Prime Minister Scott Morrison’s goal for large-scale solar energy generation costs in Australia had me wondering – what does solar electricity cost per kilowatt hour from a small-scale PV system?
As part of doing things The Australian Way1 and not being “lectured by others who do not understand Australia,” PM Morrison outlined his plan for Australia to achieve net-zero emissions by 2050 yesterday. This was met with some cynicism (go figure).
But among the items the PM mentioned was this:
“we have set a stretch goal of solar electricity generation at $15 per megawatt hour (MWh)”
That would be wholesale – which makes up a bit over a quarter of electricity bills currently.
The CSIRO’s most recent GenCost report pegged the levelised cost2 of new solar in Australia somewhere between $50 to $55 per MWh wholesale last year, with that to drop to mid-40’s to low 50’s in 2030.
$15/MWh works out to 1.5c per kilowatt hour for large scale solar energy generation. Is that possible? Likely, as there have already been deals struck in some parts of the world where solar electricity is/will be sold for just a couple of cents per kilowatt hour.
Rooftop Solar Energy Generation Costs
The mention got me thinking about what it costs to generate a kilowatt-hour from a residential rooftop solar power system these days. I began by using the SolarQuotes solar calculator. I didn’t need all the useful figures it spits out, just some system generation figures.
For a rooftop 6.6kW solar power system installed in Sydney, total generation is around 9,783 kWh in the first year. I then used SQ’s Australian Solar Price Index for New South Wales, which indicated a 6.6kW solar system installed in NSW cost around $6,6003 last month, after the national subsidy.
Good quality solar panels should last decades, as should the mounting system. Good quality solar inverters, being the real workhorse of a system, should provide at least 10 years of service.
10-Year Calculation
Let’s start off with a cost per kilowatt-hour based on just ten years.
Something that needs to be added is the cost of system inspections and there are some misconceptions about solar system inspection frequency. According to SolarQuotes founder Finn Peacock, a good quality well-installed system should be inspected and tested by a Clean Energy Council accredited professional every 5 years. This costs approximately $200 – $300.
While in this example the second inspection would be due at the end of the 10-year period, we’ll add two on at the cheaper end of the range for a total system cost of $7,000
So:
- 9,783 kWh production annually x 10 years and taking into account 0.50% annual performance loss from the panels from year 2 = 95,658 kWh
- System cost over 10 years including initial purchase = $7,000
- 7,000 divided by 95,658 = ~7.3c per kilowatt hour
20-Year Calculation
And it would be cheaper again over 20 years, even with an inverter replacement that would cost around $1,400 – $2,000 installed (at today’s prices).
- 9,783 kWh production annually x 20 years (with solar panel performance loss) = 186,323 kilowatt-hours
- System cost over 20 years including initial purchase + inverter replacement and another couple of inspections = $9,600
- 9,600 divided by 186,323 = ~5.2c per kilowatt hour
Adding Back The Subsidy
So, that’s the cost to the owner of the system. But the overall average kilowatt-hour cost needs to factor in the value of the subsidy, which on a 6.6kW system is worth around $3,500 at the moment.
- 20 years of generation = 186,323 kilowatt-hours
- System cost over 20 years including initial purchase, plus $3,500 subsidy = $13,100
- 13,100 divided by 186,323 = ~7c per kilowatt-hour unsubsidised
That’s split ~5.2c to the owner of the system, and ~1.8c/kWh to the polluters required to buy the Small-scale Technology Certificates (STCs), on which the solar rebate is based. And while on the topic of these certificates; here’s another handy tool – SQ’s STC calculator.
Cost Vs. Value
The cost of rooftop solar energy is one thing – the value quite another. Emissions reductions and other benefits aside, generating electricity from your rooftop is dirt cheap compared to having to buy it. For example, electricity retailers in NSW are charging anywhere from north of 18.3c per kilowatt hour to 29.69c/kWh at the moment according to SQ’s electricity plan comparison tool.
The financial benefits for system owners will vary household to household depending on location, size of system and energy consumption profile. But the returns are usually excellent and payback quite rapid. Try the solar calculator to see what solar panels could do for you.
Footnotes
- I can’t help but shudder when I hear/read the terms “un-Australian” and “the Australian way” given how these words have been so widely abused. ↩
- Levelised cost of energy (LCOE) is the average net present cost of electricity generation for a generating plant over its life. ↩
- The average price for a 6.6kW system across Australia in September 2021 was around $5,800; so estimated costs per kilowatt-hour indicated would be cheaper in some cities. Generally speaking, they would also be cheaper with bigger systems. ↩
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Michael – If the cost is 15 cents per kwh at wholesale (1.5 cents), what would be the retail equivalent? Does that make it 60 cents? Whilst it is a fair comparison of wholesale generation to home generation (with wholesale having the advantage of scale), the other comparison would be home generation to the retail equivalent. Can you please comment?
So while the PM has set “a stretch goal of solar electricity generation at $15 per [MWh]” or 1.5c per kWh, the reality is the FiT, let alone the wholesale price, must be at least 4 times this figure to justify investing in a solar system. Since retailers probably need to make some money off the electricity they purchase – unless they go all in and rely on supply charges, the wholesale price needs to be higher still. I’m really not seeing how that goal is achievable or desirable!!!
And of course this is all predicated on green subsidies staying as they are and no carbon taxes or import taxes being levied. Should government opt out of subsidising solar, or levying taxes, then minimum FiT requirements soar – unless manufacturers suddenly manage to drop the cost of manufacturing. Oh and this all assume the AU$ remains at its current level. Should there be an economic crisis and a tumbling of the dollar …
Now aren’t I a little ray of sunshine! :-\
The Government should take back control of electricity generation.
There is going to come a point where there is so much free solar/wind that there will be no profits to be had. Profit based companies and investors are not going to want any part of that.
What they should be doing is getting electricity prices as cheap as possible, allowing high power industries to boom in Australia.
Then we have lots of jobs and might start using our resources instead of exporting them else where to be used.
Labor sold off the electricity sector because it was supposed to make things cheaper, more efficient, and give the government a massive cash infusion.
Fast forward a few years and electricity is more expensive than ever, no more efficient, and the cash was wasted long ago.
The same happened to water, ports, forests, motorways (toll booths), rail, and a bunch of other things.
The only winners seem to be the politicians – massive boost in funds to spend on vanity projects, and political buddies who manage to parachute into board seats and score massive pay for little to no work. Taxpayers and customers definitely don’t benefit from the sales!!!
As paradoxical as it may sound given I want high FiTs to repay my solar, then provide a high RoI, cheap power to enable high power industries to ‘Make Australia Great’ sounds like a splendid idea, it just won’t fly with governments who seem committed to letting Beijing keep all the industry despite Australia’s far stricter environmental and health and safety laws.
James Silcock,
You state: “The Government should take back control of electricity generation.”
Are you suggesting governments should own and operate electricity generators and distribution networks?
The Queensland Government owns more than $35 billion of generator, network and distribution electricity assets.
Are you suggesting other state governments, for example NSW & Victoria, should acquire generator, storage and/or transmission assets? Who would pay? Taxpayers?
You state: “There is going to come a point where there is so much free solar/wind that there will be no profits to be had.”
I’d suggest so long as the market energy supply price is a little above zero there are likely profits to be made. If the market supply price is too low or negative then renewable generators can afford not to bid to supply. Renewable generators don’t have any fuel costs and operating costs are much smaller when compared with those of fossil fuel generators.
See: https://theconversation.com/between-the-lines-morrisons-plan-has-coal-on-the-way-out-with-the-future-bright-170643
I’d suggest more energy storage capacity will provide more demand when the market supply price is low..
Yes Mr Miell I am suggesting that Australia purchase back all the electricity stuff with tax payers money.
Electricity is a fundamental thing in everybody’s life, They kind of did it with did it with Broadband, why not electricity?.
It should be available and cheap to everyone.
They could even be Aholes about it too. Purchase the Poles and wires first. Add LOTS of solar and wind built from scratch and buy out the remainders when they start going out of business.
Australia would also have more direct control of emissions then, rather then trying to influence companies with legislation’s or paying them billions to “try” and put carbon underground.
I know the government is pretty crap and doing anything well, but profiteering companies are not doing a great job either.
James Silcock,
“Yes Mr Miell I am suggesting that Australia purchase back all the electricity stuff with tax payers money.”
Serious question: How do you stop a succession of politicians and administrations in future selling those taxpayer-funded assets off again for ‘peanuts’? It’s happened before – what makes you think it can’t happen again?
https://www.abc.net.au/news/2017-10-24/coal-power-station-sold-for-peanuts-becomes-730-million-asset/9077582
I’d suggest legislation can be a powerful tool to drive outcomes, but that requires collective effective political will. Appropriate legislation can disincentivize the things that are undesirable and incentivize the things that are desirable. The problem I see is there are some incumbent politicians that I’d suggest have very dangerous ill-informed ideologies about what’s desirable and undesirable.
I had to smile when I read the bit saying that PM Morrison is making a 2050 commitment. This comes on the back of Indian PM making a similar commitment by 2070.
The reality is that this is all smoke and mirrors as nothing is much going to happen over that large period of time other than smoke and mirrors and promises, which in the words of the media over the past few days, indicate that we are being fed more lies.
The other discussion in the above in regard to cost of production leaves out the question as to why some household system owners are paid less than 5 cents per kwH for their energy. Yes is about voltage and yes its about infrastructure, but that’s not the fault of households. Rather its the fossil fuel industry controlling the game and stopping any move forward. Been going on for the life of the current government and about time voters who vote on media promotion rather than the facts thought about whom they should not vote for.