Investing In A Solar Power System
As the price of grid connected solar power systems has decreased dramatically over the last few years, investing in a system now 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:
- What size system you install.
- If the system is installed on an optimal roof slope and angle.
- How much power you use when the solar power is generated (i.e. when the sun is shining).
- The amount of power you use when the system is not generating any power (e.g. at night).
- Which energy retailer you sign up with.
Considering there are a few variable that will determine your ROI, generally the range between 8% and 12% ROI.
Energy Retailers Solar Power Buy Back Plans
Meridian have a new pricing structure, which in a way rewards those who use up most of their solar power and don’t export as much back to the grid, giving those people a much higher ROI around 10-12%. People with Meridian that install systems that produce more power than they consume or do not use their power during the day (when it is produced) will receive a ROI around 8%. Read here for more details.
Contact Energy have a flat rate for buying back power which is 17.28c, so generally the larger system size you install, the higher the ROI.
The other viables that affect a solar power systems performance and therefore the ROI figure, includes how many sunshine hours you get in your area and the tilt and orientation of the panels on your roof.
Your solar installer should be able to give you a good ROI estimate on your solar power investment.
Example of a ROI calculation
If you bought a 3kW grid-connected solar power system (which generates 3741kWh/yr in Auckland) for $10,000 and this system saved you $1018 (say, if you were signed up with Meridian and exported half of the power you generated while using the other half directly). Your return on investment for this system is 10.18% ($1,018/$10,000). 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.)
As the price of electricity keeps increasing every year you can expect the ROI to increase in proportion as well. Taking the same scenario above, if the price of electricity continues to increase at a rate of 7% (as it has been for the last 10 years), then you will save $1057 on power bill for the upcoming year, increasing the ROI to 10.57% (up from 10.18%).
At that rate of return you can expect to pay off the system’s initial price within 9 years. And given the life of a solar power system, you can continue generating free electricity for the next 16+ years, at least!
Initial investment of a solar power system and how long it will take to start generating free electricity
Increasing return on investment because of the increasing price of electricity
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.
<Source: Kristy Hoare>
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