The Australian solar industry is witnessing brilliant expansion like never before. With the abundant amount of sun that the continent gets it is only smart to harvest its energy for power generation which is economical as well as ecological.
People are greatly keen to invest in solar and want to know when and how they will recover the initial cost and begin making money from their investment. They commonly ask about the solar payback period and how it is calculated.
We shall discuss in this article the factors that impact the calculation of your solar payback period.
Solar payback period
The solar panel payback period is the length of time it takes for solar to pay back its cost. It can also be understood like this – The amount of time in which you recover the cost you paid for the solar system or just how long it takes to come to a break-even point on your solar investment.
You can compute your solar payback period by first adding together the costs of solar panel installation and then subtracting from the sum, the solar rebates. Now divide the remainder by your yearly savings. The savings will include your annual power bill savings and any govt incentive that you may be receiving. This will give you your solar payback period. (If your grid electricity prices increase, your savings will go up and your payback period will be shorter).
Average solar payback period
An average solar panel payback period is usually between 5 to 10 years of installation, sometimes even lesser. There are many factors impacting the number of years it takes to recover the initial investment and the amount of savings you make.
For instance, getting a bigger system would mean bigger savings on power bills. The rise in electricity prices has a big influence on your savings. As most solar panels are built to last for about 25-30 years, the savings beyond the payback period i.e. 15- 20 years after you have recovered the cost, make solar a very lucrative investment.
Factors that influence the payback period
Before we learn how to calculate the solar payback period, we must understand the factors that influence it.
1) The total cost of the system
This is the price you had paid for the solar system and its installation minus the Govt. solar rebates
2) Power Usage
The electricity usage in your home
3) Grid Electricity Prices
The cost of electricity from your energy provider.
4) Financial incentives
- a) SRECs
Small Scale Renewable Energy is a Government program to encourage homeowners and small-scale business owners who install small-scale renewable energy systems such as solar panel systems, solar water heaters, etc.
- b) Net Metering
These are the credits received from the utility company when excess energy from your home solar is exported to the grid.
5) Solar Energy Output
The amount of energy your solar is generating.
How to calculate the solar payback period
You can evaluate your solar payback period by using this formula:
Total Cost / Annual Benefits
To reach the total cost, add all the initial costs of the solar and from that subtract the solar rebates.
The annual benefits are the annual savings on your energy bills plus the financial incentives (SRECs and net metering).
Let’s take an example:
The total cost of your solar minus tax credits
$18000 – $5000 = $13000
Monthly savings on electricity bill : $125
Yearly savings on electricity bill : $125 x 12 = $1500
Now we can calculate the payback period by diving the total cost by the annual benefits.
Total Cost / Annual Benefits = Payback Period
$13000 / $1500 = 8.6 years
You can add the additional financial incentives of net metering and SRECs to the annual benefits to gauge the payback period more accurately. Sometimes financial incentives may vary every month but adding an average to the annual savings brings you to the payoff point even faster.
The more you save the quicker your solar panels pay back. Hence it is important to include all the financial benefits in the calculation. However, even if you consider only the yearly savings on your energy bills you can get a fair idea of what your solar payback period would be.
Do get in touch with Austra Solar for the best solar panel and inverter brands in Australia which give a high return on investment. Hurry! Get a free quote today!!