Installing solar panels in your home can save you money in a number of ways. You have to understand, however, that the complete return on your investment, or the payback time, may take years – between two and seven years, on average. The payback time, in turn, will depend on several factors, including your location, the size of your solar PV system, and your household’s daily energy consumption.
Payback time factors vs savings
You save money with solar power from reduced electricity bills. But because you have to invest in a solar PV system first, your savings really only start coming in after you have earned back the cost of installation. Ideally, the payback time for your solar PV system should occur before any replacements to the system will be needed. The shorter the payback time, the faster you can start counting your savings.
Payback time depends on the following:
- Location. Your location determines the feed-in tariff rate offered by your local government which, consecutively, is influenced by wholesale electricity prices.
According to energy.go.au, “Feed-in tariffs for renewable energy pay for excess electricity generated by small-scale solar photovoltaic (PV) or wind power systems. The amount paid varies between different retailers […].” Simply put, your electricity retailer will pay you a small amount for any excess power your solar PV system generates and feeds back into the grid.
Low, daytime energy consumption means a higher percentage of excess power, and vice versa. A household can make more savings, however, from direct consumption of solar energy generated than from feeding it back into the grid. The role of feed-in tariffs in shorter payback time is only significant with regards to solar PV system size.
- Solar PV system size. The aforementioned article on Environment Victoria also reported that the trend for payback times based on solar PV system size is, the bigger the size, the faster the payback time. For example, the payback time for a 2 kW system in Melbourne (also considering feed-in tariff rate) is 8 years, while a 5 kW system’s is only 6.
Additionally, using the right solar PV system size for your home will ensure a maximum or complete offset of your electricity needs. The bigger the offset, the larger the savings.
- Household energy consumption. Daily household energy consumption determines how much excess power will be exported back into the grid to earn the feed-in tariff.
For a 5 kW system in Melbourne, households that have low daytime energy consumption usually exports about 75% of energy back into the grid, and payback time is about 6 years; households that have high daytime energy consumption usually exports about 50% of energy back into the grid, and payback time is about 5 years.
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How long it will take for your system to pay for itself will depend on several factors. But you can still make immediate savings from lower energy bills. Switching your household to solar power is a considerable investment, so choose your retailer well.