There has never been a better time for Australian businesses to invest in commercial solar power. Last year Solar Choice analysed electricity bills & meter data to generate free indicative solar business cases for nearly 300 businesses, ranging from schools to farms to shopping centres to car dealerships to strata units to doctors’ surgeries (to name just a few). The overwhelmingly obviously outcome from these analyses was this: solar is a fantastic investment for any business with daytime electricity consumption and space to install panels.
Below we’ve put together some information about how solar for business works, as well as some of the key takeaways from the data that we’ve collated – with a focus on payback periods & internal rate of return (IRR).
Understanding commercial electricity bills
Before launching into details about Electricity bills for businesses & commercial premises can be complicated, convoluted and otherwise difficult to understand – which can make it tricky to work out in detail whether solar is worthwhile. The structure of commercial electricity bills varies from state to state, but there are a few fee components that make an appearance on most bills.
- Retailer charges: The rate that your retailer (the company that sells you your electricity) levies on each unit of energy (in kilowatt-hours, kWh) that you draw from the grid/electricity mains.
- Network charges: A separate charge (also per kWh) that is levied by the local electricity network company and passed through to you by your retailer.
- Note that both retailer and network charges may be levied as either
- ‘Flat rate’ – where the same rate is charged around the clock, 24/7; or
- ‘Time of use’ – where different rates are charged depending on the time of day (higher during ‘peak’ usage times, and lower during ‘off-peak’ and ‘shoulder).
- Note that both retailer and network charges may be levied as either
- Other kWh charges: The two charges above constitute the bulk of the average commercial electricity bill, but additional charges may also be itemised on a c/kWh basis.
- Demand charges: Not all commercial electricity bills have a demand charge, where the customer is billed for the maximum amount of power (in kilowatts – kW – not kWh) that they draw from the grid during a period of time (whether that be a day, month or quarter, etc).
How solar saves businesses money
The potential benefits of solar depend on the circumstances of the business – including the size of the business, their electricity plan details, energy usage patterns of the business and the state where the property is located. In general, there are three ways that solar helps to reduce electricity bills:
- Offsetting: This is by far the most important financial benefit that solar delivers for a business. The higher the total rate you pay per kWh of electricity from your retailer, the more sense solar will make for you financially. Furthermore, the more solar energy produced during business hours, the less electricity needs to be purchased from the grid at the total c/kWh rate (the ‘offset rate’). Most types of businesses have their heaviest loads during daylight hours, which makes solar a no-brainer. And because solar offsetting is cost saving measure as opposed to a revenue stream, there are no negative tax implications.
- Solar feed-in credits: Depending on the size of your system, the deal you have struck with your electricity retailer and the local policies of the state in which your business operates, your business may also be eligible to earn credits (in c/kWh) for excess solar energy sent into the grid. Though only a secondary benefit to offsetting, where available feed-in credits can help to bolster the business case for going solar – especially for businesses that work reduced hours on weekends.
- Demand charge reduction: For businesses with demand charges, solar may also help to reduce maximum demand. Because this is hard to model (due to day to day weather fluctuations), however, any demand charge reductions should be seen as a bonus rather than something to be depended on. (This may change as battery storage becomes more viable for commercial premises.)
Popular solar system sizes for a small to medium enterprises (SMEs)
While we note that solar makes sense for a wide range of business types & sizes, small businesses may find that the most attractive size options are less than 100kW for two main reasons:
- Affordability: Solar systems under 100kW in capacity are eligible for an up-front incentive through the federal government’s Renewable Energy Target. This means less capital expenditure to have the system installed and commissioned, which is sure to be an ‘easy win’ for business owners grappling with rising spiralling electricity costs.
- Right-sizing: For small businesses, maximising the returns of a solar system requires ensuring that the system is not too ‘large’ for the site’s energy requirements, as the greatest benefit comes from solar offsetting. For most small to medium-sized businesses, the optimal size will usually come in at under 100kW. (Relatedly, small businesses tend to have less roof space for panels – which serves as a secondary constraint on allowable system size.)
Systems larger than 100kW
Depending on the size of the ‘small’ business, a system larger than 100kW may also be a viable option – particularly those who have high electricity demand during daylight hours (e.g. businesses that have lots of refrigeration equipment). That being said, systems in the 100kW+ range tend to be a better fit for larger commercial & industrial properties where electricity consumption levels are even higher. Nationally, the average payback period for systems in the >100kW range is about 5.3 years.
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Commercial solar payback periods (& IRR) by state
The data below is based on nearly three hundred indicative business cases that Solar Choice’s engineering team compiled for commercial clients based on their electricity bills. This takes into account a number of different types of roof orientations and electricity usage profiles to give an average view of return on investment for commercial solar projects in Australia.
Continue below to see detail & information by state.
Indicative payback periods & IRR for <100kW solar systems* |
||||||||
| ACT | NSW | NT | QLD | SA | TAS | VIC | WA | |
| Payback period (Years) | 3.4 | 4.8 | 2.5 | 4.6 | 3.4 | 5.1 | 5.3 | 3.3 |
| Internal Rate of Return | 33% | 25% | 40% | 29% | 37% | 22% | 24% | 34% |
*(Based on business cases composed by the Solar Choice team for commercial clients. Assumes 3% annual electricity inflation rate; indicative purchase prices from our Commercial Solar PV Price Index for the month of the analysis.)
Commercial Solar Payback Periods in Australian Capital Territory
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| 10c/kWh – 20c/kWh | 3.6 years | 29% |
| 20c/kWh – 30c/kWh | 3.2 years | 33% |
Commercial Solar Payback Periods in New South Wales
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| <10c/kWh | 7.7 years | 13% |
| 10c/kWh – 20c/kWh | 5.4 years | 20% |
| 20c/kWh – 30c/kWh | 3.6 years | 30% |
| >30c/kWh | 2.7 years | 40% |
Commercial Solar Payback Periods in Queensland
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| <10c/kWh | 7.5 years | 13% |
| 10c/kWh – 20c/kWh | 5.2 years | 21% |
| 20c/kWh – 30c/kWh | 3.4 years | 31% |
| >30c/kWh | 2.3 years | 50% |
Commercial Solar Payback Periods in South Australia
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| 10c/kWh – 20c/kWh | 4 years | 26% |
| 20c/kWh – 30c/kWh | 3.7 years | 29% |
| >30c/kWh | 2.4 years | 43% |
Commercial Solar Payback Periods in Tasmania
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| 10c/kWh – 20c/kWh | 5.4 years | 19% |
| 20c/kWh – 30c/kWh | 4.7 years | 24% |
Commercial Solar Payback Periods in Victoria
| Electricity offset rate range | Payback Period | Internal Rate of Return (IRR) |
| <10c/kWh | 8.7 years | 11% |
| 10c/kWh – 20c/kWh | 5.7 years | 18% |
| 20c/kWh – 30c/kWh | 3.5 years | 31% |
| >30c/kWh | 3.3 years | 32% |
Western Australia
| Electricity offset rate range | Payback Period (years) | Internal Rate of Return (IRR) |
| 10c/kWh – 20c/kWh | 4.3 | 24% |
| 20c/kWh – 30c/kWh | 3.1 | 35% |
| >30c/kWh | 2.5 | 43% |
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Since 2008 Solar Choice has consulted with over 3,000 businesses around Australia and helped develop over 800MW solar commercial and solar farm projects.
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