How Much Will Solar Cost and How Much Will I Save?

How Much Will Solar Cost and How Much Will I Save?


You'll see "kWh" referred to throughout this article. kWh stands for ‘kilowatt-hour.’ It is a unit of energy. It measures how much electricity is used over time. A typical Australian home uses 16-20 kWh of electricity per day.
In this article, we delve into the costs and savings associated with solar panels, as of January 2024. We cover everything from the initial investment in new or existing systems to the specific costs in Australia, including the factors that influence pricing. More than just an expense, we reveal how a solar system can become a smart financial move. We'll guide you through calculating savings and payback periods, illustrate with real examples, and discuss rebates. Additionally, we address critical decision-making factors and financing options, including an understanding of the solar "tax".

By the end of this article, you should have a good overview of the financial costs and benefits of installing solar.
Waiting for battery prices to come down? Significant savings can still be achieved with a solar-only system! Bills might be slightly higher without a battery, but not by much if you choose the right electricity plan and using energy efficiently during daylight hours. Don't delay solar panel installation in the hope of future reductions in battery prices!

Maximizing Your Investment

Before we talk about costs and savings, it's worth considering the size of the system which will get you the best value for money. This essentially boils down to one factor; the number of solar panels on your roof. Consider the following when deciding how many panels to add to your solar power system.

Installing a new system

The following factors can help you figure out the right number of panels for your circumstances.
  1. Rule of Thumb: Install as much solar power as your space and budget allow.
  2. Future-Proofing: Consider future needs like electric cars and battery storage. A larger system now avoids regrets and complications later.
  3. Roof Space & Local Regulations: These determine the maximum number of panels you can install. 
  4. The Role of a Skilled Installer: A knowledgeable installer can optimize the use of your available space within the regulatory limits.

Existing systems

  1. Cost and Complexity: Adding panels to an existing setup is often expensive and complicated. It's often more cost-effective to replace an old system entirely than to try to upgrade it.
  2. Rebates and Reselling: New systems might qualify for rebates, and you can sell old panels, possibly to off-grid enthusiasts.
  3. Creative Solutions for Old Systems: If you can’t part with your old system, consider relocating it to a less optimal roof space, and use the prime space for new, high-efficiency panels.
There are also considerations around installation that will improve the efficiency of the panels you install, but we'll cover this in another article.

Solar Power System Costs in Australia (as of January 2024)

When considering installing a solar power system in Australia, it's essential to be aware of the cost implications and factors that can affect these prices. Here's a practical breakdown:

Expected Price Range

The cost of quality solar panel systems, including installation, varies based on their capacity:
  1. 5 kW system: Between $4,500 and $8,000.
  2. 6.6 kW system: From $5,500 to $9,000.
  3. 10 kW system: Ranges from $8,000 to $13,000.
  4. 13.3 kW system: Approximately $10,000 to $15,000.

Factors that affect pricing

  1. High-End Systems: Opting for top-end equipment, like Sunpower Maxeon panels, and installation by a skilled craftsman can push costs above these ranges.
  2. Rebates: The mentioned prices already factor in the standard solar rebate discount.
    1. Victorian rebates: Residents in Victoria can expect further reductions thanks to a state-level rebate, offering up to an additional $1,400.
  3. Additional Costs: Be aware that extra expenses may arise if:
    1. Your home requires a switchboard upgrade or other electrical modifications.
    2. The design of your home complicates the installation process (roof material, access for wiring etc.). We'll cover this is a separate article.
  4. Technology Choices
    1. Choosing micro inverters or an optimiser-based system over a standard string inverter can lead to a 20% cost increase.
    2. Installing battery storage for an off-grid or hybrid system can double the overall price.
Quality vs Cost: Avoid cheap solar systems. Though initially cost-effective, they may lead to higher expenses due to repairs and lower efficiency. Cheap systems often end up in landfills prematurely, making them less environmentally and financially viable in the long run.

Calculating Savings and Payback of a Solar System

Now you've got a sense of the cost of purchase, let's turn to the more exciting part of the equation; savings and payback!

An obvious but surprisingly tricky thing for new solar homeowners to get their head around is that they are essentially going into the power generation business. You can get paid for the power you generate and don't use, which subsidies your power bills.

Payback Period

The savings you make can be viewed as a payment towards the cost of the system. When these savings are equal to the cost of the system, you've achieved "payback". You'll hear the time taken to do this referred to as "payback period".
Payback period is a problematic measure and should be taken with a grain of salt. We go into a more detailed explanation in this article.

Payback Calculation Examples (as of January 2024)

Sydney: 6 years, 2 months
Brisbane: 6 years, 3 months
Canberra: 6 years, 6 months
Perth: 5 years, 11 months
Melbourne with VIC Rebate: 5 years, 10 months
Melbourne without VIC Rebate: 7 years, 4 months
Adelaide: 5 years, 8 months
Darwin: 5 years, 3 months
Hobart: 5 years, 7 months
These numbers were generated using the handy SolarQuotes calculator (1). Always calculate your own payback estimates as individual circumstances vary significantly.

How Can You Save Money?

  1. A "Feed-In Tariff": Energy not used and sent to the grid earns you a "feed-in tariff", but it’s usually less profitable than self-consuming the solar power.
  2. Offsetting Grid Electricity from self-consumption: For example, if you pay 36 cents per kWh when you get power supplied by the national grid and you use 1kW generated by your solar system, you save 36 cents.
The most significantly way to reduce your energy costs is to increase self-consumption of your home-generate power. By using appliances like washing machines, dishwashers, and pool pumps during daylight to maximize the use of solar energy, you'll get the most value for money out of the electricity generated by your solar power system.

Key Factors Influencing Savings

  1. System Size: Measured in kilowatts (kW), the size of your solar system directly impacts savings.
  2. System Output: Annual output of your system remains consistent, influencing overall savings.
  3. Self-Consumption Ratio: This measures the amount of solar electricity you use at home versus what you export to the grid.
  4. Feed-In Tariff: Varies by retailer and state, this is the rate at which you’re paid for exporting solar energy to the grid.
  5. Usage Tariff: The rate you pay for grid electricity.
Be wary of estimates in installer quotes based on 100% self-consumption. Look for savings calculations for 20% and 50% self-consumption for a more accurate picture.

The Australian Federal Solar Rebate

All advertised prices for solar installations already include the Australian Federal Solar Rebate. The rebate, part of the SRES scheme, provides a significant discount on residential solar installations.

In 2024, the rebate offers approximately $350 per kilowatt of solar panels installed, though this amount may slightly vary based on location. Installing a 6.6 kW solar panel system could yield around $2,300 in rebates.

Eligibility

The rebate is available to all, including those who have previously purchased solar power systems and are looking to buy replacement new systems.

Key Restrictions

  1. The solar system must be smaller than 100 kW. For reference, residential solar systems don't usually get bigger than 10kW!
  2. Installation and design must be done by a Clean Energy Council (CEC) accredited professional.
  3. Only CEC-approved panels and solar inverters are eligible.

Decision-making factors

  1. When to act: The federal solar rebate is reducing annually by one-eighth until it completely phases out in 2031, which is an incentive to install solar sooner than later as the savings will only reduce over time.
  2. Sizing your system: The rebate amount is based on the capacity of the solar panels, not the inverter. This means adding extra panels could be more beneficial than increasing the inverter size.
For residents in Victoria, a state-level rebate offers up to an additional $1,400 off home solar system installations.

Financing Your System

While many Australians purchase solar systems with cash, not everyone has this option. Investing in a solar system can be a wise financial decision as it typically offers higher returns than bank interest rates or government bonds, without tax implications.
For those without immediate access to funds, you might want to check out our article on finance options.

The Solar "Tax"

Starting in 2025, a new element will be introduced in the solar energy market - the solar "tax". This refers to a potential surcharge by power companies on solar energy exported to the grid during periods when it's not needed. As this has stirred some concern, it's important to understand the practical implications:
  1. Fluctuating Export Rates: Contrary to some reports, this surcharge is accompanied by higher rates paid to consumers for solar energy exported at times of high demand. This dynamic pricing means that while there might be a cost at certain times, there's also an opportunity to earn more at others.
  2. Optional Scheme: This is not a mandatory change. Electricity companies are required to provide plans that do not include this surcharge. Consumers have the choice to opt for a plan that suits their preferences and needs.
  3. Energy Consumption: For those who own solar systems, this change emphasizes the importance of maximizing self-consumption of solar energy. By strategically using more solar energy when it's most beneficial, solar owners can potentially offset the impact of the surcharge and still find their investment worthwhile.
The introduction of the solar "tax" shouldn't be a cause for alarm. Instead, it's an opportunity for solar system owners to adapt their energy usage strategies. By understanding the nuances of this scheme and leveraging the flexibility in plan choices, residential solar systems remain a valuable and feasible investment.

In summary

Embarking on the journey of home solar power is not just a step towards environmental stewardship, but also a financially savvy decision for homeowners. As we've explored, the costs associated with solar power systems are balanced by substantial savings and incentives. By understanding the nuances of payback periods, pricing factors, and the unique aspects of financing your system, you can make an informed decision that resonates with both your ecological values and economic needs. 

If you want to get practical recommendations on choosing the right solar power system, have a look at our article, "How To Pick The Best Solar Power System"

Getting the right installer is critical if you are getting solar. Find out more with our article, "How to Avoid A Bad Solar Installation"

You'll need an up-to-date switchboard if you're getting solar installed. Find out if you need an upgrade with our article, "Will I need to upgrade my switchboard?"

Want to fast-track home electrification? Join an Energy Freedom Homes Masterclass and learn to identify your needs, gain expert installation advice, and meet trustworthy tradespeople. Check your Masterclass readiness now!

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