Solar PV generation vs Home energy Consumption

1-to-1 Solar Buyback vs Solar Feed-in Tariffs: The Economics

by James Martin II on February 9, 2012

in ACT,NSW,NT,QLD,SA,Solar and Renewable Energy Policy,State Government solar feed-in tariffs,TAS,VIC,WA

Most states in Australia currently have or have had some sort of Solar Feed-in Tariff scheme in place. Solar Feed-in Tariffs, which pay solar system owners a premium per kilowatt-hour for the power that they feed into the grid, are one of the key incentive mechanisms for the promotion of renewable energy generation across the globe. FiTs are what enabled Germany to become the unquestioned world-leader in rooftop solar power, and even China has introduced a national FiT program in an effort to expand domestic demand for solar PV systems. 1-to-1 solar buybacks are schemes similar to Solar Feed-in Tariffs, but which offer rates equal to the retail rate for electricity.

Tiers of Solar Feed-in Tariffs

In Australia, the rates on offer to those who export their solar power to the grid vary depending on state/territory, system size, and electricity retailer. There are essentially 3 ‘tiers’ to Solar Feed-in Tariffs, although, when it comes down to the details, the differences get a bit fuzzy.

Please note that all the FiT schemes described below are net schemes, which means that customers only get paid for excess electricity that they export to the grid. Australia’s only gross feed-in tariff scheme, the NSW Solar Bonus Scheme, is no longer open to new applicants.

‘Bona fide’, state-sponsored Solar Feed-in Tariff Schemes

At the time of writing, Queensland, Victoria (for systems under 5kW under the Transitional Feed-in Tariff), and South Australia (plus certain areas of the Northern Territory) offer bona fide Solar Feed-in Tariffs to residents planning on installing new eligible solar systems. Bona fide Solar Feed-in Tariff schemes are initiated by the state government, and effectively value solar power a rate that is greater than the rate that electricity customers pay for energy from the grid. (In the states with generous Solar Feed-in Tariff Schemes, some electricity retailers will offer up to 8c/kWh above the legally mandated rates in order to attract solar customers.)

These Feed-in Tariffs improve the Return on Investment (ROI) for solar systems and shorten payback periods significantly.  (All of the above comments refer to residential Solar Power Feed-in Tariff Schemes. The ACT also recently introduced Australia’s first large-scale Solar Feed-in Tariff.)

1-for-1 ‘Solar Buyback’ Schemes

1-for-1 (also ‘1-to-1’ or ‘1:1’) Solar Buyback schemes offer exactly what the name suggests: Whatever retail tariff rate someone pays for electricity from the grid, they will receive the same rate for each kWh of solar power that they export to the grid. These schemes, therefore, effectively value solar power as being ‘equal’ to that of power taken off the grid, which is generated by more conventional sources such as coal.

New solar customers in the ACT (ActewAGL) and Tasmania (Aurora), plus Horizon Energy customers in Western Australia are elegible for this kind of 1-to-1 Solar Buyback scheme. They are not ordinarily state-sponsored, but rather agreements between electricity retailers and their solar customers. One exception is the Victorian Standard Feed-in Tariff, under which new solar customers with systems 5kW and above are are eligible for a 1:1 solar buyback.

Nominal Solar Buyback Schemes

These ‘schemes’ are not really schemes. Instead, they are voluntary payments that retailers make to solar customers in states where no mandatory Solar Feed-in Tariff scheme exists. For example, in NSW, certain retailers will offer up to 8c/kWh for solar power exported to the grid. Likewise, in WA, Synergy customers can receive 7c/kWh. Amounts of this sort are unfortunately what is rather cynically deemed to be the ‘fair price‘ of solar power to the grid, taking into account only the value the value to electricity retailers, and not the potential broader benefits to the grid and the environment.

Set Solar Feed-in Tariff vs Solar Buybacks: How to time your electricity use

With any grid-connected solar system, customers have the option for either self-consumption or export to the grid, and the finance-savvy system owner will endeavour to 1) minimise electricity use at home and 2) endeavour to get the best value out of the solar system’s production. Depending on the rate offered through a FiT or solar buyback scheme, the actions taken to manage the volume and timing of household electricity demand will differ. What are they?

A short note on how to export, how to self-consume

It is important to remember that power from a solar PV system is automatically directed to household use first; if/when it is not consumed then and there, it automatically passes through an electricity meter and onto the grid. Therefore, when a household opts to ‘self-consume’ their solar power, this means that they time their power usage to coincide with generation–i.e., when the sun is shining. When a household opts to export their solar power to the grid, this means that they avoid using electricity when the system is producing–the excess is automatically exported.

Timing power usage with a set Feed-in Tariff rate

Solar Energy Production vs Household Energy Consumption

Solar Energy Production vs Household Energy Consumption: Summer

A set, guaranteed Solar Feed-in Tariff rate gives the solar system owner some sense of confidence regarding the returns they will receive from their solar power system as the years go on. Right now, with electricity prices lower than the bona fide FiTs, this means that it makes more financial sense for homes and businesses to favour export to the electricity grid, and strive to use electricity as much as possible when their solar systems are not producing. Because electricity prices are set to rise across Australia, however, this will change; eventually the price of electricity will rise to reach ‘equilibrium’ with the FiT rate, and it won’t make a difference when power is used–export and self-consumption will have the same value. With further inflation of electricity prices, it will eventually be the most sensible option self-consume as much as possible.

A simple equation to calculate the benefits of solar under a Solar Feed-in Tariff/Solar Buyback Scheme:

[FiT rate (c) * Electricity Exports (kWh)] + [Price of Electricity (c) * Solar self-consumption (kWh)]

Examples and Comparison:

Here are some examples of how returns will differ with the timing of electricity use under a Feed-in Tariff:

– If a household exports 1kWh and self-consumes 1kWh of solar power:

[44c (FiT rate) * 1kW] + [23c (cost of electricity) * 1kW] = [44c + 23c] = 67c savings on electricity bill

– If a household exports 2kWh of solar, however, the benefit is greater:

44c (FiT rate) * 2kWh = 88c savings on electricity bill

– Self-consuming 2kWh of solar power will yield less benefit:

23c (cost of electricity) * 2kWh = 46c savings on electricity bill

Timing usage with a 1-for-1 solar buyback

With a 1-for-1 solar buyback, however, as long as the homeowner/business uses no more electricity than is produced by the solar system while it is being produced, it makes no difference whether they self-consume the solar power or export it to the grid–both offer the same returns. The key here, then, is to focus on reducing electricity use in general, because it is not possible to optimise the timing to obtain greater savings.

Examples and Comparison:

-If a household exports 1kWh and self-consumes 1kWh of solar power:

[23c (cost of electricity) * 1kW] + [23c (solar buyback rate) * 1kW] = [23c + 23c] = 46c savings on electricity bill.

– 2kWh of exported solar power have the same value:

23c (solar buyback rate) * 2kWh = 46c savings on electricity bill

– The same is true for 2kWh of self-consumed solar power:

23c (cost of electricity) * 2kWh = 46c savings on electricity bill

Timing electricity usage with a nominal solar buyback

In this scenario, it makes more sense to self-consume as much as possible, as this will offer the greatest value for each kWh of solar power produced. While solar does make sense for some households and businessses in NSW, provided they can find a way to use all their solar power as it is being produced.

Examples and Comparison:

– If a household exports 1kWh and self-consumes 1kWh of solar power:

[8c * 1kW] + [23c * 1kW] = [8c + 23c] = 31c savings on electricity bill

– However, 2kWh of exported solar power would yield significantly less savings:

8c (solar buyback rate) * 2kWh = 16c savings on electricity bill

Self-consuming 2kWh is the best option:

23c (cost of electricity) * 2kWh = 46c savings on electricity bill

© 2012 Solar Choice Pty Ltd 

James Martin II

James Martin II

James has been working as analyst and online development manager for Solar Choice since 2011. He holds a master's degree in Environmental Management from UNSW, and a bachelor's degree in Philosophy from Bridgewater State University in his native Massachusetts.
James Martin II

{ 16 comments… read them below or add one }

Michelle August 5, 2016 at 3:16 pm

hey, I am a student who is studying economics and I am interested to find out the optimal mix of self-consumption and exporting to the grid under different FiT scheme. I don’t quite understand why the equation of calculating the savings on electricity bill of a household is 44c (FiT rate) * 2kWh = 88c if she/he exports 2kWh of solar. Why don’t we need to deduct the retail electricity price of 2kWh (i.e. 23c * 2kWh)? Since we export all the solar power to grid, we need to buy power from the grid and the net benefit should deduct the cost of buying the retail electricity.

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Todd August 22, 2014 at 4:04 pm

I am in the progress of building an investmant property, standard 4 bedroom house in North Brisbane. To get better returns on my investment i have been thinking about install solar power as i feel this would make the house more marketable. If a system could be installed to cover the average power bill how much monitoring would be required for this type of system not comtriled by the person living in the house.

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Solar Choice Staff August 26, 2014 at 2:42 am

Hi Todd,

These days, it definitely makes more sense to install a system on a home that has occupants in it. The exact amount of money saved will depend on the occupants’ electricity usage volumes and patterns–i.e. how much electricity do they use and when do they use it? Whether you could use a solar system as a selling point for your rental property would depend on how well you can show how much money it would save the occupants on their electricity bills.

We generally recommend sizing a solar system to meet your daytime electricity needs, with the idea of forecasting your savings before the system is installed so you have a good idea of what sort of returns you can expect from it.

As far as monitoring–I’m not sure exactly what you mean by your question. Monitoring would be of most use to the folks living in the house, as they’d be able to watch their solar energy production & electricity usage patterns and thereby get the most of the system. All the billing stuff will be automatically sorted by the electricity utility. There’s not much for you as the building/system owner to control, per se.

Hope this helps.

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Ann Eades March 11, 2013 at 8:41 pm

I live in nsw and have 1.5kw solar panels on the net system with AGL (they pay 8c kwh). We are also on a time of day electricity meter. Just wondering if I’m better to run appliances (such as washing machine,dishwasher etc) in off peak times or if I should be running them in daylight hours when its sunny when power is being generated by the panels??
Thanks

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Solar Choice March 12, 2013 at 4:13 am

Hi Ann,

That could be a bit of a tricky balance. Since your feed-in tariff is only 8c/kWh and you probably pay more than twice that for power from the grid, you will get the most out of your system by consuming all the power it produces as it is being produced–i.e. during daylight hours. However, since your system is a 1.5kW system, as much as possible you want to make sure that your consumption does not exceed the output of the system. It would be much easier to keep track of how close you are exceeding this amount if you have some kind of in-house monitoring systems set up, so that you can see with your own eyes how much power different appliances use.

I don’t know if you have such monitoring system, though. If you do not, I would advise checking the labels of your appliances to see how much power they use. At peak times in the summer your system will be producing about 1.5kW (1500W) of power–less in the morning/late afternoon. By comparison, a typical refrigerator uses about 725W, while a vacuum cleaner would use about 1000W (1kW). My advice would be to do a quick check of all the appliances that are plugged in/being used during the day, and simply do the rough math to estimate your power consumption. Try to aim for just under 1.5kW total, which will probably mean using only one appliance in addition to the ‘baseline’ appliances that are always on (fridge, computers, etc).

To get an idea, you can see a list of appliance energy use estimates on the US Department of Energy website. This should be about the same as those in Australia, but check your appliances anyhow to make sure.

On a slight tangent–this is really the way solar systems should be used in order to maximise the financial benefit. Those who have the time and concentration to pay this much attention to their power usage and alter their habits will reap the most reward.

Hope this is helpful and not too complicated! Good luck with your system.

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Stuart Bunt February 6, 2013 at 1:26 pm

I live in WA with (I think) at present a “nominal” 10c feed in rate from Synergy.

I need a 3kw to cover my average consumption in Perth
However I was thinking a 5kw system still makes economic sense are my calculations correct?

It will cost me roughly $2k more to have 5k system instead of 3kw so I lose $100yr in lost interest (5% after tax – if I am lucky) plus if it lasts ten years depreciation is $200 a year. Total extra cost $300 a year.

Extra electricity production 365X8.8kw/day (ave Perth REAL production from the extra 2kw) =3212 units @10c = $321

So it breaks even at least, but of course will cover ALL my domestic production and some so may save some more @23c when everything is going full blast airconditioners etc.

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Solar Choice February 19, 2013 at 2:07 pm

Hi Stuart,

Here is a link to an article we wrote this time last year about investing in a solar PV system in Perth, WA. If you scroll down to the bottom you’ll find the ROI calculator which should help you work out what the better option for you is, 3kW or 5kW. If you haven’t already I’d also recommend getting a Solar Quote Comparison from ourselves which will give you a range of prices for systems between 1.5kW and 5kW.

Synery don’t make it particularly clear, but depending on what contract you’re on you could get 20¢ per kWh but they normally put a limit on how much you can export back to the grid which is worth looking into.

Good luck with your solar project

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rachael February 2, 2013 at 7:43 pm

Hi
My partner and I are looking at building a moderate 4bdrm house in Tasmania. We are sure about one thing and that is we want solar power all the way! the question is which is the best system to go for? we do plan on a family in the near future so approx 4 people living in the house. We simply want something that is going to knock our power and hot water bill on the head!

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Solar Choice February 19, 2013 at 12:16 pm

Hi Rachael,

We normally advise that customers wait until they’ve built their property before investing in solar PV, that way we can look at their bills and ensure we’re giving the right advice. If your house is very energy efficient (good insulation, energy efficient appliances, no air conditioning) then you’re energy bills will be lower in the first instance and you will need a smaller system. As a rough guide you would need at least 3kW, but this is a very rough figure.

We have recently started working with a building designer who has a keen interest in Building Integrated Photovoltaics (BIPV), depending on your budget and design requirements he may be a good point of contact – as he works in partnership with ourselves he also has access to our network of installers which will ensure you get a good deal.

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phil December 18, 2012 at 6:07 pm

I live in rural NSW and currently operate a stand alone PV system. I have power on my property 1.5km from the house and have been considering a feedback at this location simply to generate power for feedback. Doing the sums though with the terrible feedback tariff in NSW it would seem that there would be no benefit even with the STC(?) discount. Any thoughts?

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Solar Choice December 20, 2012 at 11:50 am

Hi Phil,

In term of ROI there is no incentive to feed back to the grid and we advise all customers who live in a state with a below retail value to install as system that closely matches their current energy needs.

We’ve sent to an email about alternative routes you can go down if you have land available for development.

Hope this helps

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Diego November 26, 2012 at 7:00 pm

Hi Trevor

Have you also looked into energy efficiency, in your case since you have to heat a lot, insulation and air sealing windows, doors and any cracks? These measures will have far more return on investment than any solar installation to heat your house, especially since you have to heat at times when you don’t produce that much solar kWh during winter. Little effort in efficiency gives you big returns.

For a start, find some ideas at the CSIRO’s Energy Saving web site:
http://www.csiro.au/en/Outcomes/Energy/Saving-energy-in-your-home.aspx

Diego

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john leenders November 12, 2012 at 5:40 pm

Hi Trevor
I would like to approach the issue of Solar Power from a different angle
My son in law got in before the 1st Oct 2011 and gets at present ( in SA) 53.8 c on every kWh he produces and the issue of self consuming
does not enter the equation He has a contract for 15 years.
He paid $ 15400 all up for 26 panels and produces 4400 kWh /Year
Return on investment $ 2367, ie 15 %. You cannot do better in the share market and it is tax free. The cost of his electricity bill is irrelevant.
So what is the situation now. In Sa 25.8 c /kwh less than actual cost.
Forgetting all the arguments about better to self consume, which is a bonus if it happens to coincide at the right time, assume that all solar power is worth 25.8c per kWh and is exported and work out the return on investment. If the above system was now installed at say $ 10400, which seems reasonable as costs have come down, the return on the investment is 4400 x 25.8c = $ 1135 or 11 %.
So it pays to put as many panels on the roof as possible is it not ?

John

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Solar Choice November 13, 2012 at 10:50 am

Hi Trevor,

In South Australia we have a situation where solar PV owners can get about 25.8¢ per kWh, as you say, although it’s not quite market value it would provide a significant return on investment and it may be worth considering putting additional panels on your roof to take advantage of this situation.

Trevor resides in NSW where there is no mandatory feed-in tariff and customers are doing well if they can secure 8¢ per kWh, in this instance it makes sense to purchase a system that closely meets the needs of the household as it effectively makes the value of what is produced the savings on your energy bill. So if you save around $1,200 on your annual energy bill the annual return on investment is $1,200.

Hope that makes sense!

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Trevor Tremain August 3, 2012 at 12:30 am

Hi,
I am in NSW, our main consumsion of electricity is the form of a 3.5kw split level reverse cycle. In winter is when it uses the most electricity, and at night it uses the most, which is obviously when there is no electricity produed by our solar panels. We don’t have any other means of heating other than what I have just described to you. There fore with minimum temps getting as low as -2 degrees celsius, if the air conditioner was to be turned off (because there is no solar), then our home would become unbearable.

Our solar setup is on a net meter, and AGL is paying us 8cents/ kw that we export to the grid, I know that is the maximum that was required to being paid by any of the energy providers, which I feel is pathetic. In saying that the 60cent scheme offered by the previous NSW Government was plain stupid, I am told that a new buy back amount of between 7.7cents, and 12.7cents is being introduced, but only on a volentary level. Can you advise me on what would be the best offer available, which system (net or gross) would be best, and have you any information on a new user pay system for electricity (independant of whether or not solar electricity is available) used from the grid (eg charges, rates, and any fees), and does it have to be used in conjuntion with a net meter, or will it work with a goss meter if it was being used.

Last summer from November through to Febuary, we exported 960kw of electricity to the grid, but for this quarter (because of obviously shorter days, but also many overcast days as well, oh also sadly the western facing panels at this time of the year are also being shaded by a tree), we have only exported about 100kw to the grid, thus causing even our daytime consumsion has increased because the drop in solar power that our system generating at this time of the year, as well as our night time useage (as mentioned above).

I can’t tell you off hand the details of our setup, other than it has 18 solar panels, 12 facing north, and 6 facing west, on seperate 2.2kw inverters, with a new net meter installed, which replaced one of the old style meters. I hope that you can help, as I am just a little disapointed with the results from the setup that we have. I have even considered adding another 6 panels facing east ( I know that would be even less efficent than those facing the west, but they would provide a boost in electricity being generated at the start of the day (when we would be using a considerable amount electricity, eg electric jug, stove etc), when at the moment very little is being produced with the 12 panels that we have facing north, thus forcing us to use electricity from the grid.

Could those extra 6 panels be connected up with the other 6 that are facing west to the same inverter (2.2kw)? As the other 2.2kw inverter has 12 solar panels connected to it, and they are facing north, or would having them facing in oposite directions cause a problem for the inverter. If you need more details about the panels and/or the inverters please let me know.
Regards
Trevor

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Solar Choice September 17, 2012 at 2:47 pm

Hi Trevor,

Thanks for the comment.

To answer your questions:

The rate you can receive for your solar power as you export it to the grid depends on the retailer that you have and the deal you’ve struck with them. You can read details about this on the MyEnergyOffers website. At the moment, none of the companies are openly offering anything above the minimum of IPART’s benchmark rate of 7.7c-12.9c/kWh for 2012. (All of these rates are voluntary, as you’ve pointed out. This is infuriating for those of us in the solar industry, but so it goes.)

Since you’re only getting this nominal amount per kWh (which is less than what you pay for power you buy from the grid), you want to be on a net metering setup. Net metering will mean you can use the power your system produces before it goes into the grid–you’ll save more money by treating your solar system as a mini rooftop power plant of your own and using it as much as possible, which saves you from buying electricity from the grid.

Your installer should have warned you about any shading that they expected you to get on your western roof. Hopefully this will only be affecting your system during the winter months. You might even want to have some of the taller branches removed–even a little bit of shading is bad for your system’s output.

Generally, we don’t recommend adding on more panels to a string unless a) the system was only installed a short time ago (<6mo), b) the inverter has spare capacity to handle the addition, and c) the panels that you add are exactly the same make and model as the ones that are already there--any disparity can lead to inefficiencies and it may not be worth having them installed.

Provided your inverter has spare capacity and dual maximum power point tracking (MPPT) (and a 2nd input for another string of panels), you could theoretically install more panels on the east roof and it could function all right, giving you a bit more power in the mornings. Dual MPPT enables your inverter to balance uneven power inputs from 2 separate strings. Ask your installer.

Personally, I think the best option (if at all possible) would be able to remove the upper branches of the trees that are shading your roof.

Best of luck with your system!

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