The cost of installing solar photovoltaic (PV) panels on a home has fallen dramatically in recent years, even as government subsidies that supported and subsidised the technology have been wound back or eliminated. These falling costs have lead to a massive increase in the number of systems installed in Australia, from approximately 20,000 residential solar PV systems in 2008 to over one million today. Kinesis has been working with developers across Australia to identify energy efficiency and alternative energy opportunities that can reduce emissions and save households money. Since the recent price drops, solar PV has become one of the most cost effective energy technologies we have analysed (with an approximately 8 year payback period compared to 13 years for solar hot water). This edition of the Kinesis Climate Monitor examines the economics of solar PV and some of the ways in which households can maximise their financial savings.

The Challenge for Solar

Solar PV systems convert solar energy into electricity which can then be used by a household. If a household needs more electricity then the solar PV system can provide, this additional electricity can be drawn from the electricity grid.

If the solar PV system is producing more electricity then the household needs, the excess electricity can be sent back to the grid. When a household purchases electricity, at a point in time, from the grid they pay the retail price for that electricity which can cost over 20 cents per kilowatt hour. However, since most states have removed feed in tariffs which paid households a bonus for any electricity they exported to the grid, any electricity which is exported to the grid will receive little to no financial return, usually less than 8 cents per kilowatt hour. This results in little return on investment and longer payback periods for any additional solar PV capacity beyond what can be used by the household.

A larger solar PV system will produce greater overall emissions reductions, as the electricity is exported to neighbouring buildings, displacing electricity delivered over the grid from coal fired power plants. However, the household which finances the system receives minimal financial benefit from these exported emissions reductions.

In addition to the financial implications, network utility Ausgrid has reported that exported electricity from solar PV panels can also cause voltage regulation issues for the electricity network. These issues can add to overall network maintenance costs which can then be passed back onto the household in the form of more expensive electricity bills.

In December 2012, Kinesis was engaged to identify, quantify and cost sustainability opportunities for a new residential development. Solar PV was identified as having the greatest emissions abatement potential out of a range of energy efficiency and alternative energy measures considered. Our analysis determined that 1.5 kW of solar PV on all detached homes and 1 kW of solar PV on all attached homes in the proposed development would reduce household greenhouse gas emissions by approximately 40% and reduce electricity costs by $350 to $500 per annum.

The size of the solar PV systems we recommended in our analysis is smaller than the systems traditionally installed within that area. In the same postcode as the proposed development we were assisting, there are already approximately 5,000 solar PV systems with an average installation size of 2.5 kW per installation.

Our analysis found that any solar PV systems larger than our recommendations were likely to result in substantial electricity exports. As they are newer and more efficient, an average house in the proposed development uses approximately 8 kWh per day and a 1.5 kW solar PV system generates approximately 4.5 kWh per day. While the solar PV generates less electricity than total household demand, the issue is when this generation occurs. For the proposed development, on an average day, the peak generation of a solar PV system is from 12 to 3pm, while the peak household demand is from 5 to 7pm.

As shown in the image below (which shows household electricity consumption for all detached homes in the proposed development, averaged over a year), a substantial amount of the total electricity produced by the solar PV systems is likely to be exported to the grid where the household will receive little to no financial return for that electricity. For a detached dwelling, a 2 kW panel will result in 55% of the electricity being used by the household, a 1.5 kW system will see 65% of the electricity used within the dwelling and a 1 kW system will see 85% of the electricity used within the dwelling. A 1.5 kW system for this household produced the best mix of emissions reductions and financial return on investment, with an estimated 8 year payback period.

Storing the Solution?

Energy storage solutions, either stand alone or through electric vehicle batteries, represent a potential solution to the problem of peak solar PV electricity generation and excess electricity exports. If a household is able to store the excess electricity their solar PV system produces during the day, and use this electricity later in the day when the sun is no longer shining but household electricity demand is peaking, then they can use more of the electricity generated by their solar PV, avoid the purchase of dearer electricity and increase their savings.

High level analysis undertaken by Kinesis on behalf of one of our clients demonstrates the potential for battery storage to minimise exported electricity from solar PV and manage residential peak demand.

Combined with solar PV, battery storage reduces the amount of electricity exported to the grid (generating 8 cents/kWh) allowing a household to expend that energy at peak times (off-setting grid electricity costing over 20 cents/kWh) reducing household peak electricity demand by between 40% and 50%.

For a typical household, like the ones proposed for the development, battery storage would enable the household to increase the size of their solar PV system from our recommended 1.5 kW to 2.5 kW and at the same time, eliminate any electricity export to the grid.

Our analysis found that allowing households to utilise their solar generated electricity during the peak period in this way will save households an additional $300 to $500 per year depending on local tariffs (compared to a 2.5 kW solar PV system without battery storage). At current prices, battery storage systems of the quality and capacity required for a detached dwelling with 2.5kW of solar PV could range from $12,000 to $15,000 per dwelling.

At these prices, battery storage it would take approximately 25 - 50 years before households would see a return on their investment. However, if battery prices fall at a similar rate to solar PV prices, then they could soon become a viable option for any household with a solar PV system.