Solar Panels – Part 1

We had solar panels installed last year. That doesn’t make me an expert on the topic, but I did a fair bit of research beforehand and the main thing I discovered was – this whole solar panels business is pretty confusing.

The jargon alone is enough to do your head in; RECs, REBs, rebates, PV, units, STCs, grid parity, tariffs … then there’s the way that the government keeps changing their minds about things, and the fact that each state does things differently.

So over the next two weeks I’m going to outline a few things that I think are important – hopefully in a way that’s easy to understand. It will be a little Perth-centric though, so apologies if you’re not from round these parts.

The Basics

Solar panels go on your roof and generate electricity, which is measured in “units” (for you sciencey types, this is just another word for kilowatt-hours). This electricity will be used by your household directly, but if at any given time you’re generating more power than your appliances are consuming, the extra will be “exported to the grid” – meaning someone else gets to use your solar generated energy. This is good for the environment because it lowers the demand a little for other power sources (mostly coal).

It’s not a bad deal for the power companies either. They don’t make quite as much money from you, but they get to sell the extra power you’ve generated to other customers. And so you always have an incentive to give them that spare electricity, they offer you a bit of cash per unit.

The government also sees it as a good thing. If plenty of people convert to solar power it looks like the government is doing their bit for the environment, which means brownie points from greeny voters. So they offer you money too.

Step 1: Buy solar panels. Step 2: Swim in a pile of cash. Step 3: Gloat.

How Do You Make / Save Money?

There’s 3 ways you save or make money from solar panels:

1. Government discounts on the initial purchase of the system

The method for calculating this is quite complex, and it’s where the terms RECs and STCs come in … but forget all that. The important things to know are;

  • These discounts still apply, even in Western Australia (where there’s been a lot of publicity about how the government has stopped solar rebates),
  • The advertised prices for solar panel packages already have this discount factored in,
  • These discounts will deplete over the next year and a half.

To be more specific on that last point, if we say the current discount is 100% – from July this year it will reduce to 66%, then from July 2013 it will reduce to 33% (okay that’s a little oversimplified, but that’s the basic idea).

However, that doesn’t necessarily mean that solar panel prices will go up. If the real cost of the panels continues to plummet like it has over the past few years, sales prices will continue to fall even while the government incentives are taken away.

2. Use electricity from your solar system instead of buying it from the power companies

This one is pretty self explanatory. Once you’ve paid for the installation of your panels, the electricity you generate is free, but the electricity you import from the grid costs you (21.9 cents/unit in Perth). So every unit you use from the panels instead of importing from the grid saves you 21.9 cents.

3. Earn money for exporting to the grid

Synergy (the Perth power company) will give you 7 cents/unit (ie. REBS). The Western Australian government used to give you another 40 cents/unit on top of that (ie. feed-in tariff), but stopped offering that to new customers as of July 2011.

So, people on the old scheme (before July 2011) are earning 47 cents for every unit they export. People on the new scheme (like me) only earn 7 cents for every unit. That means I’m better off using all the power I generate (7c < 21.9c), but customers on the old scheme are better off giving as much of it away as they can (47c > 21.9c).

Power lines? Or giant robots stalking the earth?

Is it Still Worth It?

In Western Australia, now that you only earn 7c for every unit you export instead of 47c, solar panels might not seem like such a great deal. But the initial cost of a system is significantly lower now, so it’s not all bad. Let’s compare the two scenarios. We’ll look at a 1.5kW system (8 panels) because being the smallest standard size, it’s probably the most popular.

Let’s start with the old scheme …

I considered buying solar panels in early 2011 (until I was told our roof was too small for them – which was clearly a lie and the solar companies were just too busy to bother with us!). The cheapest deals seemed to be around $3000, but just before July the prices probably dropped again, so let’s say that a 1.5 kW system would have cost you $2500. As for the power generated per day, for Perth this figure changes a fair bit from source to source, but I’ve chosen an average of 6.5 units/day as it’s somewhere in between.


1.5 kW system cost = $2500

Earn for export to grid = 47 c/unit

Power cost from Synergy = 21.87 c/unit

Power generated = 6.5 unit/day

As discussed above, the amount of money you save/make will depend on how much of the generated electricity you consume and how much of it you export. The chart below looks at the two extremes, as well as the 50/50 scenario right down the middle.

So on this scheme you would have started out-of-pocket $2500 and broke even within 2 to 5 years (the “payback period”). After 10 years you’d be up $3000 to $9000. Undoubtedly that’s a pretty good deal.

But what about the new scheme?


1.5 kW system cost = $1500

Earn for export grid = 7 c/unit

Power cost from Synergy = 21.87 c/unit

Power generated = 6.5 units/day

So, now you’d start out $1500 poorer, make your money back in 3 to 9 years, and have saved $200 to $4000 after 10 years.

But that’s not the end of the story, as we haven’t considered the impact of rising electricity costs. The AEMC (Australian Energy Market Commission) has predicted that power costs will rise 30% by 2014 in WA, so as a worst case scenario let’s assume that rate of increase continues for the next 10 years. The most optimistic case would be if electricity prices only increased with general inflation (usually around 3% per year) so let’s make that the other extreme.

If we assume that the 50/50 option from the previous charts is the most realistic for most households, and apply the electricity price increases, we get …

Or …

  Old Scheme New Scheme
Initial Cost $2500 $1500
Payback Period Around 3 yrs Around 4 yrs
Savings after 10 years ($) ~$7500 ~$3700

From this it’s clear that those who got in early got the best deal. But it’s enough for me to figure that what the rest of us schmucks are left with isn’t too bad either – the initial cost is lower, the payback periods aren’t too different, and you can still save a decent amount of cash in the long run.

There’s one more thing I want to consider though.

When we bought our system, the Solar Gain guy said he was confident that within a year the rules would change again. He said that the amount we get for exporting one unit of power would soon be the same as how much we pay to import one unit of power.

Okay, so I can’t find anything to support that, and the guy was trying to sell us something so he probably can’t be trusted. But for argument’s sake, let’s look at how it would affect things if such a change came in 2 years after you bought your solar panels …

Now that’s more like it.


(Take me to Part 2 of 2)

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2 Responses to Solar Panels – Part 1

  1. greendealeco says:

    We have Solar PV in the UK, Government support has been cut here too. Every method of freeing people from relying on National power generators must be encouraged. Great post, thanks for sharing.

  2. Thanks! Had a look at your blog. Looks like you’re doing plenty of good work in this field too. Keep it up!

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