When it comes to solar power in Australia, lots of things have changed in the last few years. If you’re currently shopping around for a solar system, perhaps the most important thing you need to keep in mind is this: You’ll get the most out of your solar panels by consuming the energy they produce while it is being produced. This is usually referred to as ‘solar self-consumption’, and it is the key to ensuring that your solar system delivers to you the best return possible.

(This article was originally published in August 2016.)

The backstory: Ghosts of solar feed-in tariffs past

Once upon a time in Australia there were state-based incentives for solar power generation called solar feed-in tariffs. These incentives rewarded solar homes for sending their solar energy into the grid at generous rates – frequently over 30 cents per unit of energy (kilowatt-hour, kWh). In contrast, these households may have only been paying 20c/kWh for electricity they purchased from the their electricity retailers. In these circumstances, it made sense to send solar into the grid, as this would deliver the biggest savings.

These days, pretty much anywhere you are in Australia the rate you will be paid for excess solar energy is generally very low (unless you are on a legacy feed-in tariff), regardless of whether there is a regulated minimum rate in your state or if the rate is a voluntary one set by your retailer. This means that if you’ve only just come into the solar game, you might be looking at your neighbour’s solar system wondering why they get 44c/kWh (to use a Queensland example), while the highest rates you can find are 4-10c/kWh.

It’s important to note that back then bigger bill savings were necessary for solar to make economic sense – solar systems were about 4x to 5x more expensive in 2010 than what they are now. So while we might look back with envy on ‘the good ol’ days’ when incentives were higher, the fact is that these days the solar value proposition is much closer to standing on its own proverbial legs, and as such the incentives are not needed to the same degree (although we certainly wouldn’t be complaining if they were still available). It does mean, however, that there are certain considerations you should make when choosing a system.

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Life in the post feed-in tariff world

Even without feed-in tariffs, Australian homes are still installing solar in droves, with roughly 10,000 new residential solar systems being installed per month across the country. Solar system installation prices are lower than they’ve ever been, so as long as you’ve got an unshaded roof and some daytime electricity usage at your home, solar will probably work for you.

How does solar self-consumption work?

Any energy that your system produces will go first into your home to power any devices that happen to be running – thus reducing the amount of energy you have to purchase (‘import’) from the your electricity retailer. If your solar system produces more energy than your household can consume at a given moment (e.g. if you’re not home), the excess solar is automatically sent back into the grid. This ‘exported’ solar energy is what earns you the low feed-in rates mentioned above.

Getting the most out of your solar through self-consumption

Your goal, therefore, is to try to keep as much solar as possible in your home, powering your devices. There are two dovetailed approaches that you can take to achieve this goal: a) get a system that is well-sized for your home, and b) try to make sure you run devices when the sun is shining.

If we represent it visually, solar self-consumption looks something like the graphs below. The blue areas represent household electricity consumption, while the red areas represent solar system energy production (in this case, a 3kW and a 5kW solar system). The red areas above the blue lines represent solar exported to the grid, while the blue on its own is energy being purchased/imported form the grid. The overlapping red/blue area is where the solar energy meets your home’s energy demand.

3kW solar system profile area

An example how home energy consumption and solar production from a 3kW solar system intersect during the day. The red area above the blue line represents exported solar energy.

5kW solar system profile area

The situation as above, but this time with a larger, 5kW solar system. The red area above the blue line represents exported solar energy.

The table below summarises in numbers the two charts above in terms of the percentage of self-consumed solar & system payback periods (along with some other useful figures).

 Example – Sydney home using 30kWh/day 3kW @$4,300 5kW @$6,500
Demand met by solar 24% 30%
‘Natural’ % solar self-consumed 61% 46%
Bill reduction 28% 40%
‘Natural’ payback period ~5.5 years ~6 years
Payback period @80% self-consumption ~5 years ~4.2 years

In the case of the 3kW solar system, only about 40% of the solar energy is being ‘wasted’ (i.e. exported to the grid), while over 50% of the solar energy is exported in the case of the 5kW system. But, as the table also shows, the greater overall bill reduction (based on a flat rate of 21c/kWh and a solar export rate of 6c/kWh) would be had with the 5kW system.

Interestingly, difference between payback periods on the systems is not particularly large (at least at the example prices we’ve plugged in here). Looking only at these ‘natural’ self-consumption rates (i.e. the amount of solar that would go to direct use in the home without any special technology, effort or behavioural change), payback periods for both systems are between 5-6 years. In either case, this is pretty good.

Should you opt for the smaller system?

Your first instinct might – and our first recommendation – would be to stick with the smaller system – both because it would cost less and because it has a marginally better return than the larger one. But what would happen if you could ratchet up your solar self-consumption to use even more of the solar energy directly? Let’s assume that you manage to get your solar self-consumption ratio up to 80%.

Suddenly, (as the table shows) the payback period for the 5kW system drops down to about 4 years – shorter than what would be possible with the 3kW system at 80% self-consumption. This means that the larger system promises a lot more potential for bill savings than the smaller one. This could be useful to you if you think your daytime energy consumption is going to increase in the coming years – or even if you just want insurance in case it does.

The other benefit here is that with the larger system you’ve got excess energy which could be used to charge a battery storage system – either now or in the future. While battery storage prices are still high (they’re not yet a ‘no-brainer’ like solar on its own is for most homes), they’re coming down fast, and in some cases they already make good financial sense.

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© 2016 Solar Choice Pty Ltd

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