The age of free solar

The cost of solar PV has fallen so dramatically in the last few years that industry pundits have begun playing a new game – identify the spot where the price of PV finally hits a floor. But what if it never did?

That tantalising prospect was raised by the International Energy Agency in its Solar Energy Perspectives report released last week, when it said that building-integrated PV – a thin layer of PV-active material – will become almost a standard feature of building elements such as roof tiles, façade materials, glasses and windows, just as double-glazed windows have become standard in most countries. Because solar PV would be crucial to the value of such buildings, the IEA argues that the cost of PV could “almost vanish” in the very market segment where it currently costs the most. “PV roof costs may never meet a floor price,” it says in the report.

The idea that PV costs will “vanish” into the value of the building is potentially revolutionary for a technology that is supposedly hamstrung because of its high up front capital costs. Commercial building owners, however, are comfortable with the concept of “vanishing costs”, because it is a fundamental part of the “green building” push that has rewarded higher investment in energy efficiency and low emissions technology with greater yields. And now the concept been taken up by the Sustainable Energy Association of Australia, which argues that adding a standard 1.5kW rooftop solar system could actually reduce the size and the term of a home mortgage, and thereby “vanish” into the value of the home.

SEA chief executive Ray Wills says that the price of PV panels has fallen so far in the last two years that they offer a payback of 10-12 years without subsidies, and four to seven years if the remaining federal government incentives (a much reduced multiplier) are taken into account. But if the cost of a 1.5kW system (around $3000 after the current subsidy) was added onto a $100,000 mortgage, and the energy savings it produced applied to mortgage repayments, then the term of the mortgage could be reduced by as much as four years.

The SEA says this calculation assumed a set of solar panels installed for $3,000 – net price with Solar Credits multiplier – for a 1.5kW system yielding around $600 saving a year in generated electricity costs (at 22c/kWh), adding the purchase price to a $100,000, 25-year mortgage to $103,000. If the entire energy saving is reinvested instead to fortnightly repayments of $350 on a mortgage with a 7.5 per cent interest rate to $375, the $103,000 mortgage would be paid off in 21 years.

Investing more in a larger solar system of, say, 2.5kW would have an even bigger impact (assuming the household uses more than $1,100 worth of electricity in a year). For a $100,000 mortgage, adding a 2.5kW solar installation would add $9,000 to the mortgage, but would shave more than five years off the life of the mortgage, assuming all electricity savings were spent on repayments.

Wills says this is a better outcome than a 0.25 per cent interest rate cut on the loan. "Of course, if electricity prices rise, the value of savings increases, and your ability to pay off your mortgage would not be compromised by rising energy bills," Wills says. "And you can eat into bank profits by putting solar on the house."

AGL Energy, meanwhile, has also moved to hide the upfront costs of solar PV by teaming up with financial services firm FlexiGroup to offer a leasing product for commercial-scale solar PV, anticipated to be the next big growth market for PV in this country. The product will allow business owners to install a 10kW system valued at up to $35,000 on their rooftops for an upfront cost of just $899.

Such a system would be capable of offsetting up to 42kWh of grid consumption a day and offer the usual tax advantages of a leasing product. AGL anticipates that the commercial interest in solar is set to expand rapidly – and other solar businesses also report a significant lift in corporate inquiries.

Depending on a range of factors, such as the location, whether much of the electricity generated on the roof is consumed or exported, and the presence and scale of any feed-in tariffs, AGL estimates that the investment could offer internal rates of return of 15 per cent to more than 30 per cent. “This product enables business owners to obtain the benefits of solar without the need to tie up valuable cash,” it says.

Sunlight test

The concept of “no cost” solar contrasts sharply with some of the nonsense about solar costs and footprints currently being circulated and getting traction with certain media. The government-funded thinktank the Australian Strategic Policy Institute has produced a paper entitled “Keeping the Home Fires Burning” that is riddled with errors, but the most egregious is its claim that it would cost each person $100,000 to have enough solar energy to meet their annual energy needs.

That estimate is based around the assumption by the ASPI, which describes itself as an “independent, non-partisan policy institute … set up by the government,” that each person would require 200m2 of solar panels to satisfy his or her annual energy demand. The IEA, which ASPI clearly relies upon for its oil forecasts, suggests in its Solar Energy Perspectives publication that just one tenth of that – 20m2 of solar panels – should be enough for a family of two or three people.

Nigel Morris, of Solar Business Services, one of the leading industry consultants, says that in solar rich Australia, an average home would require 43m2, and assuming three persons per home, this reduces to 14m2 per person. This translates into an array of 6.515kWp costing around $26,681 per home – or around $8,872 per person.

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