Grid feed economics explained
Hailed as the answer to home energy bills and springing up like the proverbial back yard cloths line, grid feed solar systems are everywhere. If you are considering fitting one to your house this page contains all the information you really need to know before signing the installation contract.
There is only one good reason to fit a grid feed solar system ....
Sure, the solar salesman will tell you heaps of good reasons but the only reason you should consider fitting a grid feed solar system to the roof, shed, backyard or on a pole is economic. Sure, there is a feel good factor, it is considered green, it can look good (or atrocious or somewhere in between) but before any feel good reason you must consider the economics.
I am not an accountant, I can only do mathematics when I have to but with this information you can begin your own mathematical calculations to see if the sums work for you.
Do you have the money in the bank in cold hard cash to pay for a grid feed solar system?
If you do have the money is there any thing else you could do with it that would be more beneficial? Do you have any other debt? Do you have a mortgage on your house? If you have the money sitting around, nothing else to do with it and feel like spending it the very first thing you need to do is look at the rate of return on your capital. If you leave it in the bank or invested how much will it earn you and what sort of tax liability will the income from it generate? How much will inflation eat into your capital if you leave it earning interest? You need to compare this with what the grid feed solar system will earn you in the next 10 years.
A Financial Example
Here is a quick example of what your money could earn you in 10 years: For the sake of argument let's base this calculation on a solar system advertised at the time of writing this article. I did a quick search on Google and found a 6 kW grid feed solar system for $8277.00 fitted to a tin roof.
I then Googled "compound interest calculator" and keyed $8277.00 into it at 4.5% interest for 10 years. At the end of 10 years I would have $12,970.00 in the bank, a return on investment of $4693.00. No rocket science here!
What a 6 kW grid feed solar system should produce
The amount of solar power a 6 kW solar system will produce will vary depending on which part of the world you live in. What it comes down to is the amount of "sun hours" your panels receive.
Let's say you live in average Australia and your area receives on average 3.5 sun hours per day. Your 6 kW grid feed solar system should theoretically average a daily output of 6 x 3.5 = 21 kW per day.
I don't know what the current price of electricity is, I make my own and have no grid connection so I will take a guess at 25 cents per kWh. Look at your electricity bill for the price YOU pay. Based on the above, this grid feed system should make you 21 kW x 25 cents = $5.25 per day. Multiply this by 356 days x 10 years and you have the return on your investment. I have done it for you and it is $19162.50
So Far the grid feed solar system is looking better than money in the bank ...
It doesn't take an accountant to tell you that this return is sort of OK. But like everything there could be a catch. My other grid feed information page describes how a grid feed solar system works. If you have used the entire output from your solar array inside your house then you really have saved this money. If however during the past 10 years you have been away during the day and some of this power has found its way back into the electricity grid, the return you get on this power depends on what our electricity retailer will pay you for it. At the time of writing a 1 for 1 credit system is normal. That is if you feed 1 kW of electricity into the grid, your power company will pay you 1 kW back when you need it. Unfortunately this is changing! Power companies are getting sick of paying back what they borrow so they are factoring on some new connections in some States of Australia. 20% is being discussed.
Clearly here you need to know what you are going to get for power fed back into the grid and whether the price is guaranteed beyond your next power bill. Most houses use the majority of their power at night so it is highly likely that a proportion of what you generate with your new solar array will go into the grid and not into your house. If you only get 20% back your investment is looking a bit shakey.
You are buying an electrical appliance
Make no mistake about it, a grid feed solar system is an electrical appliance. It should work faultlessly for 10 years but in my experience this is not guaranteed. You need to buy quality stuff with good guarantees from a reputable company. A breakdown, fault, leaking roof, whatever and your investment may start to look a bit shakey.
If you don't have the money in the bank just waiting around for you to spend, you already have debt or you have a mortgage on your house then you really need to compare what effect the interest rates you are paying on your borrowed money will have on your new investment.