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Households gear up for next phase of the solar revolution

Solar panels are landing on rooftops just as the Hills Hoist invaded backyards. If you're not solar-powered, you're not with it.

In a few days' time the United Nations climate change conference will start in Paris, taking up where the previous talks in Copenhagen failed.

In the six years since Copenhagen, the cost of solar panels has plummeted and battery technology has improved dramatically. If households can generate electricity by day and then store it to use in the evening, it would revolutionise electricity distribution.

There are forecasts of a coming boom in solar batteries to rival the boom in panel installation of the first Kevin Rudd era. US-based Greentech Media claims Australia will be a leader in installing batteries, forecasting solar storage capacity to rise from 6.6 megawatts to 75 megawatts in 2016, hitting 800 megawatts by 2020.


As the costs of panels and batteries keep falling, who would pay an energy company 45¢ a kilowatt hour when you can generate the power yourself, with some assistance from the sun, for 8¢ to 12¢ a kilowatt hour?

Especially when it's never been easier, or cheaper, to finance a solar installation. The other thing that's changed since Copenhagen, and Australia's previous solar boom, is the rise of leasing or pay-as-you-go options.

Still, solar panels aren't always as kind to your pocket as they are to the environment. If you buy a system that's too big they can even lift your bill when, for the first time, electricity prices are falling.

And if you're planning on putting your feet up by selling your solar power to the energy company, I wouldn't.

As a rule solar pays off after five years in Sydney and seven in Melbourne due to the difference in the amount of sun in each city. Let's not go there. It's also because Melbourne has cheaper conventional power so the benefit is also slightly less.

These payback periods stack up well against other investments that don't have the feel-good green benefits. For most shares and investment properties the payback period is more like 10 years or longer.

The panels should be good for at least 25 years, though parts of the system might need replacing after a decade.

Looked at another way – which is to say dispassionately by me – in Sydney it's a 15 per cent annual return after tax on your investment. 

Financing options for solar

Then again, these days you can lease a solar system and, in NSW only, you can get one that's as free as the sunshine itself in return for buying all the power it generates. More on that later.

Leasing a system works pretty much like car finance so interest is built into the monthly payments. Typically at the end of the lease you'll be able to buy the system outright at its depreciated value.

An advantage is that you never have to worry about maintenance, not that there's much anyway. The reason the panels are tilted is so they self-clean when it rains.

Roughly speaking, a leased system will cost you about 15¢ a kilowatt hour. That compares with 8¢ to 12¢ if you generate your own power – about what you pay off-peak from the grid. Trouble is, the grid's version of off-peak is different to your own. Do you really want to do the washing at 11pm?

Oh, and did I mention the grid price can be as high as 46¢ a kilowatt in peak periods?

"The rule of thumb, depending where you are, is that the cost to you from solar will be 8¢ to 12¢ a kilowatt hour which avoids 25 to 30¢ [conventionally]," says Damien Moyse, policy and research manager at the Alternative Technology Association.

Energy companies are even offering Harvey Norman-style interest-free terms though there is a small deposit. Origin Energy, for example, charges $199 upfront plus monthly interest-free payments for two years – a total cost of $3295 for a two kilowatt system.

The cheapest personal loan is Hunter United's green saver loan at 9.74 per cent.

So if you don't have the cash, the cheapest way to go solar is putting it on the mortgage. Next comes leasing.

Hang on, what was that about a free solar system? Under a power purchase agreement you have to buy what the system generates, even if you don't use it. While the charge will be higher than solar costs, it'll still be less than the energy company's regular electricity.

Choose the wrong-sized system for your home, however, and the payback period can be longer than half your working life, which would detract somewhat from the warm inner glow of doing the right thing.

"The payback range is huge – it can be five years to longer than the asset life, which is 25 to 30 years," Moyse says.

"If you're at work so the only power you're using during the day is the fridge, forget solar. Like to burn the midnight oil? Sorry, solar's not for you."

That's without batteries of course. It's not economic just yet to store the energy your solar panels generate, but it's close. 

Next month Enphase Energy will roll out a  system that can store solar energy and lets you monitor your consumption.

Tesla, of electric car fame, will roll out a battery next year as well but don't hold your breath. Although the price of solar batteries is falling it's still prohibitive for the average home. And they have less than half the life of the panels.

"International forecasts show an 8 to 10 per cent drop per annum in the battery price. By 2020 you'll be able to have a battery economically," Moyse predicts.

Solar costs falling

Just as people touting the benefits of solar can sometimes be selective, there are also some urban myths about the cost.

Many people believe that it's become more expensive because government subsidies are falling. In fact the cost of installing a system has fallen faster than the government subsidies.

A 1.5 kilowatt system, which should satisfy about one-third of the average household's electricity consumption, costs between $3000 to $6000. A souped-up five kilowatt affair, probably enough to light up a whole suburb, will cost $7000 to $11,500.

Incidentally the reason for the big price range for each size is that a lot depends on how many panels you need, what your roof is made of, and sundry things such as whether you need a new meter and wiring or trees have to be removed.

Most systems installed are under three kilowatts, according to a survey by Choice last year. The average cost was $8783.

These costs take into account the federal incentive of small-scale technology certificates, which trade in the market like shares. These are credits for every megawatt hour it's estimated your system will be able to generate over the next 15 years.

Usually they're "sold" to the installer, who gives you a discount of the same amount. Energy companies buy the certificates because they count towards their mandated renewable energy target and are cheaper than building wind farms.

If you're keen enough you can hang on to them and sell them in the market though it involves more paperwork. The price is set by the market and so bobs about but for all intents and purposes is capped at $40. Quotes are available from Trade in Green or Green Bank. When I looked the price was about $39.

Another myth is that you need lots of sun. The truth is that you can have too much. Solar operates most efficiently at 25 degrees, but roofs can get as hot as 60 degrees.

"It's a very harsh environment on the roof. Over the years the rubber perishes and seals wear. That can allow water to get in, especially when it's humid," says Darren Gladman, policy manager at the Clean Energy Council. He recommends a service check by an installer every five years.

Funnily enough the best place for solar is Antarctica, where there's night-long sun in summer but not much heat. Nor, I daresay, many mod cons.

Solar works on cloudy days too, although less efficiently.