How long until my solar panels start saving me money?

Solar payback time: How long before the electricity is on the house?

Solar panels give a dollar return as sure as the sun. The solar break-even point is the time when the savings start to be greater than the price of the system. Also called solar payback time, this measure is a handy way to compare the return value of different photovoltaic (PV) solar systems for your home.

Your system supplier or installer can give a payback time estimate when you decide which size is right for your property and energy needs. Here are some reasons why you should go solar.

How long until my solar panels start saving me money?

It takes under a decade for a household solar system to pay for itself, says Alternative Technology Association Projects and Policy Manager, Damien Moyse.

"The best a household can achieve in the lower parts of Victoria is around six to seven years. This is around 15% p.a. return on money invested."

Payback times are different depending on where you live.

"Things are a bit better in SA, WA, NSW, NT and QLD where sunshine is better and grid tariffs are often a bit higher (particularly in the case of SA, QLD and NT). Four- to six-year paybacks may be achievable in these parts of the country."

Payback time shortcomings

The payback time is based on household energy use, system output and price. Solar output comes down to the number of panels you can fit on your roof, your home’s aspect and where you live.

Small-scale technology certificates make buying and installing solar panels cheaper. Feed-in tariffs are less important — minimum tariff rates make it more economical to use solar energy than sell it.

Other factors make calculating payback time less straightforward. Payback estimates do not account for spikes and dips in energy consumption and solar output. Solar panels degrade over the years, too.

These couples from Sydney, Melbourne and Perth recently decided to go green and switch to solar energy. Read about how long it took before they started saving money.

Payback time for 3kW PV solar system in Sydney

Case study: Luke and Logan decide to go solar

The couple live in a small, freestanding two-bedroom house in the suburbs of Sydney with their son, Jack.

They paid $5,500 for a 3kW system. Before solar they paid $1,200 a year for energy. Their solar system now covers their electricity bill. It works out to be more cost effective to use solar energy than sell it. Their feed-in arrangement is based on covering their own electricity use first. They make about $60 a year from feed-in tariffs.

For Luke and Logan, it will take four-and-a-half years before the savings on their electricity bill covers the cost of installing PV solar in their home. This is a return on investment of about 20% p.a.

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Payback time for a 2kW PV solar system in Melbourne

Case study: Michelle and Graham so solar

Green thinking Michelle and Graham live in a two-bedroom house in Melbourne. They don’t have kids but plan on starting a family in the future.

They installed a 2kW PV solar system in their home to cut back on energy costs. It cost them $4,000.

Their computers, televisions, dishwasher and washer/dryer make up the bulk of their energy consumption; before solar they paid a little over $300 every quarter. After installing solar in their home their bill was reduced almost by half: $155 per quarter. Solar energy saves Michelle and Graham $580 every year.

Assuming their electricity consumption stays the same, their solar panels are going to pay back the cost of the installation in just under seven years. This represents a return on investment of 14.5% p.a.

Payback time for a 5 kW PV solar system in Perth

Case study: Fred, Kate and their three children
The family lives in a four-bedroom house in Perth. Their house is large, has a pool, their kids each have computers, there are televisions in most rooms of the house and they have all the modern conveniences like washers, dryers and air conditioning which runs occasionally during the summer months.

The family’s energy consumption is above the national average: they use about 40 kWh per day and pay almost $1,000 per quarter for electricity or $3,920 every year.

Fred and Kate installed a 5kW solar system to cut back on energy costs. Installing solar cut their energy bill by $440 every quarter or about $1,700 a year.

The 5kW system cost them $7,000. Considering their energy saving, it will only take four years for the energy savings to catch up to the price of their solar system. This is a 25% p.a. return on investment.

How solar can save you money

The cost and saving of solar energy is influenced by household electricity use and the size of the solar PV system. Other factors like panel configuration and the type of inverter also impact efficiency as well as bad weather and spikes in electricity use.

  • STCs. Small scale technology certificates can cut payback time even further.STCs are a government rebate. You’re allocated a number of certificates based on the size of your PV solar system and the location of your house. Each certificate is worth about $40 and you can claim your STCs 15 years in advance.
  • FiTs. The feed-in tariff rate is how much the electricity company will pay you for your solar power. The feed-in tariff rate has been reduced in recent years due to cut government subsidies.

Understanding your electricity tariff type

  • Single rate. You pay the same rate for your electricity during day and night. The most widely available and accessible tariff type.
  • Time of use. This is a flexible pricing tariff arrangement. Electricity pricing varies on the time of the day. On-peak electricity is more expensive than off-peak electricity and shoulder-peak sits between these two periods. This tariff type is available with smart and interval meters.

Understanding solar feed-in tariffs (FiTs)

A FiT is the rate you’re paid for selling your unused solar electricity back to the grid.

WA, NSW and QLD have no government mandate about minimum FiT rates; the other states do. Energy companies in these states will supply PV solar panel owners with a rate anyway.

Most panel owners install a solar PV system to offset their household electricity usage. FiT rates are important if you plan to install a system which can produce surplus power during peak usage times: 9am to 5pm.

Feed-in tariff is less than what you pay for your power, so try and move the bulk of your power consumption to the middle of the day when electricity is more expensive.

 Understanding electricity and gas tariffs.

Other considerations

Think about the following when you’re considering solar power for your home.

  • The size of the solar PV system. A 4kWh produces double the energy of a 2 kWh system. Your household energy needs should inform the choice of size of your solar PV system.
  • What’s your average energy consumption? Pools, heating and household appliances can use a lot of electricity. Purchasing household appliances can affect your energy needs.
  • Usage patterns. Do you use more electricity during the day or night? Installing a solar PV system can see your metering arrangement change to a time of use tariff for property electricity consumption. Electricity is cheaper at night.

What should I expect from my solar PV system?

Calculator screenshots: Solar Market

Jacob Joseph

Jacob is a writer and video journalist with Credit cards, personal loans and savings accounts are his bread and butter, and he likes nothing more helping people understand the sometimes overly complex world of personal finance.

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