How Australian Solar Incentives Changed Between 2019 and 2020
1st June 20
The Australian Government Clean Energy Regulator has an excellent incentive program for renewable generation technologies, and this includes solar power. The program is called the Renewable Energy Target, and in the case of solar panels, it awards one renewable energy certificate for every 1,000 kWh of electricity produced.
Normally these incentives are claimed annually, based on electricity that has already been generated. However, solar power systems up to 100 kilowatts can claim Small-Scale Technology Certificates (STC), which have a major advantage:
- They can be claimed upfront for solar power systems, based on the period between the installation year and 2030. This is called the deeming period.
- Since your solar power system gets an incentive upfront, it is subtracted from the total installation cost.
- The benefit applies even if your solar power system produces electricity for self-consumption. In other words, you are not forced to sell your generation to local power companies.
In addition to the deeming period, the STC incentive also considers the nameplate capacity and location of the solar power system. Larger installations get a higher incentive, and systems installed in sunnier locations get more credits. These credits are sold in an open market, and their price varies between $35 to $40 per STC. They are purchased by electricity retailers, as part of their mandatory contribution to clean power generation.
How Are STC Incentives Calculated?
The Clean Energy Regulator website has a calculator where you can input the specifications of a solar power system. The incentive will be determined by the installation date, the system capacity in kilowatts, and the ZIP code.
The incentive program divides Australia into four ZIP code zones, depending on the available sunshine. Zone 1 covers the sunniest parts of Australia, such as communities around the Gibson desert. On the other hand, Zone 4 covers the least sunny places, including Tasmania. As of 2020, a 100-kW solar power system gets the following STC incentive in each zone:
- Zone 1: 1784 STC
- Zone 2: 1689 STC
- Zone 3: 1520 STC
- Zone 4: 1303 STC
Based on the price range of $35 to $40 per STC, the incentive for a 100-kW solar power system would have the following value in each of the four zones:
- Zone 1: $62,440 – $71,360
- Zone 2: $59,115 – $67,560
- Zone 3: $53,200 – $60,800
- Zone 4: $45,605 – $52,120
Assuming the 100-kW system has a sales price of $160,000, the net cost after the incentive is 28% to 45% less. This makes the system more affordable, while reducing its payback period. The return on investment increases, since the solar power system yields higher savings for every dollar spent upfront. In this example, the incentive per kilowatt of capacity ranges from $456 to $713, depending on location and the market price of STCs.
Since the STC incentive is based on a deeming period, it decreases gradually each year. Solar power systems from 2019 earned more STCs than those being installed in 2020, and the same will happen in 2021. This can cause confusion, and there were rumours that the program was ending completely in 2020. However, the incentive has been designed to decrease gradually each year, since the program was launched.
How Incentives Reduce the Payback Period of Solar Power
Assume the 100-kW solar PV system in the example above will achieve estimated annual savings of $30,000. At the normal installation price of $160,000, the payback period is 5.3 years and the ROI is 19%.
- If the project is installed in Sydney (ZIP code zone 3), it gets 1520 STCs.
- With an STC price of $37.50, the incentive is $57,000 and the net price is $103,000.
- The payback period drops to 3.4 years, while the ROI increases to 29%.
This is a very simplified example, and the financial performance of an actual solar installation can only be estimated with a professional assessment of the site. However, the same principle applies: solar incentives make the investment more attractive, reducing the payback period and increasing the ROI.
The STC incentive does not limit the use of loan financing for a solar power system. In this case, the installation can be completed at zero net cost, while the loan is paid with energy savings. For example, a $103,000 loan with 4% interest and a term of 10 years results in annual payments slightly over $12,500. The annual savings are more than twice this amount, and they can easily pay off the debt.
Which Solar Power Systems Are Eligible for Incentives?
To ensure that solar incentives are awarded to high-quality systems, there are several eligibility requirements. The solar PV system must use components in the approved list from the Clean Energy Council, and the installation must be conducted by a Clean Energy Council accredited installer. The system must also meet all the applicable Australian and New Zealand standards, and the incentive must be claimed within 12 months after installation.
Solar power systems can only claim the incentive upfront if their rated capacity does not exceed 100 kW. Larger installations are also eligible, but they get another type of incentive – Large-scale Generation Certificates or LGC. Unlike STCs, which are claimed upfront for future production, LGCs are claimed at periodic intervals for electricity that has already been produced.
Expansions in existing solar power systems are eligible for the STC incentive, but only if the benefit was not claimed already for the original system. The entire installation must meet the eligibility requirements, which means that some existing components may need an upgrade.
The STC and LGC certificates are both nationwide incentives in Australia. Depending on where a solar power system is installed, additional incentives may be available from the local government. When this happens, the incentives can be combined, making the solar installations even more affordable.