The true cost..? No, the true savings of solar power.

Recently in the Townsville Bulletin an opinion piece was published called "In the dark on solar power cost". The article claimed that consumers could not find out the true cost of solar power. (A link to that article for those that would like to read it is here). This article seeks to shine some light on that claim, for whilst an energy revolution is in the wind, it will only truly gain momentum when people realise that the only cost of solar power is if you don't do it. The reality is that converting to solar now is not only a safe, tax-free investment that will outperform the banks and share-markets alike and will scale with the rising cost of power, but in fact yields similar returns on equity as the days of the 44c feed in tariff.

Before we look at the "hidden cost" of solar power and see how they stack up. Please bear in mind two things, the example we are going to work through is an estimate and the actual results may vary from household to household, so they are generalisations only. Also the explanation is going to contain a little bit of math that I have tried to make as easy as possible to follow, so here goes.

Firstly a few parameters. Currently the cost of electricity in Queensland is 26c per kwh and the feed in tariff is 10c per kwh. Townsville city is located at latitude 19 has 5.2 solar hours per day. A fair market price for solar PV at the moment is about $1 per watt so a 6.4kw system with a string inverter will cost about $6,400 after STC rebates (based on an STC rate of $30 per certificate).

Average household consumption

The average home for the average family in Queensland uses around 25kwh per day over the course of a year. Ergon charge about $1 per day connection fee which means $90 per quarter in fixed fees. The customer then pays 25 x 26c for daily power consumption so $6.50 per day or $585 per quarterly billing cycle leaving a total bill of about $675 per quarter or $2,700 p.a.

Solar PV generation

If we use a 6.4kw system as an example, this system will generate conservatively 30kwh per day. Let us assume a daytime use of 10kwh and a night time use of 15kwh which is about typical. The daily power bill will be negated by the system which will also export 20kwh at 10c per kw so $2 per day will be credited due to the feed in tariff. The night time use of 15kwh will amount to $3.90 and the $2 will be credited leaving them with a daily power bill of about $1.90 or $171 per quarter. If we add their $1.20 daily connection fee (because Ergon add an extra solar tariff as well) you end up with a quarterly bill of $279.

Savings

If we take the difference between the two totals of $675 and $279 you get a quarterly saving of $396. That equates to a saving of $1,584 p.a. or a return on equity on your $6.400 investment of 24.75% p.a.

Powerwall 2

I have to admit for NQ I do like the Powerwall 2. It has a really nice 13.5kwh capacity which can be taken to 100% depth of discharge. It is also liquid cooled which means it is happy to operate in Townsville's hotter climate and has an operating temperature all the way up to 50C. It is also a really nice fit for a 6.4kw system as it will store 13.5kw (a bit over 50% of daily production) for night time use.

A 6.4kw Solar PV system with a Tesla Powerwall 2 supplied and installed is going to cost you around the $19,000 mark and that seems a fair chunk of change to spend on getting rid of a bill, but let's look at the figures as if you were an investor. If you spend $19,000 and you manage to get rid of the entire $2,700 p.a. you have effectively earned that amount tax free and your return on your investment is 14.2% p.a. That's significantly higher than the 1% the bank would give you, the 7% you might return on a good blue chip share investment or even the 5% you might save by having the money sit in your mortgage. Don't forget though you will have to pay tax on your interest earnings and dividends.

Capital Gain

The Powerwall 2 has only been on the Australian market for a short time now and there are no concrete figures as to what sort of capital gain or loss you could realise in the event that you sold your house, however if people are willing to pay $19,000 for a new system, is it unreasonable for them to pay that amount more on the asking price of a house that has one installed? Unfortunately that is a great unknown at this stage, but my contacts in the real estate game have been telling me that more and more customers are looking for potential energy savings in the form of solar and I do know that the new display homes by Maidment at Harris Crossing all with Powerwall 2 systems installed have garnered keen interest.

Conclusion

Like any investment, I would recommend do your due diligence. Ask your financial planner, your accountant, whoever you like, whether an inflation proof, tax-free investment with a return of 14.2% p.a. is one worth making. By all means, have them double check my numbers to see if they stack up and please, let me know if they don't.

So, if you accept that these numbers are in the ballpark (and please realise that they are generalisations and estimates only), the cost of solar to the average family, the hidden cost of solar is around $2,700. That's exactly how much it costs you in power for every year you don't do it.

If you would like me to run the numbers for you in detail, please feel free to contact me and I will happily arrange an appointment for you.