Simple Payback Time For 6.5 kW Of Rooftop Solar By Australian Capital — June 2019

solar panel payback

Discover typical solar payback in 2019 for each of Australia’s state capitals.

One year and one month ago I wrote about the simple payback time of rooftop solar, which is how long it takes the savings from solar power to equal the cost of a system.  In most Australian capitals it took around 5 years or less, which meant rooftop PV was one of the best investments households could make.

I have done the same thing again — except differently — and looked at the simple payback time of a 30% larger 6.5 kilowatt solar system.  The good news is, thanks to the falling cost of quality solar installations, payback times are now even faster.  They’re under 6 years in every capital and under 5 in most.

Update 1:57pm 13 June: I originally overlooked that Tasmanians can now get a 13.5 cent feed-in tariff from 1st Energy.  I have updated the article to include it.

Simple Payback Is A Simple Measurement

Simple payback is just how long it takes for savings on electricity bills to equal the cost of having a solar power system installed.  It doesn’t take into account the cost of:

  • Capital
  • Maintenance, or…
  • Inspections

But this isn’t a big deal because its shortcomings aren’t bad enough to detract from its big advantage of being very simple to understand.  Also, its drawbacks aren’t a major problem because:

  • Short payback periods help keep capital costs low.
  • Warranties means owners shouldn’t be out pocket for repairs within at least the first 5 years.
  • A system inspection once every 5 years is adequate.

So when the simple payback period is around 5 years or less it should be very close to the result a more comprehensive examination of payback time would give.

Assumptions Make The Model

To determine simple payback times I’ve needed to make assumptions about:

  • The size of the solar power system
  • Its cost.
  • Household electricity consumption.
  • Solar energy system annual output.
  • Self consumption of solar electricity.
  • Electricity prices and solar feed-in tariffs.

Solar Power System Size

Last year I looked at the simple payback time for a 5 kilowatt solar system, but now I’m investigating 6.5 kilowatts.  The reason for going up in size is not because I’ve put on weight and I’m now trying to hide it by associating with larger solar systems.1  It’s because most homes have single phase power and the maximum capacity they can conveniently install is often 6.66 kilowatts.  Because rooftop solar power is a good investment I think people who have 6.66 kilowatts as an effective limit should try to get as close to it as reasonably possible.  But if you can install more without difficulty I heartily recommend going for it.

A $6,500 System

I have assumed a 6.5 kilowatt system can be installed for $6,500.  This is 30% less per kilowatt than the figure I used last year.  While buying a larger system can be more cost effective, the main reason I decreased the price to $1,000 a kilowatt is because I am now confident that — with a sensible amount of research — people in populated areas can find good quality installers at that price.  While this won’t buy the best solar energy hardware available, it will pay for a reliable system and fair and reasonable after-sales service if required.2

The cost of solar energy isn’t uniform across the country but I will use the same price for all the capitals to let their payback times be easily compared.  The highest cost capitals are Hobart and Darwin due to distance, small market size, and — in the case of Darwin — the need to batten everything down so a cyclone doesn’t pick up your solar power system and drop it in the Arafura Sea.

Victoria’s Solar Homes Rebate

Melbourne is a special case because Victoria had a rebate that reduced the cost of solar by up to $2,225 for eligible households.  This will start up again on the 1st of July and the word on the street is that it will be for the same amount.  I will give the simple payback time for Melbourne with and without a $2,250 rebate.3

Household Electricity Consumption Assumption

To work out the simple payback time of solar power for a typical Australian household we’ll to decide how much electricity the typical household uses.  It varies from capital to capital, but I’ll use a figure of 5,000 kilowatt-hours a year for all locations.  This is close to the average used by Australian households without gas.

Solar System Annual Output

For the annual output of 6.5 kilowatts of solar in each capital I used 95% of the figure the PVWatts site gave me for north facing panels:

Annual output of 6.5kW system - Australian capitals

I only used 95% of the PVWatts figure because most households won’t be able to face their solar panels in the optimal direction and it allows for a minor decline in output over time.

Solar Electricity Self Consumption

Households normally consume a portion of the solar electricity they generate and send the rest into the grid for a feed-in tariff.  Because the cost of grid electricity is more than the feed-in tariff, higher rates of self consumption result in faster payback times.

A smaller solar power system can result in higher self consumption and a faster payback time, but will result in smaller total savings on electricity bills.  Because of this, chasing a shorter payback time by reducing a system’s size is often a false economy that can leave you wishing you installed a larger system from the start.

Households vary in self consumption, but on average those with 6.5 kilowatt solar systems self consume around 20% of the solar electricity generated, so I’ll use that figure.

Electricity Prices And Feed-In Tariffs

Working out how much 6.5 kilowatts of solar PV reduces annual electricity bills requires subtracting what electricity bills would be with solar panels from what they would be without panels installed.  I did a search and used the most cost effective standard tariff4 plans for both situations in each capital and put them in the table below along with the annual savings from installing solar panels:

Or if your eyesight is failing:

Electricity bills - Adelaide

 

Electricity bills - Brisbane

 

Electricity bills - Canberra

 

Electricity bills - Darwin

 

 

Electricity bills - Melbourne

 

Electricity bills - Perth

 

Electricity bills - Sydney

In Darwin, Hobart, and Perth electricity prices are set, but in other capitals there is retailer choice and a wide range of electricity plans to choose from.  It’s possible there are better plans out there than the ones I’ve used, but they’re not likely to make a large difference.  It’s also possible to bargain with electricity retailers, so you may be able to get a better deal that way, but the closer they are to being the best option available the less likely they are to budge on price.

As you can see on the table above, in Adelaide, Brisbane, Canberra, and Darwin annual electricity bills with solar panels are in credit.  This means over a year the household will receive more money from their electricity retailer than they pay.  Darwin does especially well because their feed-in tariff is the highest in Australia and equal to the cost of grid electricity.  While electricity bills in Melbourne in Sydney aren’t in credit they are close to nothing.  This means in most capitals a 6.5 kilowatt solar system can reduce a typical household’s annual electricity bill close to or below zero.

This graph shows the feed-in tariff received in each capital in cents per kilowatt-hour:

Payback Times

The simple payback times for 6.5 kilowatts of solar in Australian capitals are shown in the graph below:

Darwin has the fastest payback time thanks to Australia’s highest solar feed-in tariff.  Second fastest is in Melbourne at 3.2 years.  This is indicated by the light blue section and assumes the Victorian Solar Homes Package lowers the cost of solar power by $2,225.  If this isn’t included the simple payback time in Melbourne is 5 years.  Adelaide comes third thanks to a high feed-in tariff and high electricity prices.

Perth has the longest payback time on the mainland5 , despite being the sunniest capital, because it has the lowest feed-in tariff.  Hobart is the least sunny capital but manages to do considerably better than Perth thanks to a higher feed-in tariff being available.

Bonus Graph — Zero Solar Self Consumption!

I used a figure of 20% for solar energy self consumption.  While people such as retirees who are usually at home during the day generally use more than this, some people who are normally out of the house all day may be wondering if solar energy is a good investment for them.  Well, it’s no problem, I’ve got you covered and I’ve made a graph showing the simple payback time for every capital if you somehow manage to use no solar electricity at all yourself.

This should almost be impossible because even if there is no one at home for every hour of daylight every day of the week, appliances such as refrigerators and freezers should still be drawing power.  But in the interest of showing a worst-case scenario, here are the results:

As you can see, zero self consumption doesn’t make a huge difference in most capitals and solar power still pays for itself very quickly everywhere with the exception of Perth.  Because their feed-in tariff is so low having zero self consumption makes a large difference.  If you want a good payback time there I recommend making sure you have a reasonable self consumption rate.  But everywhere else I would definitely say solar energy is still a good deal even with zero self consumption.

Solar Power Pays

Electricity prices and feed-in tariffs may decline in the future and stretch out the simple payback time of solar systems installed today.  But it’s unlikely to be enough to make rooftop solar power a bad investment.

Simple payback periods will improve further as the cost of solar drops even lower.  But I’m certain you won’t save more money by waiting than you will by getting solar panels now and immediately reducing your electricity bills.

Footnotes

  1. That benefit is just pure luck.
  2. I would be wary of going too far below this price point — unless you are certain the installer does good work — as very cheap solar can mean an installation where corners have been cut and little or no assistance if there’s a problem.
  3. When this scheme starts up again it will actually be a subsidy rather than a rebate, but I may be the only person alive who cares about this.
  4. With a standard tariff a home pays a flat rate for each kilowatt-hour of grid electricity used.  I am also not considering controlled loads that can lower for cost of electricity for tasks such as heating water.
  5. Although for some reason Perth also has the cheapest solar power system pricing in Australia so you are likely to do better than this analysis suggests
About Ronald Brakels

Many years ago now, Ronald Brakels was born in Toowoomba. He first rose to international prominence when his township took up a collection to send him to Japan, which was the furthest they could manage with the money they raised. He became passionately interested in environmental matters upon his return to Australia when the local Mayor met him at the airport and explained it was far too dangerous for him to return to Toowoomba on account of climate change and mutant attack goats. Ronald then moved to a property in the Adelaide Hills where he now lives with his horse, Tonto 23.

Comments

  1. We now have a second retailer here in Hobart Ronald (1st Energy). As far as I know the difference is negligible but could you please include them in your calculations in future so we can see what the alternative is.

    • Ronald Brakels says

      I completely overlooked that Tasmanian now has a second retailer with a higher feed-in tariff. That was forgetful of me. I have updated the article to include it. Thanks for pointing it out.

  2. Hi Ronald,
    With your Sydney 20c FIT is very hard to find. I have it through AGL but the only way In found it was through you doing an article on it last year.
    The other area of confusion is different retailers giving different FITS.
    AGL have a simple no discount plan which gives a lower supply cost for electricity but only pays 11.1c FIT. Honestly it is so hard to work out which plan is the best.

    • 100% agree which is why we have this tool on our site:

      https://www.solarquotes.com.au/energy/

      This works it out for you! With the caveat that you should double check your eligibility with the retailer before signing up – as they can have small print re: max kWh or max system size which the tool does not take into account.

      (Also it is flat rate tariffs only)

      • Hi Finn AGL in NSW limit it to 10Kw inverters. I have 3phase and 3 separate systems equaling 9.5 Kw.

  3. Phil Robertson says

    Hi Ronald,
    Very informative article as usual – many thanks for doing this.
    For payback period to be useful, surely you have to take the capital cost into account? Assuming a counterfactual of regular payments to the electricity supplier, a reasonable estimate would be the interest (or opportunity cost) on half the capital over the entire period. Given the cost of money is effectively about 5% at the moment, then about 2.5% of the capital cost should really be included in payback period calculations.
    Phil

    • Ronald Brakels says

      For payback period to be precise it would need to take into account the capital cost. But I’ve just done the simple payback time because it’s so easy to understand. Every one gets it and can use it to help decide for themselves if solar is a good deal for them. Working out the complex payback time is something I can do if people are interested, but it would be a more complex article.

  4. Stefan Jarnason says

    Great article, and even better payback than I thought. I didnt realise that so many would be in credit over the year.

    BUT, you stated “self consume around 20% of the solar electricity generated”. This is extremely pessimistic. From our data of over 11,000 systems around this size the self consumption average is 37% (does vary from under 10% to over 80%).

    So paybacks are even better for most people.

    Almost makes you think putting solar on your roof is a damn fine idea, especially if you want to avoid your kids hating you for allowing the planet to descend into climate chaos

    Stefan

    • Ronald Brakels says

      Is that for systems of around 6.5 kilowatts? My figures are around 20% self consumption for that size system for a typical household.

  5. Geoff Miell says

    Hi Ronald,

    Does your modelling assume a nominal system with:
    – 6.5 kW solar-PV panel array;
    – with the array facing true North unobstructed;
    – with the array at an optimum elevation to suit the specific site latitude;
    – coupled to a single-phase grid-tied 5.0 kW inverter;
    – with net-metered grid connection;
    – with STC rebate included?

    Are you using the figures in your STC calculator in your modelling?
    https://www.solarquotes.com.au/tools/stc_calculator/

    Is there such a thing as a 6.5 kW rated inverter, or are 6.5 kW solar-PV array systems usually coupled with 5.0 kW rated inverters?

    Would there be much difference to payback times if the inverter had the same output capacity as the solar-PV array capacity? Worse or better?

    You say:
    “Simple payback periods will improve further as the cost of solar drops even lower. But I’m certain you won’t save more money by waiting than you will by getting solar panels now and immediately reducing your electricity bills.”

    I agree. IMO, anyone who is an owner-occupier of a freestanding home with a suitable, unobstructed roof-space that doesn’t have a solar-PV system is missing out on substantially reducing their energy bills.

    • Ronald Brakels says

      I used PVWatts defaults just to make it easier for anyone to copy me. The losses they already account for are:

      2% panel mismatch loss
      2% dirt loss
      3% shading loss (this represents minor shading)
      2% wiring loss
      0.5% connections loss
      1.5% LID loss
      1% lies losses (discrepancies between what equipment is rated for and what you get.)
      3% availability losses (eg. grid over voltage events.)

      They also assume 20 degree tilt, which is a round number between Australia’s most common roof tilts.

      I didn’t adjust the inverter to PV ratio. This would have cut output by 1-2% but PVWatts still uses 96% for inverter efficiency which is 1% or so less than what is being put in today. I used a figure of 95% of what PVWatts gave me for north facing panels to account for other losses such as sub-optimal panel positioning. etc.

      A normal grid connection is assumed and the price I used includes STCs reducing the cost of solar.

      The 6.5 kilowatt system in my example has 6.5 kilowatts of solar panels and a 5 kilowatt inverter. A 5 kilowatt inverter is the maximum many homes with single phase power are permitted to install.

      I don’t know of any inverters that are exactly 6.5 kilowatts, but if one of them was used the benefit would be small and might reduce payback times by 1%.

      • 5kW is not a maximum limit on single phase. I got 10.1kW inverter capability with 11.3kW panels allowed with the provision that I have a 5kW export limiter installed. But big deal…. I would never get to export 5kW most of the time anyway.

        Inverter 1: 1.5kW (8 years old)
        Inverter 2: 3.6kW (6 years old)
        Inverter 3: 5kW (6 months old)
        45 panels
        +
        Powerwall 2 5kW

        So, total inverter capability = 15.1kW on a single phase.

        • Ronald Brakels says

          Fortunately not everyone is faced with a 5 kilowatt solar inverter limit, but a considerable number of people are. There are ways around it, but these can depend on location.

  6. would the logical consequence of low feed in tariff for people not at home all day (in Perth) be to install a battery, so they can use part of their solar power after sunset?
    Also can you do something about off grid systems ( not including the $30000+ cost to connect to the grid)
    Thanks
    Regina

  7. It shouldn’t be that complicated to work out…..

    Just forget for the moment of putting that money in a bank.. it’s a useless exercise given that interest is less than 2% for most people. Secondly, you can’t do anything with the money while it’s in the bank. So, it’s a sitting duck not doing anything useful for anyone except for the banks.

    Using the PVWatts site for one’s location, you can get a estimated annual solar output.

    There can only be three outcomes:-

    1. Worse case scenario, one exports all their solar output for FiT. Multiply the estimated annual output by FiT to work out maximum possible FiT credit received.
    2. Best case scenario, one consumes all their solar output for self consumption. Multiply that by one’s “normal” energy rate for maximum self use value.
    3. For most people, it’s somewhere between 1 and 2.

    So, for a 5kW north facing 20 deg tilt system in Sydney on a 11.1c FiT and 28c energy rate charge, estimated annual solar generated about 6900kWh.

    So, it will be either:-
    1. $765 FiT credit possible for 100% export.
    2. $1932 worth of self consumed electricity for 100% solar self consumption
    3. Somewhere between $765 and $1932 benefit that one could possibly get in value if they didn’t export 100% or self-consumed 100%
    (So you can see immediately, it is imperative to self-consume as much as possible as it’s worth more than 2.5x in value).

    It will take about:-
    1. For 100% export only = 4.57 years payback time for a $3500 5kW system
    2. For 100% selfconsume only = 1.81 years for payback for a $3500 5kW system
    3. Somewhere between 1.81 and 4.57 years for a mixture of self-use and FiT credit for a lot of people.

    Not overly hard to work out. Don’t know why people are complicating this process. There are only really two numbers to work out – either 100% full export or 100% self consumption. It will be a number in between to work out worse and best case scenarios for most people. Most likely it will be 50% FiT – 50% self-use – so payback will be about 3.2 years 50/50 on a 5kW solar system in Sydney.

    Granted, some complications come in play for those on ToU like myself. But since solar rarely plays a factor in off-peak periods. I just average out the Peak/shoulder periods, since most of the solar production occurs in peak periods. So, even if I just use the shoulder rates, at least that will cover both shoulder and peak periods at worse.

    But regardless, most people would not be on ToU without Solar. Endeavour Energy reports that only .01% of residential customers are on ToU (approx 1000 residential customers). So, using a standard retail anytime rates would be a safe figure to use to work out potential value of self-use.

    The good thing about ToU is that most of the shoulder/peak usage is eliminated while gaining access to off-peak rates for the whole house at night and weekends/public holidays. So, it’s a win-win. The off-peak is not to be confused with controlled loads – two very different things.

  8. We paid a low tier retailer 4k to put nearly 6kw on our roof working on a 2 year payback in Melbourne with the rebate. Then our electricity retailer went and put us on a pfit tariff of 66.6 per kwh and the system payoff dropped to about 7 months. I kinda wish id paid for a better system now. I could have easily afforded LG panels and microinverters at those payback rates.

  9. All very well and good provided you don’t move house hor 6 years or you will have to start all over again.

    • Ronald Brakels says

      The solar system will add to your home’s sale price. Even if it only adds half of what you paid for it you’ll still come out well ahead.

  10. Mat Bettinson says

    A 6500W system in Darwin costs $10k, not $6500.

  11. Where did you get the 22 cent feed in tarrif for Adelaide.? Shopping around best feed in tarrif is 16.3 cents!

    • Ronald Brakels says

      Go to our electricity plan comparison tool:

      https://www.solarquotes.com.au/energy/

      Type in your postcode and hit “Compare Electricity Plans” and then hit “Sort by FiT (highest first)”. Amaysim will appear at the top with a 22 cent feed-in tariff. Other retailers with high feed-in tariffs include Click Energy (22 cents) and AGL (20 cents).

      • Hi Ron,

        Can I make a suggestion for this tool that could enhance its end user appeal!

        Given every household consumption is unique, and most is us visiting SolarQuotes has a good understanding of our berate daily consumption.

        Maybe adding the the daily average usage in 5kwh (is 5 up to 50kw) increments and the. Adding the size of the PV system (1.5 up to 15) and closest city. If you have time the. Even add the percentage of self consumption (usually defaulted to 20%)

        This would be kick ass then!!!

        Yes, I have 6 people in my house hold

  12. Vijay Raj says

    Sydney’s high-rise apartment dwellers ? – rooftop solar panel installation is understandably impossible.

    Considering solar parks near the neighbourhoods ? – mini-centralised power transmission.

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