Putting solar on your roof can be a deeply satisfying experience. You can increase your property’s value, save money, move towards energy independence if you wish, and have that good feeling that you are doing your bit for the environment and future generations.

Below is some information that can help you understand solar a bit better.

Financial benefits of solar
How a solar system works
Power and energy basics
Understanding electricity tariffs and how solar saves you money
Solar systems and batteries
Solar systems and carbon pollution
The design of your solar system

Financial benefits of solar

At home

Solar systems have two main financial benefits. Firstly, as an asset, it increases your property value. Secondly, solar reduces your electricity bills.

Typically a solar system could be expected to reduce your annual electricity consumption charges by around 40%, or approximately 10% of the up front cost of your system. As outlined below the savings depends a lot on how much energy you use in the daytime and how much of this can be offset by the solar system.

The savings achieved by solar systems have dropped from what they were a few years ago, because Victoria’s Feed in Tariff has been slashed to very low levels.

However, solar systems do add to the asset value of your home.

In California a 2011 study showed that homes with solar systems sold for more than equivalent homes without solar electricity systems. In fact the increase in property value was on average more than the cost of the solar system!

In Australia a mid 2015 survey identified that 85% of Australian’s believe that solar adds to the value of a property, and that three-quarters of renters would pay more rent for a property with solar installed. The popular online property website, realestate.com.au, now provides the ability for home owners to specifically search for homes with solar installed.

Lifetime value greatly exceeds cost

You can be pretty confident that a quality system (which won’t be the cheapest) will last you 25 years, possibly even longer, and over its life time will return you much more money than you paid for it, in addition to adding value to your home.

Pay for your solar system off your home loan – and be cash flow positive from the start

If you pay for your solar system by adding it to your home loan, you can be cash-flow positive from the start – the annual savings achieved will cover both the additional interest and capital repayments on your loan. (Assuming a loan term of 15 years or greater).

At work

At work premises solar systems now tend to have a better payback than at home, mainly because the solar system is directly offsetting electricity use when the business is in operation – in the daytime. Also, the larger the energy consumption that can be offset by solar, the better the economies of scale. So, for example, for a office of 200m2, a solar system would most likely be providing a annual return of over 15%. Small businesses spending less than $20,000 on a solar system under current small business tax concessions fully expense the system in its year of purchase, reducing their tax bill.

How a solar system works

Solar panels produce electricity when sunlight hits the panels. This Direct Current (DC) electricity from your panels is converted to Alternating Current (AC) electricity by your inverter(s) and then goes into your switchboard. From the switchboard the power is then used by electrical loads in your home, with any excess electricity exported to the grid.

grid-connect-solar

The amount of power produced depends on the angle of the sun in relation to the panels. The maximum power is produced when the sun is at right angles to the panels and the panels are cool. Cloud reduces the amount of power produced, as does shading of the panels (for example from a tree or neighbour’s house)

In Melbourne solar panels produce much more energy in summer than in winter, because the days are much longer, as shown in the graph below. (For a 2.5kW system, facing north, not much shading.)

output_by_month

Power and energy basics

Its easy to get confused between power and energy, but if you want to understand how a solar system saves you money its important to understand the difference.

Power is the rate at which energy is produced or used. For solar systems the amount of power produced will vary during the daytime, depending on the angle of the sun and the amount of shade.

Electrical power is measured in watts (one kilowatt = 1,000 watts). The capacity of a solar power, expressed in watts, is the maximum amount of power that a panel can produce. The size of a solar systems is typically expressed in kW. So a 3kW system can produce a maximum power of 3 kW.

On a sunny day, for a solar system with solar panels on a rooftop that is tilted towards the north, the amount of power produced by the panel will vary during the day, as shown in the graph below for a 2.5 kW system in summer.

solarproduction

Energy refers to the amount of work that is used can be done over a period of time. Electrical energy is typically measured in kilowatt hours (kWh). In reference to the graph above, the amount of energy produced during the day is the area under the line of the graph. In this case the system produced 20 kWh in the day.

Your electricity bill shows you the amount of energy you have consumed in kWh over the billing period. Home energy bills don’t show you your maximum power draw over the billing period

To explain power and energy another way, if you have ever used a treadmill or exercise bike you’ll know that the display on the machine shows both watts (power) and kilojoules, kJ (energy). The amount of watts produced will vary as you exercise, depending on how hard you exercise. When you are sprinting as hard as you can you’ll produce a lot more watts than if you are just taking it easy. As you exercise the number of kJ you have used will keep on increasing, and the longer you go for the more kJ you will use.

Understanding electricity tariffs and how solar saves you money

If your home is using more electricity than is being produced by your solar system all the power produced by your panels will be used in your house, decreasing the amount of electricity you are importing from the electricity grid.

Because of the way electricity tariff’s are structured in Victoria, you get the most financial benefit from a solar system when it helps you avoid using electricity from the grid. The financial benefit is much lower (per kWh of energy) when you are exporting electricity to the grid.

There are basically two main types of electricity tariffs you are likely to be on, a flat-rate tariff or a peak/off-peak tariff.

If you are on a flat-rate tariff you will be paying the same amount for each kWh of electricity you use all the time. Typically this might be around $0.25/kWh. If you are on a peak/off-peak tariff during peak times – which are usually 7am to 11pm, Monday to Friday – you will pay more (say $0.30/kWh). During offpeak times (11pm to 7am weekdays, and all day weekends), you will pay less (say $0.15/kWh).

When you export energy to the grid, you will receive a feed-in-tariff. In Victoria in 2015 this is set at $0.062/kWh, some retailers may offer you more than this.

tariffs

Clearly your solar system is providing you with a greater financial return when it is offsetting electricity you are consuming, rather than when its exporting, because you pay much more for energy you consume than what you receive for energy you export.

So the financial gain you achieve from a solar system will depend mostly on how much of the electricity that you consume can be offset by the solar system, rather than on how much you can export to the grid.

The amount of energy that can be offset by solar will depend on two factors:
1. Your electricity consumption profile or pattern across the day.
2. The solar production profile or pattern across the day.

Your electricity consumption profile will depend on many factors, including the times that the house is use, the sorts of devices that use electricity in the home and how they are controlled.

For a working family, a weekday profile might look something like that shown in the graph below – but note that there is no such thing as an average consumption profile.

householdload

Your solar production profile will depend on the size of your solar system (kW), the orientation of your panels, panel shading, and the weather. Because of clouds solar production can vary enormously from day to day, but over a year your total annual production won’t vary much at all.

A typical solar production profile in summer for a 2.5 kW system with northerly facing panels is shown below

dailyproduction

Superimposing the consumption profile with the solar production profile shows how the net electrical load (negative load meaning power is being put back into the grid) varies by time of day, as shown in the graph below.

netload

The amount of money your solar system makes you mostly depends on how much of your consumption you can offset, and to a much lesser extent on how much solar production you export.

The correct design of the solar system to best match your consumption profile and energy needs going forward makes a huge difference to the financial return of your solar system. The design needs to be based on a good understanding of how you use energy!

Solar systems and batteries

Batteries enable you to store energy produced by your solar system so that you can use this energy at other times of day. Instead of exporting energy, you can store it and use it at times of high electricity consumption, increasing the financial benefit of the system.

Right now batteries are pretty expensive, and adding batteries to your system will increase your overall payback. However if you go totally off-grid it can give you independence from energy retailers. As prices of batteries come down the incorporation of batteries into solar systems will become more attractive.

There has been a lot of interest in technologies such as Tesla’s Power-wall, and there are now several competitors at similar pricing points. However the economics still aren’t great. The installed price of a battery system is likely to at least halve current costs by 2020. Its possible to install a system now and add batteries later.

Solar systems and carbon pollution

Carbon pollution arises from the greenhouse gases – mostly carbon dioxide, methane and nitrous oxides – that are produced from the combustion of fossil fuels to produce energy.

In Victoria most of the state’s electricity is generated by power stations burning brown coal. Every kWh of electrical energy consumed from the grid results in 1.3kg of carbon pollution being generated.

Every kWh produced by your solar system reduces the need for power stations to generate 1 kWh. If your 4kW solar system produces a total of 5,000 kWh over a year, irrespective of whether that energy is consumed by you or is exported to the grid, it will have reduced carbon pollution in that year from fossil fuel power stations by 5,000 kWh x 1.3 kg CO2-e/kWh = 6,500 kg.

Whilst largely invisible, 6,500 kg is a lot of carbon pollution! In volume terms, its very roughly 6,000 cubic meters of gas that is trapping the sun’s heat in the earth and causing global warming and climate change.

To put that in context, a petrol car that uses 7 litres/100km and is driven for 15000 kms a year will produce around 2,200 kg of carbon pollution a year.

So the bigger the energy production of your solar system, which depends on the size of the system (in kW), the direction it is facing, and the amount of shading it receives, the more greenhouse gas pollution it will save.

Hazelwood

While it hasn’t happened yet, renewable energy will eventually shut down inefficient coal burning power stations, such as Hazelwood. Maybe your system will be the straw that breaks the camel’s back and forces Hazelwood to close 🙂

The design of your solar system

The design of your solar system needs to take into account a range of factors including:

Your financial considerations:
  • The extent to which you are willing to invest to increase your property’s value
  • Your budget
  • Your expectations as to savings on your electricity bills
Your environmental concern:
  • The extent to which you want to make a personal contribution to reducing carbon pollution and slowing global warming.
  • The extent to which you wish to inspire and motivate others by leading by example
  • The legacy you want to leave your children and grandchildren
Other considerations you may have such as:
  • Quality of components – how important it is to you to have high quality components, or quality certification of components, to provide long life and peace of mind.
  • Aesthetics – what the solar system looks like, both on the roof, and the appearance of the inverter and associated wiring.
  • Anger against energy utilities and price gouging
  • How “geeky” you are and interest in being an early adopter of battery technology or electric cars
Physical and other constraints:
  • The size and orientation of your roof
  • Shading from trees and neighbours
  • For large systems electrical network constraints in your local area
Your plans for future transport:
  • Your interest in switching to an electric car (noting that second generation electric vehicles with greater range and lower cost will be launched in 2017).
The extent to which you want to take a phased approach:

On the one hand:

  • The prices of solar panels, which dropped enormously between 2008 and 2013, are now dropping at much slower rates, and that the installed prices of solar systems are now only dropping slowly, if at all.
  • Climate change needs urgent action, every tonne of carbon pollution that can be avoided makes a contribution.
  • Solar adds to the value of your property as soon as its installed.

On the other hand:

  • Battery prices are set to decrease very substantially by 2020, which could increase the savings on your electricity bills.
  • Electric vehicles will also have large price drops, although these will lag battery price drops. Vehicle range will increase. Being able to power your electric car with your own solar panels is something many people aspire to.

Its important that any solar system you install be tailored to your needs, to provide the best overall benefit to you. You can also take a phased approach, and add batteries and vehicle charging infrastructure at a later date when the economics of storage and electric vehicles are better.