Some thoughts on the economics of domestic solar photovoltaic installations

Let’s say that 1 kW of solar PV nameplate capacity installed on your roof costs about $12,000. The figures that I’ve seen quoted around are typically $13,000-$12,000 for a 1 kW on-roof PV array installation.

(These are Australian-centric quoted costs, in Australian dollars, by the way).

With the rebate of $8/W for installed PV capacity (capped at $8000) offered by the government to encourage decentralised household generation, that’s $8000 offset from the cost of the 1 kW system.

With this incentive included, that’s $4000 you need to pay for such a system.

Now, based on realistic capacity factors for such a PV system, 1 kW of nameplate power capacity will generate about 5.1 kWh energy in total per day – The PV installation industry expresses this overall capacity/availability factor as “peak sun hours per day” for any given location. The 5.1 kWh is the actual figure quoted for Sydney, Australia.

Household electricity consumption in Australia is 7 MWh annually in Australia, according to EnergyAustralia. That’s 19 kWh per day.

A 1 kW solar PV installation is just not enough to completely offset your electricity bill and start making money off it.

The typical electricity cost to the domestic customer is about 14 c per kWh. It has been proposed, however, that the government could see the price paid for electricity sold into the grid from these decentralised household installations fixed at an elevated price of 44c/kWh

At a feed-in rate of 44c per kWh, that’s $820 dollars per year offset from your electricity bill – so, the solar PV installation takes just under 5 years to pay off. If you’re selling the electricity at the same rate that the domestic customer buys it at, 14c per kWh, it’s over 15 years.

However, suppose you want to consider the case of installing enough capacity to completely satisfy your household electricity needs, so that you can be making money of it all together.

(This all assumes that you’re an “average household”, presumably with several family members in the household, and “average” levels of electricity efficiency)

You’re going to need a system with 4 kW of nameplate capacity.

How much will that cost – well, we might assume that it can be done for cheaper than $48,000 – I don’t know, really, so I’ll just guesstimate $45,000. (Some economy-of-scale is to be expected, but I am not an economist, and it’s not an area which I’m familiar with in any real detail.)

Less the $8000 rebate, and that’s $37,000.

Now, you’re generating 20.4 kWh per day, and and consuming 19 kWh, with 1.4 kWh sold back into the grid at 44 c per kWh.

In this scenario, no overall electrcity purchasing is required – so overall, it’s a revenue source.

That’s $225 per year from selling the electricity, plus $971.5 saved from not having to buy the electricity that you use.

$37,000 / $1196.5 gives you a payback time of 31 years. In all likelihood, that will exceed the working lifetime of the photovoltaics.

With the government rebate of $8/kW capped at $8000, going over that amount gets a whole lot more expensive rather quickly.