Solar sizing: big returns

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Why it’s now advisable to ‘go big’ when installing a solar system, even if you don’t use much electricity: Andrew Reddaway presents the latest ATA modelling.

Many people ask us what size grid-connected solar system they should get. Traditionally, the ATA (ReNew’s publisher), has advised people to consider this carefully. If you primarily want to help the environment and cost is of little concern, it has always made sense to install as many panels as possible, as all their generation displaces electricity from dirty, centralised power plants. But most people have budgetary constraints, so their solar system needs to make economic sense as well as help the environment. To achieve this, we’ve previously recommended that people size a solar system based on their electricity consumption and maximise their other opportunities, such as energy efficiency. However, things have changed.

Two big changes

1. Solar system prices

The last five years have seen significant price reductions, especially for larger solar systems. Prices vary with component quality and location, but on average a 5 kW solar system now costs around $6200 according to Solar Choice’s residential price benchmark data.

Let’s compare a 5 kW system to its smaller 2 kW cousin. To compare two different system sizes, the cost is presented in dollars per watt. Figure 1 reveals that since August 2012, the larger systems have halved in price, while the smaller ones have dropped by only a quarter.

Larger systems have always enjoyed economies of scale compared to smaller systems, because while the installer is on the roof it’s relatively easy for them to add more panels. One difference now is that the price of solar panels has fallen faster than other components. The industry has also become more familiar with larger systems, as they are now more frequently installed than small ones.

2. Feed-in tariffs

The Victorian government recently announced that solar feed-in tariffs will rise to 11.3 c/kWh from 1 July 2017, roughly double their previous level, and IPART has recently recommended a similar change in NSW. These changes are primarily due to wholesale electricity prices in the eastern states roughly doubling over the past year to around 10 c/kWh. We expect other states to follow suit, as feed-in tariffs below the wholesale electricity price are clearly unfair to people with solar. (In WA, a similar rise in wholesale rates hasn’t occurred, but prices might still rise due to the state government winding back its subsidy of electricity prices.)

What this means for solar system sizing

Given these changes, if you’re planning a solar system, is it worth it to upsize from, say, 2 kW to 5 kW?

The extra panels will be relatively cheap but more of their generation will be exported, which doesn’t help the economics.For example, depending on household consumption, a solar system rated at 5 kW might export 80% of its generation. Electricity exported to the grid only earns the feed-in tariff, ranging from 5 c to 14 c per kWh, depending on your location and electricity plan. Solar electricity used on-site, rather than exported, saves you paying the grid tariff, typically around 20 c to 35 c per kWh.

Surprisingly, our modelling of the economics found that a 5 kW system now has a shorter or equivalent payback time to the 2 kW system. We studied the economics by simulating a large number of scenarios in half-hour intervals for a whole year using Sunulator, ATA’s free solar feasibility calculator.

Our primary economic measure is payback time, the number of years until bill savings recoup the installation cost—the fewer years the better. Payback times shorter than 10 years are generally considered attractive to solar customers, as the system is likely to pay for itself before any significant expenses, such as replacing the inverter. The panels should last at least 20 years, so cumulative bill savings are large, especially for a larger system.

To do the modelling, we assumed a feed-in tariff of 11.3 c/kWh in Victoria and in other states a doubling of feed-in tariffs from current levels, phased in over the next five years. We considered common grid tariffs in each capital city, for a variety of household consumption profiles, along with likely tariff increases (we used AEMO’s retail tariff forecasts, but since they were based on Hazelwood closing in 2020, which happened this year, we pulled them forward by three years; this allows for annual tariff rises between 1.5% for Queensland and 3.4% for Tasmania). Panels are assumed to be north-facing with a 20-degree tilt. Our analysis also includes panel degradation over time.

Read the full article in ReNew 140The full report on solar sizing, including references, is available at www.ata.org.au/news/bigger-solar-is-better-ata-report