Solar Power Is a Good Investment Even Without Subsidies

23rd Jul 18

Written by James Doyle

A common argument against rooftop solar power in Australia is that it depends on government subsidies to be viable, implying that photovoltaic arrays would not make sense financially if Small-Scale Technology Certificates (STCs) were removed. However, this is simply not true: solar power is a great investment by itself, and subsidies just make it better.

Another common misconception is that renewable energy subsidies have caused the high kilowatt-hour prices in Australia. Actually, network ownership costs and retailer margins represent over half of the power bill for many consumers.

STCs are an incentive for solar power systems up to 100 kW. They are calculated based on the expected energy production between the installation date and the year 2030, which means you get a better rebate for going solar earlier. Although the incentive changes slightly based on the exact location in Australia, you can expect around $650 per kW as of mid-2018.

Example Based on 5-kW Solar Power System

A conservative price estimate for a 5-kW solar power system in Australia before the STC rebate is $10,000, although you can easily get a better deal. The price drops to $6,750 assuming a rebate of $650/kW, but we will ignore this benefit for now. We will also assume a conservative electricity cost of 25 cents/kWh, which is a great deal for a residential consumer in Australia, considering that many households now pay over 40 cents/kWh.

  • A yearly output of 7,000 kWh is a reasonable assumption for a 5-kW solar system.
  • At 25 cents/kWh, the corresponding power bills savings add up $1,750 per year.

For a solar photovoltaic system with a cost of $10,000, a benefit of $1,750 per year results in a payback period of 5.7 years, and a return on investment of 17.5%. Considering that solar panels are typically rated for 25 years, and that inverters can operate for around 10 years before needing a replacement, the financial performance of solar power systems is still excellent without Small-Scale Technology Certificates.

The example above is a very conservative scenario for solar power, and the business case is favorable anyway. If the calculations are repeated for a system that costs $8,500 and a household that pays 35 cents/kWh, the following result is obtained:

  • Yearly savings are increased to $2,450 per year.
  • The payback period is shortened to 3.5 years.
  • The return on investment increases to 29%.

The outlook is even better in this case, and we are still imagining the STC rebate does not exist. Of course, once you deduct the incentive from the upfront cost of solar power, it becomes a much more attractive investment.

Conclusion

Even if Australia decided to interrupt the STC incentive program for solar power systems up to 100 kW, they would still be a highly demanded upgrade for homes and commercial buildings. Australian electricity rates will most likely continue increasing, while solar power systems are becoming more affordable – the business case for solar power gets better each year even when ignoring incentives.

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