How does solar pricing work?

Published: 28 October 2021

The price of a home solar system can seem high when you first get a quote, but the upfront cost is small compared to the long-term savings you can achieve.

Customers often ask, how does solar pricing work? When initially receiving a quote, a lot of homeowners can be intimidated by the investment, but keep in mind that solar panels have a payback period of less than five years in Australia, while their warranty period is 10-25 years. This makes solar power one of the safest investments available, since the warranty ensures your return on investment.

To get an idea of how much you can expect to pay for a home solar system, you can check the typical price ranges provided by the Australian Clean Energy Council (CEC):

Home Solar System SizeEstimated Price Range
2 kW$2,800 – $5,600
3 kW$2,900 – $6,950
4 kW$3,400 – $7,900
5 kW$3,500 – $9,500
10 kW$7,600 – $14,100

The price of solar power systems can vary a lot depending on the features included. For example, you can expect a higher price when using solar panels and inverters from premium brands. Also consider that a home solar system increases in price if you add energy storage.

When purchasing a 6.6-kW solar panel system, you can expect to pay $5,000 – $7,000. However, an accurate quote is only possible with a professional assessment of your energy bills and site conditions, since each property is unique.

Comparing the costs and savings of a solar panel system

Let’s assume you pay $5,500 for a 6.6-kW solar system, which has a service life of 25 years or more. Most solar inverters are rated for 10 years, but you can get a replacement for around $1,500. Considering the upfront cost and the new inverter after 10 years, the total cost is $7,000.

A 6.6-kW home solar system can generate around 10,000 kilowatt-hours per year when installed in a good site. The exact savings will depend on your electricity tariff and consumption habits, but you can expect to save around $1,400 – $1,600 per year. By the time you need a new solar inverter, your accumulated savings will already be much higher than the replacement cost:

  • During a 20-year period, you can expect to save $28,000 – $32,000. However, you will probably save a lot more because electricity prices tend to increase over time.
  • On the other hand, you have only spent $7,000 at this point, considering the inverter replacement after 10 years. The savings achieved in one year are enough to cover the cost of the new inverter.
  • This means you’re getting $4 – $5 in power bill savings for each dollar invested in a home solar system.

Solar panels lose some productivity over time, but the effect is minimal when using quality brands. A good solar panel will lose around 0.5% of its production capacity each year, which means the 6.6-kW system in this example will still produce around 9,000 kWh after 20 years. Your cash savings will probably increase over time as electricity gets more expensive, even when the kilowatt-hour output is lower.

How incentives make solar power more affordable in Australia

Australia has a nationwide solar incentive program, which awards Small-scale Technology Certificates (STC) based on the capacity of your home solar system and its location. The incentive is gradually decreased each year, and it will remain available until the end of 2030.

  • As of 2021, a 6.6-kW solar system gets 91 STC if installed in Melbourne or Sydney, and 78 STC if installed in Melbourne (lower sunshine). 
  • At a price of $39 per STC, this is equivalent to a financial incentive of $3,549 (for 91 STC) or $3,042 (for 78 STC).
  • In the case of Melbourne, you can also get $1,400 from the Solar Victoria program.

Without incentives, you could expect to pay around $1,300 – $1,600 per kilowatt of solar capacity. This means a 6.6-kW system would cost over $9,000. However, the net price drops below $6,000 when you subtract the solar incentives available in Australia.

Conclusion

Solar panels may seem expensive when you only look at the upfront cost, but this is a small amount compared to the long-term savings. With an upfront cost of $5,500 and annual savings of $1,400 – $1,600, you’re looking at a payback period of less than four years. Then you essentially get 20 years of free electricity, without any major expenses besides the inverter replacement after 10 years.

Keep in mind that the STC incentive will decrease each year until 2030, and it will no longer be available from 2031 onwards. You can get a higher cash incentive by installing your home solar system before the end of 2021, since the incentive will become 10% smaller in January 2022.

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