Increased electricity costs are expediting solar panel payback periods
Australia's Rising Electricity Prices Make Solar Power More Attractive
In a move that might alleviate some cost-of-living concerns, electricity prices in several Australian states are set to increase significantly in the upcoming year. This price hike, however, could have an unexpected benefit: it may make rooftop solar systems more financially attractive.
According to reports, electricity prices are set to rise by up to 25% in New South Wales, South Australia, South-East Queensland, and up to 28.7% in regional Queensland during the 2023-24 financial year. This increase could significantly boost the value of self-generated electricity savings, making solar power a more compelling investment, particularly in states with high retail prices and favourable feed-in tariffs (FiTs).
The Australian Energy Council’s August 2022 report notes that cities with higher electricity prices, such as Adelaide, Sydney, and Perth, see some of the shortest solar payback periods—often as low as 3 to 4 years—because of these elevated retail rates combined with favourable FiTs. Conversely, regions with lower electricity prices, such as Victoria, tend to have longer payback periods (often over 8 years), since lower wholesale prices keep retail rates down, reducing cost savings from solar exports.
Rising wholesale electricity prices, which spiked as high as $232/MWh in June 2022 in the National Electricity Market (NEM), also influence retail pricing and thus solar payback potential. However, price volatility means payback period improvements can fluctuate month to month.
CHOICE, a consumer advocacy group, has found that solar payback times in capital cities could drop by an average of 10%, and by up to 30% in some regional areas due to the increase in electricity prices. To help consumers make informed decisions, CHOICE advises against signing up for deals that seem too good to be true, never signing up on the day with a door-to-door salesperson, and to get the full specs of the solar system in writing before signing up.
The declining cost and improving performance of solar panel systems, combined with the predicted rise in electricity prices, is expected to deliver shorter solar payback periods for solar users. CHOICE's Solar Estimator tool, which connects users with pre-vetted solar installers, calculates new payback periods and yearly savings based on hypothetical scenarios.
Jen Paterson, a CHOICE staffer, has noticed savings after installing solar on her Sydney home and has seen her energy bill halve since the installation. In Perth, the predicted payback period has increased by around 1% due to WA authorities locking in one of the lowest rises in electricity prices and reducing the FiT paid to solar users who export power to the grid.
Despite these improvements, it's important to remember that localized factors such as installation costs, solar output, and tariff design also influence payback outcomes. Solar will deliver household savings in the long run, according to Chris. The tool assumes a household of five people buys a 6.6kW system and self-generates 35% of their total energy consumption. Because a solar battery is not included in the scenario, the home would use grid energy when there was no sunlight and export at other times when there was too much, earning money through the feed-in tariffs.
The cost of a 6.6kW solar installation has decreased over the past 10 years. The tool factors in the increases in energy costs that have been greenlit by regulators. Solar will deliver household savings in the long run, according to experts.
[1] Australian Energy Council’s August 2022 report. [2] Australian Energy Market Operator’s 2021 report. [3] Australian Energy Market Operator’s 2022 report. [4] CHOICE’s Solar Estimator tool.
In light of the predicted increase in electricity prices, investing in rooftop solar systems could become a more financially attractive choice for education and self-development, particularly in cities where retail rates are high like Adelaide, Sydney, and Perth. For consumers considering solar power, leveraging tools like CHOICE's Solar Estimator can help make informed decisions and foster a general understanding of potential payback periods and savings.
