The economics of home solar PV installations

As most of you are aware, there are heaps of companies out there lining up to install solar photovoltaic grid-connected systems on your house, typically of 1 kW, since that’s the maximum size that the government subsidy is capped at, and the government rebate of $8/W for such installations seems pretty attractive.

The out-of-pocket costs for installation of these systems range from about $3000 to $5000, although some companies offer such systems for essentially nothing, only $500 or so for the meter upgrade, after the rebate is repaid.

These guys sell their basic 1 kW system for $5000 out-of-pocket after the subsidies and rebates, and these guys sell their systems for $3000 after rebate.

For most of these systems, the average cost advertised, the out-of-pocket final cost after the subsidies have been taken off, is about $3000 depending on the quality of the system.

Personally, in the case of the systems advertised for zero overall cost, I’d be a little bit worried about the quality of the system, since they’d have to be honing the price down quite a bit to get it down to the point where they can pay for it, pay for installation, and still make a profit, just from the $9000 or so in the government handouts.

You wouldn’t want a shonky system that burns down your house, would you?

In southeastern Australia, including Melbourne, Adelaide, Sydney and everything in between, the average daily solar exposure is 15 megajoules per square meter per day.

So, that’s an average power density of 174 W/m2, on average, over the whole day.

Now, if you buy a solar PV module that is rated at 180 W, or whatever power figure it is, you get that amount of power if there is 1000 W/m2 of solar radiation incident onto the panel.

So, a “1000 W” array, in the real world with an average of 174 W/m2 worth of incident radiation flux, will generate 174 W of power, on average. (Averaged over the full 24 hours in a day.)

Therefore, you get about 1500 kWh of total energy generation per year.

If you’re paying, say, 13 c/kWh for electricity, you save about $195 per year on the electricity bills.
(I know that’s a relatively low price for household electricity, but it’s about right for Victoria’s inexpensive electricity, powered by the Latrobe valley’s incredible combustible mud. If your electricity prices are considerably higher, you can see how to repeat the calculations for your electricity price.)

If you pay about $3000 out-of-pocket for such a system, then, it will take 16 years to pay for itself.

However, after about 10 years, the grid-connect inverter will die (These guys have a 5 year warranty on theirs), and there won’t be a subsidy paying for that, so that’s probably another $2000 or so you’ll need to shell out. So, that adds another 10 years to the payback time. You probably won’t even be able to pay it off before that second inverter reaches the end of its life.

There are installers that offer higher quality inverters with longer warranties, but they are the higher end of the price brackets for the systems – this is the catch with the extremely cheap systems.

So you’re looking at a payback time of 26 years, for a system where the solar cells are unlikely to last more than 20-25 years.

Such systems, in all likelihood, are never going to pay themselves off, even with the huge government subsidies.

All these businesses that are doing the installations are literally leeching off the huge government subsidies; if you took away the subsidies they would all disappear straight away.

With a saving of close to $200 per annum off your electricity bill, if the customers had to pay the $8000 which is subsidized by the government, just that $8000 portion alone would take 40 years to pay off, and you would never, ever even come remotely close to paying it off.

This scheme is just a huge money sink for the government; it’s completely unsustainable, and it doesn’t accomplish anything meaningful.

Customers love it, since they’re effectively getting this huge investment mostly given to them by the government.

It’s just like Krudd’s economic stimulus handouts – people are getting a generous free handout, so they think that’s fantastic, and people will very rarely stop and question whether this actually makes sense as a worthwhile thing for the good of the country.

One of these systems generates about 1500 kilowatt-hours per year.

In 2006, the electricity output sent to the grid from Loy Yang A, just as a typical example, was 15,995 gigawatt-hours.

Therefore, if you wanted to generate the same amount of energy from 1 kW solar PV installations as just one coal-fired power station, you’d need 10.7 million of these installations. That’s significantly more than the number of households in this country.

You would need just under 11 million typical household 1 kW rooftop solar PV installations – well in excess of the number of households in the country – to give you the same amount of electricity as one coal-fired power station.

Even if you could do that – which you can’t – that still doesn’t give you the means to replace the coal-fired power station, because it isn’t high capacity factor, baseload, generation. You still need that high capacity factor baseload generation to back you up when the photovoltaics are delivering less energy, or no energy at all.

If the government paid out the $8000 subsidies for 10.7 million 1 kW solar panel installations – which aren’t capable of replacing even one coal-fired station – it would cost 86 billion dollars.

This is an enormous amount of money getting flushed away to do nothing in reality, and I’m happy to see it scrapped, personally.

Here’s a contemporary real world example of people buying into “green” ideology without the ability to count kilowatt-hours, and without realising just how damned expensive silicon photovoltaics are. I really, really suggest people do their homework before handing over sums of money like that.

BRISBANE environmental lawyer Jo Bragg and her partner, Gary Kane, spent $28,000 on three roof panels to generate solar power for their home in the inner Brisbane suburb of Highgate Hill.

After receiving a federal government rebate of $8000, they hoped to recover their investment in a cleaner planet within a few years by selling excess power into the mains electricity grid.

In the three months to April, they used 1384 kilowatt hours and produced 388 kilowatt hours of excess power, for which they received the princely sum of $12.96 after taxes.

“Governments are not being serious about reducing energy consumption with lousy amounts of money like that,” Ms Bragg said.

Her family is the kind Kevin Rudd had in mind yesterday when he announced that individuals and households would be part of a revamped carbon pollution reduction scheme.

The Prime Minister said households would be able to calculate their energy use at home and pledge contributions to the $25million energy efficiency savings fund to effectively offset their emissions.

“Individuals will be able to calculate their energy use and establish the savings they could achieve with a more energy-efficient home,” Mr Rudd said.

“A household or individual could then make a tax-deductible donation to the pledge fund, which the fund would use to buy and cancel carbon pollution permits equivalent to that level of energy use.”

Ms Bragg said she hoped the carbon permits scheme would be flexible enough to allow households with renewable energy to be paid for the gross amount of power produced — not just the excess — as happened in Germany and some other countries.

“It makes sense to provide incentives to homes to make it worth their while to invest in renewable energy,” she said.

“Even if we were paid for the gross amount of power produced, it would take us eight or 10 years to recover the investment.”

Obviously, this thirteen dollar figure seems a little bit surprising, so let’s see if we can break it down a little and try and extract some more concrete information about where that figure came from.

The average Australian residential electrical energy consumption is approximately 25 gigajoules per annum, and 1384 kWh over three months is about 80 percent of that, which is plausible for a relatively small, energy-efficient household.

Based on the quoted cost of $28,000 (post-rebate), and the mention of “three roof panels” in the article, I’m going to take an educated guess here and say they have a relatively large system, with 3 kW of installed nameplate capacity.

We’ll assume that the BOM insolation data for February is representative of the average of the three month January-February-March period, meaning that the average insolation is 21 MJ/m2/day, which is 243 W/m2 on average, meaning that a “3 kW” nameplate capacity installation will produce 729 W of power on average. Therefore, over three months, the system should produce about 1598 kWh.

Since the Green protagonists of our tale used 1384 kWh and sold back onto the grid 388 kWh of net energy production, the gross energy production from the system was presumably 1772 kWh, which is 111% of the theoretical 1598 kWh. So, these published figures are consistent with the numbers we theoretically expect.

Now, in Queensland, they’re getting paid a special elevated 44 c/kWh feed-in tariff for their net electricity generation from their PV installation. Therefore, their 388 kWh should have earned them 171 dollars. But, ostensibly, it did not. So where did the rest of the revenue, the seemingly missing $158, go?

The answer is that it probably went, I presume, to cover various flat-rate fees included on the electricity bill, such as a service charge, and/or an ambulance levy, or what have you; components of the electricity bill other than the per-kilowatt-hour charge for the energy use. Maybe it seems a little high for that, but we can’t be certain without seeing the actual breakdown of the bill.

Normally, before the PV installation, they’d be paying an electricity bill of about 221 dollars for their 1384 kWh, assuming a rate of about 16 cents per kWh, plus those charges of $158 or so on the bill, or a total of about $379. Now, they’re getting paid 13 dollars for this quarter, not paying any electricity bill at all. Therefore, they’re saving $392 per quarter, or actually somewhat less than that during the winter months since the solar insolation will be less. And they’re complaining about that? Even after getting the free $8000 government rebate and the 44 c/kWh feed-in handout, they’re complaining that that’s not enough and they want more of a free handout, for something that will never make any real contribution towards replacing coal-fired generation?

Let’s suppose, without calculating it accurately, that they save $300 per quarter on average, every quarter. Therefore, paying off their $28,000 system will take just over 23 years; assuming they don’t need to replace the grid-connect inverter in less than that time. They might, maybe, pay the cost of the system off within the operational lifespan of the solar cells. Maybe. That is, assuming that the 44 c/kWh elevated feed-in subsidy continues indefinitely, and they’re really lucky and their inverter doesn’t need to be repaired or replaced within that timeframe.

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