Is it worth installing grid-connected solar panels?

by Farmer Liz

Note: This is an old post from around 2011, but the calculations are still relevant.

We had a solar panel salesman call up and ask to come out and talk to us about his product. I thought it was a good opportunity to do some easy research.  We'd been thinking about solar panels since Pete's parents installed a few.  We weren't sure if it was worth doing or not.  This is my analysis of our situation.

Depending where you live in Australia, most states will pay a feed in tariff for solar panels on your property connected to the grid.  However, if the power goes off, your panels get turned off to keep the lines dead (for the safety of those working on the lines to restore power).  Our biggest problem with electricity is losing power during storms, so panels that turn off aren't that useful.

At the moment the cost of grid-connected solar panels is also subsidised by the Australian Federal Government's renewable energy certificate (REC) scheme.  The panel installers buy from you the right to sell "renewable energy certificates" on your behalf.  These operate in a market, so the price fluctuates and the installer takes a risk in offering to buy these from you, assuming that they can sell them on the market for a certain price.  Economics, yuck!

Nobody knows how long the feed in tarif price will be so good (44c/kWh in Queensland at the time of writing) or how long the REC scheme will last, so there's a feeling that its a good time to install solar panels, just in case everything changes after the next state and federal elections.

Our situation is unique in that our work subsidises our electricity bill as part of our salary packages, we get about $1200/year toward electricity, which pretty much covers all our electricity bills, so I wasn't sure if installing panels would be worth the money for us.  Our work will still pay for everything we buy from the grid, but during the day, the panels will supply the house and sell any extra electricity to the grid.  Normally you can just work out how much you would save on your electricity bill by not buying electricity and how much you will receive in electricity sold to the grid, but I can only include revenue in my calculations, as our electricity is effectively free anyway.

I was interested to find out more though, so we had a chat to the solar panel man and a few other companies, online and in person.  This how I worked out our situation, you can substitute your own figures based on your energy usage and your state's/country's solar panel schemes.

Work out how much electricity you use, day and night
You can get your daily usage from your electricity bill, but wanted to know how much electricity we used during the day (when the solar panels are generating) and how much you use at night, so I could work out what we would really save (as our work will still pay for everything we use).  The best way to work this out is to read your meter morning and evening, depending on your sunset time, for me in the sub-tropics this doesn't change much, but if you're further from the equator the seasons could make a big difference.

In my case, we use about 16-17 kWh/day, and this is fairly evenly distributed between day and night (meaning that most of it is "baseload", ie too many fridges!).  
Work out how much electricity you might be able to generate
This will depend on the size of your system and the amount of sun you get.  The Clean Energy Council has published a Consumer Guide to Solar PV, which has a table of typical daily energy production (kWh) per installed capacity (kW) for various cities in Australia.  The typical system sizes in Australia are 1.5, 2 and 3 kW.  The maximum size eligible for a feed-in tariff in QLD is only 5 kW.  I evaluated the energy production of 1.5, 2 and 3 kW systems, using the 4.2 kWh/kW/day figure measured for Brisbane.  As this is an average figure, I considered a range of 3.6-4.8 kWh/kW/day.
From my calculations, the electricity produced per day would range from 5.4 kWh (worst case, 1.5 kW system) to 14.4 kWh (best case, 3 kW system).  As our electricity is effectively free, we really need to generate more that we just during the day in order to cover the cost of the system.  This means that the minimum system size for us is 2 kW, as that would just cover our daily electricity use on average, however to ensure that we get a consistent return, we'd be better to get a 3 kW system.
If you are paying for your electricity, then any production of electricity is a saving for you, and the amount you feed into the grid is an extra bonus. 
Work out how much you will save
As I mentioned above, we only achieve a saving if we generate electricity.  With a 3 kW system, our savings would be $100-250/quarter.  If we weren't getting our electricity for free, our savings would be $240-380/quarter (assuming we paid $300/quarter normally), and even the smallest 1.5 kW system would save $80/quarter in the worst case scenario.
Find out how much the panels will cost you
I wish I'd done the ground-work above so that I could known what system I needed BEFORE I talked to the salesmen!  But I didn't know anything about solar, so it has been a little circular, but now that you've read this post, you can do the research before you talk to the solar companies.
The companies that I approached told me about the various products available, and this is where it gets really difficult to make comparisons.  The system consists of panels, an inverter and all the bits the hold it on the roof, as well as the labour to install it.  While some companies may appear cheaper, you really need to check on the quality of the products, the warranties and the qualifications of the installers.  The products available seem to range from cheap (designed and made in China), medium (designed in Japan/Germany, made in China) to expensive (designed and made in Japan/Germany).  
The product that you choose depends on how long you expect to stay in the house and risk that you're willing to take.  We're not intending to stay here forever, but don't want to deal with a faulty product, so I would stick to the medium price range.  Of the companies we talked to, some had their own installers that travel and some contract to local installers.  I prefer the first type, as you know they have experience with the product.
The prices for a 1.5 kW system ranged from $4000 to $8000, add a few thousand as you go up in size.  The 3 kW systems ranged from $7000 - $10 000.  But be aware that you can negotiate different inverters and panel support systems into the packages, which can help you to get a better price (although potentially reducing quality).
Divide cost by annual savings to give a rough "pay back period"
In my case, considering the potential revenue only, the pay back on the 3 kW system, at average generation rates, is about 10-14 years.  However, if I was also paying for electricity, the payback would be more like 5-8 years on the same system.  The pay back on the smaller systems is longer as the feed in tariff is about twice the amount we pay for electricity, so you really have to repeat these calculations with consideration of your own situation.
Decide if its worth doing
For us the 10 year pay back period is just not good enough, we'd be better spending that money investing in a system to support us off-grid when we lose power.  However, if we were paying for electricity, then a 5 year pay back would be acceptable, given that it should also add value to our house.  
Our situation may change, we may change jobs, or our company may stop subsidising our electricity, and if that happens I can re-evaluate the calculations to see if we should invest in solar panels.  I just hope that we don't miss out on good rebates or fail to lock in the good feed-in tariffs, but that's a risk we have to take.

Of course there are also environmental concerns to consider.  Unfortunately grid-connected solar probably isn't as good for the environment as one may initially think.  If you are still connected to the grid you are still relying on "thermal" (coal) power overnight.  The worst part is that those power stations don't stop and start quickly, they run inefficiently at partial-load during the day, so they can supply you at higher loads during the night, especially if you use a strategy to get maximum revenue from your panels by using more electricity at night rather than when you are generating your own power.  If you really want to avoid carbon emissions you need to buy only "green power" from renewable sources or install an "off-grid" system with battery storage.  Otherwise your main contribution is to fund product development for better solar panels.

Have you installed solar panels?  What is your experience?  How did you come to your decision?

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