'It's a very dirty game': making sense of solar costs and savings

Don't get a system that is too large for your needs. Photo: Fairfax

For many who made the switch to solar, the financial incentives were as much of a hook as the environmental feel-good factor.

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But now those generous feed in tariffs for putting energy back into the grid are far less generous than they were and in some cases, non-existent. It raises questions about whether solar still makes financial sense.

When Kevin O'Toole, a Sydney resident, recently installed solar panels, he was told the provider he chose would "pay the government-legislated feed-in tariff amount". What he didn't realise until he got his first bill, was that the NSW rate is 0.00.

"They never mentioned then that their feed-in tariff was zero," he says. "It's a very dirty game, with weird pricing structures."

O'Toole has since switched to another provider, which pays a feed-in tariff above baseline, and says he's confident solar is still worthwhile due to cheaper system costs and energy savings, but says you have to shop around.

Cost considerations

In NSW, feed-in tariffs have dropped from around 60c per kilowatt hour to 5-8c a kilowatt hour. In Victoria, they are at a similar level after dropping from about 44c, according to analyst James Martin, of comparison site SolarChoice. The highest you can get in Australia now is about 10c per kilowatt.

The reason is the government-mandated incentives have expired or are close to expiry (NSW officially ends this year), which means feed-in tariffs are at the discretion of the retailer.

Martin says the tariffs are a moveable feast and some of the providers who pay high tariffs make it up by charging higher daily supply fees. He recommends consumers ask about this if feed-in tariffs look out of line with the rest of the market.

While feed-in tariffs are falling, so is the cost of solar power systems. For a small, 1.5-kilowatt system connected to the grid, you're looking at between $2000 and $5000, while a 5-kilowatt system now retails for around $10,000. Just a few years ago, it wasn't unheard of to be paying $20,000.

'Kind of a jungle'

Like O'Toole, Martin says the solar market can be opaque. He describes it as "kind of a jungle", with several different charges, discounts and rebates applicable depending on which retailer you choose. They include, but are not limited to, usage and connection charges, discounts for early or online payment and feed in tariffs. For instance, O'Toole's initial provider charged a $10 fee to check the meter to accurately assess his usage.

How much you will pay and save therefore depends on a lot of variables. SolarChoice recently calculated the average 5-kilowatt solar system in Melbourne costs around $7200, after GST and incentives. If the household's power bill was reduced by $300 a quarter, it would take six years for the system to pay itself off. However, that is a large system – larger than many households would need – and doesn't take into account the other non-financial benefits of solar power.

Sizing is an important matter to consider, says Martin. If your system is too big, you may overpay. "Look at what your daytime consumption is... and don't buy a system that's larger than your needs," he says.

A good starting point for people considering solar is looking at the government's Energy Made Easy site, which shows how retail electricity plans stack up when all of their charges are laid out, Martin says.

Companies that rate well on SolarChoice for customer service (low complaint rate) and cost include Diamond Energy, Powershop, Erth Energy and Mojo Power. The latter two are newer, innovative players, while the former two are more established solar staples, Martin says.