Residential Rooftop Solar Power – Part Two

Posted on Sat 08/11/2012 by



In the earlier Post (Part One) we found that the rooftop solar PV installation that supplies power closest to what the average residence actually consumes (20KWH) is one that has a Total power generation of close to 5 KW (4950W). This system has 22 panels that generate the power, which is then converted to household AC power through an Inverter. The following chart is from an Australian rooftop solar power Company, and shows the price list for those rooftop systems, in this case for a system that is connected to the grid.

Different Companies have different costing structures, and that is because those panels come from different manufacturers. As is the case when you buy anything, you can get that product cheaper, or even perhaps pay more money, and you get what you pay for. The cost of panels may come down in future years, but as I have said previously, we can only do this exercise on the current costings that are available.

As you can see from this chart the cost of that installation that can supply the requisite 20KWH is $25,006.

However, this cost is discounted by what are called Solar Credits Discount, and as you can see, that discount comes in at $4264. This is paid by the Government as an incentive for installing these rooftop solar systems. It is the first of the subsidies, and keep this first subsidy amount in your mind, as I will refer back to that amount stated there, of $4264 later in this Post.

The second subsidy is the Feed In Tariff (FIT), the money paid to the owner of the system for the excess power generated by the system, that is not used by the residence, and that power is fed back to the grid, again also as an incentive to install these types of systems.

This FIT can range in scale from two to three times the retail price for electricity used from the grid, and each Australian State has different costing structures for that FIT. For the purpose of this exercise, here I will use the example of Queensland, which has just reduced that FIT from the earlier amount of 44 cents per KWH to just 8 cents per KWH. At the time of reduction, the residential retail unit cost for electricity on average in Queensland was 21 cents per KWH, so that FIT the the Government pays to the owner of the installation here looks to be just more than double the retail price. So, in effect, the grid is having to buy the excess power generated by this rooftop system at more than twice the price it can then sell that power for to other consumers, so by purchasing this excess power, it is doing so at a loss.

Even further to this, the average wholesale cost of power being purchased by the grid from a coal fired power plant source prior to the introduction of the new Tax on CO2 emissions was around 3 to 5 cents per KWH, depending upon the plant itself. So, now you can see that while that FIT may seem to be double the retail price it is in fact almost 9 to 15 times more expensive for the grid to purchase rooftop solar power than it is to purchase the power from the coal fired source. Even with the lowering of that FIT to the new amount of 8 cents per KWH, it is still more than what the grid pays for coal fired power.

What needs to be realised here also, is that all of those people who had existing units installed prior to the cut off date will still be receiving that 44 cents per KWH for the life of their contracts. Those who also got in prior to the cut off date and arranged to have rooftop systems installed will also be receiving that original FIT of 44 cents per KWH for the life of their contracts, in the main, the same as for the life span of the system itself, up to 25 years. So, that original FIT will still be paid to those people for long into the future.

However, those subsidies are not free money. Someone has to pay for it, and again, those who pay are every consumer of electricity in Australia from the three sectors of consumption, Residential, Commerce, and the Industrial sectors, and most importantly, those consumers in that same residential sector, who, far and away pay the most for the electricity supplied to their homes. They pay for these Solar Power subsidies in the form of increased costs for each unit of electricity (KiloWattHours or KWH) that they purchase from their power provider.

Other methods have also been introduced to make rooftop solar power seem more economically viable, and these are to make coal fired power more expensive, and we see this in the form of the introduction of the new tax on the Carbon Dioxide emissions from the plant, just one more impost added to the already cheap cost of that coal fired power.

With each step, rooftop solar power seems to become an economic prospect that may look to be attractive, but, remove all of those subsidies completely, and it can never compete with traditional methods of generating electrical power.

So then, let’s do the exercise to show the reality behind the hype, and here I have actually done the exercise on an absolute best case scenario for rooftop solar power, and a couple of points need to be highlighted as to why I say that.

A rooftop solar power system has an expected life span of between 20 and 25 years. However, as I explained in the earlier Post, after 12 to 15 years the cells ability to generate power will deteriorate slightly with each subsequent year, so the maximum generated power diminishes with each year. However, for the purpose of this exercise, I will use the full 25 year life span, and also that the panels will generate their full power for all of those 25 years. For the system to be most effective, there has to be bright Sunny days with no cloud cover for the full 365 day year. Keep in mind here that the second a cloud passes across the face of the Sun, these systems can lose anything up to two thirds of their generating capacity, which after the cloud passes takes some time to build back up to maximum power generation. So, days of long and heavy overcast will lead to considerably less power being generated by the system.


This scenario is for a rooftop solar panel system where the residence remains connected to the grid.

For the closest parity to the baseline, I have compared it back to the Baseline in the earlier Post where the average residence consumes 20KWH of electricity a day.

Here, we need to know how that electricity is consumed in a typical residential application. While the total amount consumed is that average of 20KWH, most of it is consumed during Peak Power periods, and this is during the time most occupants are in that residence, and that Peaking Power period is usually from around Sunset to 11PM/Midnight. This non daylight hours power consumption amounts to almost two thirds of the total residential power consumption, so that means that during daylight, the residence consumes only one third of its power usage, and that comes in at around 7KWH during daylight hours and 13KWH after Sunset, and up to the time that the Sun rises again in the morning, when those panels again start to generate power.

With a grid connected system that generates 20KWH per day, the residence consumes what it always has, that 7KWH, and the remaining 13KWH that is being generated by the system is fed back into the grid. After Sunset however, the system is not generating power, so the 13KWH that the residence consumes is now being supplied from the grid, which means that the traditional methods of supplying power are coming from the same sources that they always have, among them, the largest of those being coal fired power.

This is not a simple case of the system generating the equal amount of power consumed and spreading that across into that period of time of high consumption after the Sun has set. Electrical power does not work that way, and anyway, that extra power being generated during the day is being sold back to the grid, so it’s not a case of selling the power for profit, and then calling it back after hours.

So then let’s add some costings to the scenario.

For this purpose I have used the system indicated in the above image, and while this is just one supplier, the prices are indicative of what those systems cost.

Here. The system that supplies closest to the average residential total power of 20KWH is that system shown there fourth from the bottom.

That is a system that generates 4950 Watts at its maximum, and can supply 19.8KWH of power during a typical clear daylight period.

Its total installed cost is (FROM) $25,006, and after the subsidy, that cost reduces to $20,742.

So, the first cost is $20,742.

The second cost is the power that the residence consumes from the grid, and this is for that Peaking Power time period. That comes in at 13KWH and that electricity, the residence purchases from the grid at the retail price, currently 23 cents per KWH, and for the life of the system, that 25 year time span. That is calculated as follows:

23 cents X 13 (KWH) X 365.25 (days in a year) X 25 (years)

That comes in at $27,302.

So now, the total outlay is the cost of the installation plus the cost of out of hours electricity.

Hence $20,742 plus $27,302 for a total of $48,044.

Now, compare that cost with what it would have cost had the residence just stayed connected to the grid, and that cost was just slightly under $43,000.

So, to install a rooftop power system has actually cost more than just staying connected to the grid.

Now, remember that original subsidy at the time of installation, that refund of $4,264 that is paid to the owner of the installation. That came off the installation cost, so without that subsidy, the total cost would have been $52308, and now you can see that the rooftop installation is more expensive than just staying connected to the grid by almost $10,000.

However, the critical factor in all of this is that even though the residence has a rooftop system, that residence is still a net consumer of power from the grid, so even though it seems that the system has generated the same power it has consumed during those 25 years, two thirds of all that power has come from the grid, traditional sources of power generation.

Now, this is where that FIT comes in.

The system generates that 19.8KWH (say20KWH) each daylight period.

The residence consumes the usual 7KWH each day, so 13KWH of power is fed back to the grid at 44 cents per KWH.

So now for a full 25 year best case optimum generation that will see a return of the following:

44 cents X 13(KWH) X 365.25 (days in a year) X 25 (years)

That comes in at $52,230.

Note here how close this is to the cost of the system (without the subsidy) and the out of hours electricity.

So now, the residence with the rooftop system has been paid that amount of money for having the system on their roof and feeding excess power back to the grid.

So, the total outlay has been $43,780 after that initial refund, and the residence is paid $52,230.

So, with this FIT, the system has now paid for itself, and that FIT has also covered the cost of all out of hours electricity, and in fact, has returned a net profit to the owner of $8450.

Now you can see why a system like this looks so attractive on the surface, especially for the ordinary person, who does not bother to understand how electricity is consumed, and to understand the reality of the costings as I have explained here.

However, it is in reality an illusion, a source of free money.

The residence is still a net consumer of power from traditional sources.

That money has to come from somewhere. It’s not just free money.

It is paid for by the increase in the retail cost for electricity for all consumers. So in effect every consumer of electricity is paying that owner of the rooftop solar installation. That is not from just other home owners, but that retail cost for electricity is across all sectors of consumption, the Residential, the Commerce, and the Industrial sectors. Every other consumer is paying for the luxury of that residence having a rooftop PV solar installation.

Now, let’s do the exercise for the reduced FIT of only 8 cents per KWH, and here, keep in mind that this is still a more expensive cost than the grid can purchase power from traditional generating sources.

The original installation costs the same $20,742.

Out of hours electricity costs the same $27302.

The total cost is that same $48,044.

The FIT, now at 8 cents per KWH returns $9,500.

So now, the installation has cost $38,500.

That amount shows that the residence has only saved $3,500 compared to what it would have paid had the residence just stayed connected to the grid.

As a conclusion from this reduction of the FIT to that new 8 cents per KWH, you tell me how many of these systems will now be sold. Not very many of them.

What needs to be realised here is that these costings have been done on current price structures for the retail price of electricity. If that price was to rise by only a small amount over that 25 year lifespan for the rooftop installation, then there will be less return for the system, as that out of hours electricity consumption cost is now greater, and even if that is only a few cents, then the return will be dramatically reduced.

Then, also consider that the costings were done on the absolute optimum performance for the installation, and as it ages then less power is generated, hence less return.

So, as you can see from this, these installations are in fact an illusion, and when explained in their entirety, it is obvious that they not only cost more than staying connected to the grid without a system, and the most critical of points is that the residence still consumes two thirds of its normal power consumption from traditional sources.

In the next Post I will show the costings and an explanation for a stand alone rooftop solar installation that is not connected to the grid, and if you thought that this grid connected installation was expensive, then a stand alone system is considerably more expensive.