How long does it take to pay back your solar system?

Solar systems promise not only to provide a good source of renewable energy, but to drive down your energy bill, too. The hard part here is figuring out how long this payback will take, and ultimately how worth it solar will be. As a rough guide:

According to Jeff Sykes⁽¹⁾ - CEO of Solar Choice:

"The typical range for most Australians is a payback period somewhere between 3 - 6 years."

We've done the hard work and confirmed that the math checks out.

_{Note: We've made a few assumptions to ensure the calculations are straightforward.}

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How to calculate the payback time

Now that we have the final cost, let's see how your energy bill might look, with and without solar.

Get an estimate on solar payback time for your property

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Electricity bill without solar: $313 per quarter

To work out our payback time, let's start with the cost of electricity, before you even add solar.

Usage:

According to Finder's Consumer Sentiment Tracker, the average Australian household consumes 1,204kWh of energy each quarter, or every 3 months.

The bill:

Using the usage rates from our assumptions, this means that the average quarterly bill (excluding supply charges and other fees) will be $313 per quarter.

• Calculation: 1,204 kWh (average energy consumption) x 26 c/kWh (usage rate)

With that energy bill as a baseline, what changes when we add a solar system into the mix?

Electricity bill with solar panels: $89 per quarter

According to Jeff Sykes⁽¹⁾ (CEO of Solar Choice), the "The most common system size in Australia is 6.6kW as that fits a typical energy bill as is the largest system size permitted in many areas." For this example, we will use 5kW to keep the numbers simple.

So you've done it – you shelled out $5,200 for a fancy new 5kW solar system. Let's find out how much your bill is. (Note: for a bigger system Jeff says "10kW system sizes are starting to become more common").

Usage: Reduced by 30%

With it up and running, let's assume that about 30% of the energy you used previously is when the sun is out (and when you'll use solar power). This amount is now generated by you and free.

• Calculation: That means 30% x 1,204 kWh = 361 kWh of your power is happily self-generated with no ongoing cost.

Bill: Reduced to $219 per quarter

This reduced energy usage drops your quarterly bill to just:

• Calculation: 843 kWh (non-solar consumption) x 26 c/kWh (usage rate) = $219 per quarter

Bill: Further reduced to $89 with solar feed in tariffs

That's already not too bad, but let's factor in the money you get back from your feed-in tariff on the solar power you've exported.

Jeff Skyes (Solar Choice) notes a 6kW system can use around 20 - 24kW a day. So for this example we've assumed 5kW system can produce about 20kWh per day, or 1,800kWh every quarter. Here's the math:

• Solar power you produce in a quarter: 1,800kWh
• 30% solar power that you use: 361kWh
• How much you'll make from feed in tariffs: 1,439 kWh (exported solar) x 9 c/kWh (feed-in tariff) = $130 solar rebate

When you add it all up, this will reduce your energy bill from $313 per quarter (without solar) to:

• Calculation: $219 (bill with solar) - $130 (solar rebate) = $89 per quarter

This means you'll save $224 per quarter, or almost $900 per year.

How long will it take to pay back my solar system?

Using the example we just worked through, you'll shave about $900 per year off of your energy bill. For a $5,200 solar system, that means a payback time of around 6 years or so. That time will be reduced if you increase the relative amount of solar power you use.

This is backed up by Jeff Sykes from Solar Choice⁽¹⁾, who says "Solar payback periods depend crucially on how energy is used in the home, what electricity rates you are paying and the location within Australia. That said, the typical range for most Australians is a payback period somewhere between 3 - 6 years."

The exact payback will of course depend on:

• Where you live,
• The system you get and how much it costs
• Usage rates (that change over time)
• How much solar power you use vs normal power
• Your plans's feed-in tariff and cost of electricity

When you approach a professional solar installer, they should put together a quote that includes payback time and the savings you can expect to see from your solar setup. This will let you make an informed decision, based on your particular circumstances.

Standard cost of solar panels

_{Source: Solar Choice Price Index⁽²⁾}

Assumptions

We've used the following assumptions to make our calculation. This will be important as you read through the guide.