering, I will reduce my bill to zero.
        No value has yet been assigned to STCs, so the final cost could be around $3,500 less than the quote. That’s a big chunk. Instead of 50 months to pay off it should be more like 30, at little more than my current power cost. Then zero. Yesss.
        Thanks once more for the spur you provided.

        • Greg Hudson

          G’Day Hettie. So ‘too good to be true’ was accurate in the case of Hello Solar. Good to hear you found a better and cheaper solution with Metro. Be sure to compare you previous power bills against your new ‘solar’ bills. I kept mine in a spreadsheet.
          Cheers, Greg.

          • Hettie

            Good thinking, Greg. Of course, by the time the system is installed, power prices in NSW and elsewhere will have gone right up.
            I intend to stay with Powershop, my current supplier for at least 3 months as I can track usage and cost on a weekly basis with them. The control software that comes with the system should also be informative.
            I’ll keep you posted.
            Het.

    • Daniel Francis

      I would have to disagree with this.
      With a bank account or another investment you can in general get 100% of your capital back after earning your return.
      With a solar system it loses value over time. Hence why it makes sense to talk about pay back time to make sure it pays for itself well before it becomes worthless.

      • Jo

        Than you for your comment Daniel. This exactly where the misunderstanding starts.
        If a solar system is providing an IRR (internal rate of return) of say 15% over 20 years that means that it is providing the same overall financial output as the same amount of money put into a bank account with an interest rate of 15% AND the payback of the originally invested money at the end. You do get interest AND you do get your money back.

        Of course you do not get your money back in a lump sum at the end, but you just get a higher annual income/savings than the 15%, maybe around 20% which virtually returns your capital over the lifetime of the project as well as giving you a very high interest rate.

        This is the same as for instance home loans with repayment and home loans without repayment of capital can be compared via the ‘comparison rate’. This comparison rate is exactly the same as the IRR; just that you are the bank in the case of the solar system.

        • Daniel Francis

          Ok I think I understand your logic.
          So I’m looking at adding an additional solar at my house.

          Cost $3600
          Interest rate 3.8%
          Est Savings = 365/ year indexed at 3%

          I’ve calculated a 11.5 year payback. Would this roughly equate to a rate of return of 4.65% over a 20 year period if I invested the savings after year 11 at the same 3.8%.

          Obviously this calc assumes that my inverter doesn’t die before 20 years and require more capital.

          • Jo

            Is this just a mathematical example or ‘real life’? For a real life case your numbers are far too pessimistic. How do you get just $365 savings from a solar system costing $3600?

            With that money you can at least purchase a 3kW system.
            Just feeding everything back into the grid at a feed-in rate of 8 cent/kWh would provide $286 in the first year according to my calculator http://www.sun2steam.com.au/index.php/solar-pv-investment-calculator/ (It is all plain Excel, you can check it out).
            But your annual savings are much higher because you are replacing grid electricity, which costs you at least 25 cent/kWh, with solar. Assuming that you use half your solar energy at that rate and feed-in the rest, you end up at a combined solar-savings price of 16.5 cent/kWh, which will give you savings+income of $589 in the first year. This corresponds to a comparison rate (IRR) of 13% over 10 years.
            In other words: if you throw the system away after 10 years (there is 15 more years guaranteed life in the panels!) you get the same as getting an interest pay out of 13% per year and get your money back. Show me the bank that gives you the same offer!

            The data below are based on you initial assumption. And even under your very pessimistic assumption the payback time is not 11.5 years, as you say, but about 9 years. As you can see from the numbers, even in this case, over a period of just 10 years you would get your money back and have an interest rate of 2%.

            year cash flow money IRR
            0 -3600 -3600
            1 360 -3240
            2 371 -2869
            3 382 -2487
            4 393 -2094
            5 405 -1689
            6 417 -1271
            7 430 -842 -6%
            8 443 -399 -2%
            9 456 57 0%
            10 470 527 2%
            11 484 1011 4%
            12 498 1509 6%
            13 513 2022 7%
            14 529 2551 8%
            15 545 3096 8%
            16 561 3656 9%
            17 578 4234 9%
            18 595 4829 10%
            19 613 5442 10%
            20 631 6073 11%

          • Daniel Francis

            Hi Jo,
            Yes it was my real life estimate. I have already a 3kw system an was looking to add 3kw with 2or3kw inverter. So I don’t benefit much on saving my 22-25c kWh only mostly the 8.2c kWh feed in. My second assumption is based off the performance of my existing system which gets some shade and isn’t ideally pointing in the right direction. Hence the pessimistic calcs.

            Your calcs don’t include the 3.8% interest I need to pay on the money I have borrowed from my offset account. Hence how I arrived at 11.5 years.

          • Jo

            Thanks Daniel, you should have mentioned this information in the first place because otherwise your contribution may be very dis-encouraging for new buyers of solar. Have again a look at my calculator. There is provision to enter the loan, the interest rate and the loan period if you change the amount of the loan to 100% of the investment. (Great that you use a low interest home loan redraw for that purpose!)

            I have used your data. And while it does look much, much worse than a ‘normal’ solar system, you still get a decent comparison rate over 25 years, especially when you use a low cost loan for the first 10 years.
            https://uploads.disquscdn.com/images/4af2d0312bdde23a86399eb7b0938e84ba78a6da6f22fde29b1a42eb301ad641.jpg

            If you pay back the loan over 18 years, your cash flow will be positive from day one and you will have a comparison rate of 249%. Not too bad!

            You may also consider changing your retailer (Energy Locals offers 20 cent/kWh and Enova (only in Northern NSW so far) offers 12 cent/kWh.) And with the new recommendation from the regulator IPART in NSW (and similar changes in other States) we can expect the feed-in tariffs of more retailers to be moving into this range or even better in the coming financial year.

  • The rebate for energy now put into the grid is terrible i was getting $1600 plus in summer and winter approx $680 Now $86 My 5 kwt unit cost me $50,490 And very upset with the very small amount im now getting after having to pay for another new meter they took away 2 meters about s yr old and no money was allowed for them that i previously paid fore now im on a rent to buy system for the meter and dont know the end total cost ill be paying . I do and have had for years a 12 volt lightening ran by batteries and Wind generator also a solar tracker to add extra charge to allow the use of an inverter for emergency power for life support using an A,cat machine when power out on grid.It stinks a lousy .08 cents for what were paying before .

    • Trent Deverell

      $50k…. you got ripped as early adopter…

      • Yes and No it depends of what your needs are at the time its like a car do i buy the first car out of x Batch or do i buy the next model when basically they are the same but the one that has next years plate on is $2,000 more well the opposite happened with Solar to the point now for roughly $4,000 Aust dollars you can buy a 5 k wt unit with back up batteries for under 4 grand thats cheap fully installed guaranteed for 25 years and the whole thing is factory monitored to prevent system failures . Went to a meeting today and found in 2 to 3 yrs we will be able to buy 5 k w ts battery back up for between $1500 down the following years as production and sales increase to $750 or cheaper

        • Rod

          Yes, I don’t consider paying market price at a certain point in time as being ripped.
          I imagine most of us early adopters are proud to have been a catalyst to the meteoric uptake of rooftop PV
          My system (20K out of my pocket and 8K from the Feds) has paid for itself and I estimate will save/make me 30K between now and 2028 when the PFiT expires.
          No regrets here.

          • Ron Barnes

            I recon before summer I wont be grid connected at all as with whats happening i just cannot justify paying for grid usage for nil return . In not complaining about my original outlay but the price increases being blamed on clean energy . When the real culprits are the various governments selling off every thing the people own in the utilities sector for a very short term gain.

          • Rod

            Due to the the SA premium fit I’ll be on grid for a while yet and unfortunately can’t increase my system size. I can however add a second stand alone system with storage/UPS which is on the cards.
            As soon as it makes $ense I’ll cut the cord.

          • Edward Green

            Hit the nail on the head there, Ron. When Kennett was flogging off even profit-making state-owned enterprises here in Victoria to his mates in the private sector, some tried to stop him saying we’d regret this in future, and look what’s happened. We do, in spades. Costs of all utilities have gone through the roof, lining the pockets of private industry while the public gets ripped off.

  • Damien van Hoogen van

    I dispute the 50% 5kW system price drop. My 5kW system cost $7600 in 2013 and the price is now about $7000. I think the confusion may be that although the cost to manufacture the hardware has come down, the subsidies has come down proportionally, so ultimately the cost has remained the same.

    • Ron Barnes

      at present their is a 10 kw unit with battery backup for less than $9,000 it has a 25 yr warranty on everything plus lifetime servicing panel cleaning visual inspection yearly and electronic Montenegrin with battery charging for maximum benefit for the end user.

      • Ron Barnes

        Also a 5 kw unit for less than 3,000 with battery backup similar deal

        • the price is because they want the information collected to carry out ftrure improvements and are being sold cheaply as test units that you keep permanently and maintained for you to use.

      • Damien van Hoogen van

        I’m talking about reputable retailers, where the warranty is actually worth something. Solarquotes indexed 5kW systems in Melbourne @ $6500 in May.

    • Rod
      • Damien van Hoogen van

        system, not panels

        • Rod

          Yes system, the panels are tier one the advert doesn’t state the inverter maker

    • Jo

      You can get a 5 kW system for less than $4000 now.