Money Finance News How the numbers stack up for rooftop solar
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How the numbers stack up for rooftop solar

solar pv roof-top cost benefit
A surge in roof-top solar installations is surpassing the previous boom in 2012. Photo: Getty
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Rooftop solar is continuing to boom in Australia, with the number of registered installations now surpassing levels not seen since the carbon pricing-related boom in 2012, according to industry news service RenewEconomy.

That comes on top of a wave of large-scale solar farm projects – 11 announced in NSW alone – that some pundits think could help double solar capacity in Australia within a year.

Ironically, the surge is partly due to scaremongering in Canberra, according to Tristan Edis, director of analysis and advisory at consultancy Green Energy Markets.

Every time the politicians blame rising power prices on renewable energy, he says, more consumers install their own renewable energy to beat the price rises.

Not all home installations make a profit for their owners, but for those who understand the costs and benefits of a rooftop system the numbers can be very attractive.

Get your sums right

Rapid price falls in solar systems in the past few years mean that appropriately specified systems are well beyond the break-even mark for their owners (see table below).

When rooftop solar first became popular in Australia at the end of the Howard government era, most people focused on how much they could make by selling energy back to the grid at high feed-in tariffs.

Things have changed substantially since then, and working out whether a solar photovoltaic system is worth the investment means considering several key issues.

Firstly, how long do you expect the system to last? Solar panels degrade over time, but are usually guaranteed to produce at least 80 per cent of their original output after 20 years.

Panels are connected to the grid, or to ‘behind the meter’ appliances, via an inverter unit, which is usually guaranteed for about five years – though one solar installer told me they usually last 10 years, and even then can be cheaply serviced to extend a unit’s working life.

To be conservative, then, you could see the investment as a seven to 10-year proposition, with every year’s performance after that being a bonus.

If a system is financed by extending the mortgage, the next question is the interest rate that applies.

Rooftop solar is a hit with homeowners, but do your sums. Photo: AAP

Standard variable rates are hovering around the 5 per cent mark at present, so it’s worth factoring in a number of rate rises over that seven to 10-year period. A rate of 6.5 per cent should do it.

The next question is the size of the system.

Mr Edis points out that once you have a tradie on the roof installing a system, the addition of extra panels is relatively cheap, meaning customers are increasingly erring on the size of larger systems.

There is also the quality of the components to consider, plus new-generation components that give households more control over where their electrons are flowing.

Solar installer Energy Matters, for instance, offers a 5.4 kilowatt (kW) system with an ‘energy hub’ and a dedicated controller for the most energy hungry appliance in most homes, the air-conditioner, for around $8000 depending on the customer’s location.

So the ‘cost’ of the system to a household using the assumptions above is the amortised loan repayments of $8000 financed at 6.5 per cent.

Over seven years that would be $118 per month. Over 10 years it would be $90 a month.

However, those are very conservative assumptions. If you expect the components to last 15 years, the cost would be $70 per month.

Energy Matters estimates that kind of system would save a household between $1084 and $1539 in Victoria (feed-in tariffs and peak power prices vary by state), or $90 and $128 per month respectively.

On that basis, the owner of the system would be ahead on all of the scenarios above except for the seven-year timeframe, and saving only the lower amount of $1084.

The table below covers three different interest rates; top-end and low-ends savings levels using Energy Matters’ estimates; and three time horizons – seven, 10 and 15 years.

It also uses a very conservative 3 per cent annual rise in power costs over each time horizon.

I have used conservative assumptions to illustrate a simple point: roof-top systems are making good returns already, but returns will be even better if power costs rise faster than expected, rates are lower than expected, or the equipment lasts longer than expected.

Besides financial returns, Mr Edis points out that owners are now factoring in an additional benefit – being ready to install high-capacity batteries, or use their power to charge an electric vehicle, as those technologies come down in price.

Even without those benefits, what used to be a feel-good technology for reducing a home’s carbon footprint has, over time, become something else: a straightforward way for home-owners to save money.

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