Investing In A Solar Power System
Investing in a solar power system produces a high return on investment (ROI), making it far more attractive than putting your money in bank term deposits or similar investments.
Factors that will determine your ROI include:
- The size of the system that is installed.
- If the system is installed on an optimal roof angle and slope.
- How much power you use when the solar power is generated (i.e. when the sun is shining).
- The energy retailer you sign up with.
Considering the variables will determine your ROI. Generally, the range is between 6% and 12% ROI.
Energy Retailers Solar Power Buy Back Plans
Energy retailers changed their buy back rates at the end of 2014. The difference between energy retailers and the prices they now offer their customers is minimal. Most offer between 7¢ and 10¢ per kWh exported to the grid.
Energy retailer buy back rates are low - rather than relying on a good buy back rate for a high return on investment, aim to get a solar power system size that matches the amount of power you use during the day (when maximum solar power will be generated). It might be worthwhile to look at technologies that will help you to achieve higher self consumption.
Example of a ROI Calculation
If half of the solar power was exported to the grid
As an example, we can calculate an estimate on the return of your investment by using Contacts Energy’s buy back plan of 8c. Considering that you would most likely consume half of your generated solar power, with the other half of generated solar power being exported to the grid, we can determine the estimate of the return on your investment. See below:
A 3kW solar power system in Auckland generates 3741kWh/yr, the purchase price for this size system is approximately $10,000.
Half of the solar generation amount is 1870.5kWh (of 3741kWh)
- 1870.5 x $0.30 = $561.15 (this is the value gained in off-setting your normal electrical use)
- 1870.5 x $0.08 = $149.64 (this is the half the is exported to the grid and paid for by Contact Energy)
- Total saved= $710/year
The return on investment calculation is $710/$10,000 =7.1% ROI
Remember that this is tax-free – and a reasonably impressive return for your investment! (Note: This calculation assumes a rate of 30 cents/kWh for electricity.)
Return on Investment Graph
Below is a graph showing the return on investment for the continued example case over the period of 25 years. It shows this system would save the owner $17,750 in power bills over 25 years (if there was no inflation in power prices over 25 years). And if you factor in that power prices are expected to rise at a rate of 4% (**MBIE, 2015) every year for the next 25 years then the savings will be $27,830.
The graph below displays the return on investment for the continued example case over the period of 25 years. The system would save the owner $17,750 in power bills over 25 years (if there was no inflation in power prices over 25 years). Power prices are expected to rise at a rate of 4% (**MBIE, 2015) every year for the next 25 years, if you factor in these expected price rises then the savings should be $27,830.
If all of the solar power was consumed directed
If you were able to use all of the solar power generated i.e full solar power self consumption, then this is what the ROI calculation would look like.
- 3741 x $0.30 = $1,122.30
The return on investment for this system is 11.22%
Return on Investment Graph - If all of the solar power is consumed directly
The graph below shows the return on investment for the 'solar power consumed directly' example. This system would save the owner $28,058 in power bills over 25 years. As previously mentioned, power prices are expected to rise at a rate of 4% every year for the next 25 years, so savings should be around $48,180. The example demonstrates how much money can be saved if the solar power is consumed directly. Rather than exporting power, find out how you can directly consume more solar power, at the My Solar Quotes solar power self consumption page.
Disclaimer: Information in this website is general in nature. It is NOT a recommendation to anyone and has not been prepared on the basis of the financial profile of any particular person. It is important that you do not make any decision on the basis of this information without first assessing its suitability for your own objectives, financial situation or particular needs.
**Energy in New Zealand 2015, MBIE Report, 2015, P.50.