How Does Solar Power Reduce Your Power Bill?
I nearly got myself into trouble this week. A customer asked me how much cheaper his quarterly power bill would be after his solar feed-in tariff in NSW is applied. My answer was: “around $20… $30 if you are really unlucky.”
Luckily he didn’t hang up!
He asked: “So you expect me to pay thousands of dollars for a solar system to save $30 a quarter?” Not quite…
A number of people new to solar power get confused by feed-in tariffs and where the real benefit of solar power lies. So let’s break down how solar power reduces your bill and why getting a large solar credit on your power bill is not the best result.
Please keep in mind that these numbers are an example of what is possible with solar power. Your situation will almost certainly be different, which is why we recommend you call the Solaray Team for personalised advice before deciding on a solar power system. If you are ready for a quote, please request one here:
How residential solar power works in NSW
In NSW, solar power is fed into the home as it is generated and is used first before you draw power from the grid.
This means that for every kWh of solar power used in the home you are directly reducing your power bill by the amount you would have otherwise paid for the electricity. This reduction in your power bill is the main financial benefit of solar power.
The cost of electricity varies from house to house, and many households are now on time of use billing as illustrated below:
If you have time-of-use billing, take the average of your peak and shoulder rates to roughly estimate how much solar power will save you. You can ignore the off-peak tariff as solar power doesn’t work during these hours (10 pm to 7 am). We estimate that on average solar will save you around 25-30 cents a kWh.
If you pay a flat rate for your power, this is the amount of money solar will save you for every kWh used in the home. Typically the rate in Sydney is around 22 to 25 cents a kWh.
If the solar power isn’t used in the home it is automatically fed out to the grid and you may be paid a feed-in tariff by your energy retailer. Typically this feed-in tariff is around 6 cents a kWh, but there are some retailers that won’t pay you anything so it is important to shop around and find the best deal.
It quickly becomes apparent that saving 22-30 cents a kWh is a better deal than making 6 cents. This is why we try to accurately size up a solar system so that you are able to use as much of the solar power as possible in the home. A solar system that is too large will inevitably send a lot of solar power back to the grid, which means your investment will take a longer time to pay for itself.
Solar Feed-in tariff on a 3kW Solar System
As an example, Tom installed a 3kW solar system in Sydney on a north-facing roof. On average, the system produces 12kWh of solar power every day (averaged out across the year, doing more in summer and less in winter). Although Tom works during the day, he is able to use 8kWh of power during the day without too much trouble. Firstly the base load of his house runs on solar power, with appliances such as the fridge, freezer and a few lights remaining on all day. Tom also turns the dishwasher on when walking out the door and sets the washing machine on a timer to run at 1 pm.
Tom pays a flat rate of 25 cents a kWh for his power. This means that on an average day Tom saves $2 off his power bill (8kWh x 25 cents). Over a standard 91 day quarter, this equates to $182.
It is important to note that this reduction is not recorded on the bill, the bill is simply cheaper.
So if Tom normally pays $400 a quarter, the new bill will come in at $218.
The remaining 4kWh that are not used in the home are paid as a credit.
In Tom’s case, he is paid a feed-in tariff of 5.1 cents a kWh, which on average is 20.4 cents a day (4kWh x 5.1 cents) or $18.56 a quarter. This means that the $218 bill is reduced to $199.44, and this reduction is recorded on the bill as a ‘solar buyback.’
So a $400 bill is halved – reduced to $196.16.
We aim for our customers to use 70% or more of the solar power as it is generated. With Tom using only 8 of the 12kWh his system is generating, there is room for improvement, but for most people, it’s best not to change your lifestyle too much in order to save an extra $15 a month.
A Real Bill Explained
To further explain the example of Tom, here is a screenshot of a real bill. This is a Solaray customer with a 3kW solar system. The energy charges show a household with a flat rate of power, with three levels based on the amount of power used during the quarter. The first ‘block’ of power is the most expensive, and then as a house uses more power across the quarter the price of electricity drops slightly, in this case from 22.9 cents to 22.1 cents a kWh.
It is important to note that this is not time-of-use billing. A lot of people get this confused – blocks do not relate to the time of day when electricity is used. ‘Peak consumption’ refers to the main meter in your meter board, and is used to differential from off-peak’ or ‘controlled load’, which is a common setup for electric hot water.
The next rows refer to the feed-in tariff. In this bill, on average 4.3kWh of solar power, a day was not used in the house and was exported to the grid. The credit applied to this bill is $22.61. The main benefit of the system is not recorded on the bill, the bill is simply cheaper than it would have otherwise been without a solar system.
Solar Feed-in tariff on a 5kW Solar System
Sarah installed a 5kW solar system on a new home with 20 panels. On average, the system produces 20kWh a day averaged out across the year, doing more in summer and less in winter. Sarah is home during the day and so on average, she is able to use 18kWh of power each day without too much trouble. On top of the baseload (fridge, freezer etc.), Sarah runs the dishwasher, washing machine and the dryer.
In summer, the solar system produces as much as 30kWh a day, and this helps offset the air conditioner which cools the kitchen and lounge room when needed. She also has the pool pumps set to run in the morning for 4 hours.
Sarah has time-of-use billing, and so on average saves 30 cents a kWh with solar power. This means that on an average day Sarah saves $5.40 off her power bill (18kWh x 30 cents). Over a standard 91 day quarter, this equates to $491.40.
As in the previous example, it is important to note that this reduction is not recorded on the bill, the bill is simply cheaper.
So if Sarah normally pays $900 a quarter, the new bill will come in at $408.60.
The remaining 2kWh that are not used in the home are paid as a credit. In Sarah’s case, she is paid a feed-in tariff of 5 cents a kWh, which on average is 10 cents a day or $9.10 a quarter. This means that the $408.60 is reduced to $399.50.
So a $900 bill is reduced to $399.50.
With Sarah using 18 of the 20kWh her system is generating, Sarah is maximising the benefit of her system without drastically changing her lifestyle. This is the situation we aim for with all of our customers.
If you would like more personalised numbers, give the Solaray Team a call on 1300 221 586. If you have a bill on hand, we can give you all the information you need to make an informed decision on the best sized solar system for your household.
Please note that every household’s energy usage is slightly different so we have just used averages in the above examples. In reality, most household’s usage is different in summer and winter as is solar production so it is worth spending a little time with one of our consultants to map out your needs.
A Final Word about System Sizes
Of course, all of the above information assumes that you won’t be adding battery storage later.
To keep it simple, we have not included the impact batteries will have on your power bill or the recommended system size – this gets a little more complicated because there are a few different strategies we can recommend based on when you use electricity, your roof space and your budget.
Again, it is worth talking with one of our solar and storage experts about how to factor this in: