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What if you sent all of your solar into the grid? Is it worth it?

by James Martin II on September 29, 2017

in Installation advice,State Government solar feed-in tariffs,Solar system sizes,ACT,Living with solar & batteries,NSW,NT,QLD,SA,TAS,VIC,WA

If you’ve got solar, the way to maximise your electricity bill savings these days is to use your solar energy directly within your home (or business). From an investment point of view, the conventional wisdom is that the worst thing you could do with the solar energy that your roof produces is to send it all into the grid. Why would you export your solar to earn 10-15 cents per kilowatt-hour (10-15c/kWh) in bill credits when you could use it yourself and save 20-35c/kWh?

But what if you looked at the problem slightly differently and decided to set up a rooftop solar system to function first and foremost as a power generator, feeding clean electricity directly into the grid. Instead of aiming for 100% solar self-consumption (as we advise that everyone does where practicable), what if you took a more relaxed approach and said to yourself, “My solar is for selling into the grid for feed-in tariff credits. Any solar I use myself – and the associated savings bump – is a bonus.”

In reality, this isn’t an approach to be dismissed out of hand. We here at Solar Choice already advise that a solar self-consumption ratio of only 30% is enough to justify going solar – thanks mainly to low solar installation prices, skyrocketing grid electricity rates and solar feed-in rates that recently saw a healthy rise due to increasing wholesale electricity prices. What would happen if we ratcheted that percentage downwards even further?

Let’s be clear: Solar makes sense throughout Australia

This article investigates an extreme circumstance, but the reality is that solar is a great investment in all of Australia’s capital cities. Read our article: Is residential solar power still worth it in 2017?

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How bad (or not bad) is the ‘worst case’?

As a thought experiment, using our Solar Payback & ROI Calculator to take a look at payback period, internal rate of return (IRR – like ROI but better) and 25-year net present value (NPV) figures in each capital city to work out whether the ‘worst case scenario’ of 0% self-consumption is really that bad after all.

For simplicity’s sake, we’ll assume that you’re looking at a 5kW solar system (currently the most popular system size in Australia) and that you pay the average price to have it installed as per our September Solar PV Price Index. We’ll also assume that the rates you pay for electricity are as laid out in this table – except we’re only looking at flat rate tariffs and not time of use tariffs. Also, the household in question uses 25kWh per day (important for the results that model 30% self-consumption).

Important caveats: Note that until recently feed-in tariffs in most states were only 6-8c/kWh. The recent increases are the result of rising wholesale electricity prices. While wholesale prices are expected to remain high or continue to rise in the short to medium-term, they do fluctuate and could end up coming down again in the future. Our model/calculator assumes that the feed-in tariff rate will continue to increase at a rate of 1.2% annually, and that the price of grid electricity will increase at a rate of 2.5% annually.

Additionally, keep in mind that the feed-in rates we’re using are rates on offer from electricity retailers available to all solar customers (e.g. ‘bring your own system’ is okay), not just the ones who sign on to a ‘special deal’ when the retailer also sells them their solar system. (Our experience is that the feed-in tariff benefits in these situations are often embedded in the upfront cost of the system.)

Lastly, keep in mind that the figures below are calculated based on average solar system prices – there are lower priced system out there. Just make sure you’re not compromising on quality (and the longevity) of your system.

Table: Payback period, IRR & NPV for 5kW solar system in each capital city – 70% export vs 0% export

At current average solar install prices, competitively-priced retail electricity rates & reasonable feed-in rates.

City & feed-in rate Assuming 30% self-consumption (70% export) Assuming 0% self-consumption (100% export)
Payback period IRR NPV Payback period IRR NPV
Adelaide

16c

3.7 years 27% $16,500 5.3 years 18% $8,300
Brisbane

10c

5.3 years 18% $10,400 8.8 years 9% $2,550
Canberra

11c

6 years 16% $8,200 7.9 years 11% $3,700
Darwin

26c

5.3 years 19% $18,100 5.3 years 19% $18,100
Hobart

9c

8.3 years 11% $4,350 18.6 years 4% -$900
Melbourne

11.3c 

6.2 years 15% $7,300 9.2 years 8% $1,900
Perth

7c

4.6 years 22% $9,900 9.2 years 8% $1,200
Sydney

13c

5 years 20% $9,900  6.7 years 13% $4,800

So where does ‘solar just for export’ make sense?

In a nutshell, if you’re really keen on it, there are three cities where installing a system just to sell solar energy into the grid might make sense. Each of them would have indicative solar payback periods of under 7 years and IRR values of over 10% (try beating that with a term deposit). These cities are:

  • Adelaide – which has some of the highest wholesale electricity prices (and feed-in tariff rates) in the country – and the world;
  • Darwin – which is the last place in Australia you can get a generous feed-in tariff (feed-in rate is currently equal to purchase rate); and
  • Sydney – which it’s possible to render an indicative payback period of just under 7 years and IRR of 13% on a 13c/kWh rate.

How about cities where it’s a bit borderline? (Working on the assumption that most households wouldn’t want to see payback periods longer than 10 years.) Payback periods for Brisbane, Canberra, Melbourne and Perth all come in at between 7 and about 9 years, with IRRs of 8-11%, which isn’t too shabby. Having a slightly higher feed-in rate or slightly lower upfront system cost could potentially make the difference in helping these cities cross from yellow into green.

The one place where solar-for-export clearly does not make sense is the southernmost Australian capital – Hobart. A combination of higher system prices and only a modest solar feed-in tariff (at 9c/kWh) mean that going solar doesn’t make sense in this extreme situation. That being said, solar is still a great investment for Hobart and other Tasmanian homes that have the roof space, budget and a bit of daytime electricity consumption.

Key takeaway: 100% export can make sense but shouldn’t be your goal

It’s a pretty incredible fact of the Australian solar & electricity markets that virtually anyone in at least three capital cities can install a system, consume none of the power directly and still come out ahead financially. The number of places where this is viable is only going to increase as solar becomes more affordable – especially if grid electricity wholesale prices and solar feed-in tariff rates continue to increase.

That being said, the safer bet is to put your solar energy to its best use by consuming as much of it as possible on-site (i.e. powering your home) instead of putting it into the grid. If you’re curious to learn more about the possibilities, you can play with the numbers yourself using our Solar Power System Payback Calculator tool.

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© 2017 Solar Choice Pty Ltd

James Martin II

James Martin II

Communications Manager at Solar Choice
James has been Solar Choice's primary writer & researcher since 2010. He lives in Newcastle in a house with a weird solar system.
James Martin II

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