28102010

Solar Panels for your home, with the reduced feed-in tariff, are they a sound investment?

With the recent news that in NSW the gross feed-in tariff has been reduced from 60c per Kw hour to just 20c - it seems that the 'glory days' of solar are long gone...

Should you invest in Solar?

This really comes down to one of opportunity cost analysis; i.e. given the money what else could you do instead that would give you a similar if not greater return. The old 60c gross feed-in put solar well ahead of other forms of energy efficiency investment, as baring a change in the regs, you could be expected to break even at around the 3 to 4 year mark quite easily; then after that you end up saving in ongoing electricity costs.

But, with the move to a 20c gross feed-in tariff; the game has somewhat changed, now the break even is pushed back to around 9 to 10 years in most cases. How do we know this? Well we used our own online Solar System Savings Calculator this showed that for a typical 2.5Kw sized system the break even date moved back from 3.1 years to 9.2 years. Also the effective rate of return (i.e. how much in percentage investing in solar performed per year) shifted down to about 0.75% above a typical Bank account..

Now 0.75% doesn't sound much and you would be right; remember the Bank account is one of the lowest risk and immediate access investments going (i.e. you can take money out and use it quite easily); where as the money invested in a solar panel system is effectively 'spent' - i.e. you cannot get any money out of it except in terms of what you could end up saving later on.

Technology moves on and on...

The other thing to be very wary of in this space is the rate of technological progress - the current generation of solar cells available on the general market are at best 19% efficient. This means for every Kw of solar energy hitting a solar cell, 81% of it is 'lost' and not converted into electricity (most of it goes into heat or is reflected off).

There are technologies in pipeline that promise to raise this to around 30%, and in the far future there is research underway looking at getting to 60%.

Now the real question is whether either of these technologies will appear in the consumer market place within 9 years (i.e. before your point of payback on the current generation system) I think it is quite likely. Why? Well, when you get to that level of efficiency the need for the market to be 'propped up' by grants and feed-in tariffs somewhat reduces - the underlying product in its own right becomes a worth while investment.

Think about it, if for the same cost base as now you could get a system 10% more efficient, that would cut the pay back time from 9 years to around 6 years. If you get a system that is 60% efficient the break even point moves back to 3 years.  Also higher solar panel efficiency means less need to be installed to achieve the same power output, this makes it cheaper and quicker to install and hence easier for more people to purchase them.

What should you do?

Myself unless you have a pressing electricity supply issue (i.e. off grid) I would not be choosing at this point in time to invest in a solar power system. Instead I would be:

1. Looking to see what energy consuming efficiencies you can undertake around your house, see here . You will be amazed at what can be done in the average house to reduce energy costs.
   
2. Invest in an appropriately sized solar hot water heater, see here. This pays back as well as solar used to do.
3. Get in touch with your local Member or MP and ask them what the government is doing to support or improve research into solar power.
4. Also ask your local Member or MP to see if the GST component can be removed off all solar based products - in effect provide an 'at cost' incentive to taking up solar rather than in indirect market incentive.
   

The free market position

I know a lot of people are moaning about this reduction in the gross feed-in tariff; but to me it was a rather 'false' way to encourage people to take up solar - the way it was constructed to be funded, those who do not take up solar (may be because they literally could not afford it) where going to be the ones who ended up funding the tariff in the form of higher energy bills. When one looks at it this way, its clear it was never intended as a 'sustainable' way to maintain the solar power sector - more like the rich robbing the poor.



To be honest the sooner the solar sector gets off its addiction to rebates and feed-in tariff's the better. The current market situation, where everything is boom or bust beholden to what the government does next is not good for the operators and not good for the consumer. Also I have little sympathy with solar operators who are moaning about the fact their market has gone due to the governments change in position; basically you should not be investing in a market where one body has Stop/Go control over the viability of that market, its just too unstable a place to be doing meaningful business in.