Solar panels don’t last forever, so the longer it takes you to break even, the less overall benefit you’ll get from them.
How do you make money from solar panels?
Solar panels deliver financial benefits in two ways:
- Buying less electricity: you get first right to use the electricity your panels generate. This power is free of cost to you, and means you save on having to buy electricity from the grid.
- Selling your electricity to the grid: any solar electricity you don’t use gets fed into the grid for others to use. You receive a payment from your electricity retailer called a “feed-in-tariff” for every kw/h of electricity you send to the grid.
How do I calculate the payback period?
What affects your payback period?
There are many factors that influence how long your payback period will be. These are:
- Your System Cost: solar panel system sizes are measured in KW. A 4KW system produces double the power of a 2KW system, so the true measure of value for money is the system cost per KW of capacity. In general, the more you pay per KW of capacity, the longer it’ll take to pay back.
- Where You Live: some parts of Australia get more sun than others. For example a set of solar panels in Cairns would produce about 17% more power than the same set in Melbourne. The amount you get for sending solar power back to the grid also varies from state to state.
- Your Daytime Electricity Use: solar power works on a “use it or lose it” basis – you have to use it at the moment it’s generated, or you have to send it to the grid. On average a household would pay about 24c per kw/h to buy electricity (assuming you get the highest discount from your retailer), but would only get about 10-15c per kw/h on average to sell their solar power to the grid. Therefore the more solar power you use during the day, the greater your savings.
- Your Electricity Rates: the higher the cost you currently pay per kw/h of electricity, the more you’ll save from using your solar power instead.
8 years – our recommended payback period
Our view is that any payback period greater than 8 years is not worth it, as the risk of you never profiting from your panels increases for the following reasons:
- Warranty periods for manufacturing defects are generally 10 years for panels and 5 years for inverters. Any repairs outside these periods add to your payback timeframe. As solar is a relatively new industry with manufacturers coming and going, some manufacturers may also not be around to service your warranty claim.
- Payback period figures assume that your roof is perfect for solar. Any imperfections such as shading or a western / eastern roof aspect could extend the period in reality.
- Our figures don’t include interest on any financing you take out to pay for the panels, which will add time to the payback period.
- If power prices and/or feed-in-tariffs fall over time, then your payback period will continue to increase.