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How Does Solar Panels Reduce 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.

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…

solar panel array

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 power bill and why getting a large solar credit on your power bill is actually 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 1KOMMA5° Team for personalised advice before deciding on a solar power system.

How Do Residential Solar Power Systems Work?

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:

time of use billing tariffs NSW Ausgrid graph

Time-of-Use Billing

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.

Flat Rate Billing

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 28 cents a kWh, plus GST.

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 6-10 cents a kWh, so it is important to shop around and find the best deal.

It quickly becomes apparent that saving up to 30 cents a kWh is a better deal than making 6 cents a kWh from your feed-in tariff.

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How Solar Panels Reduce Power Bill: A 10kW Solar System Example

As an example, Tom installed a 10kW solar system in Sydney on a north-facing roof. On average, the system produces 40kWh of solar power every day (averaged out across the year, doing more in summer and less in winter):

10kW solar system estimated average daily energy output by month

Although Tom works during the day, he is able to use 20kWh 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. During summer the pool pump automatically runs during daylight hours on solar power.

Tom pays a flat rate of 30 cents a kWh for his power including GST. This means that on an average day Tom saves $6 off his power bill (20kWh x 30 cents). Over a standard 91-day quarter, this equates to approximately $550, not bad considering he only uses 50% of the solar power generated.

It is important to note that this reduction is not recorded on the bill, the bill is simply cheaper.

So if Tom normally pays $800 a quarter, the new bill will come in at $250.

The remaining 20kWh that are not used in the home are paid as a credit.

In Tom’s case, he is paid a feed-in tariff of 10 cents a kWh, which on average is $2 a day (20kWh x 10 cents) or $181 a quarter. This means that the $250 bill is reduced to $68, and this reduction is recorded on the bill as a ‘solar buyback.’

So an $800 bill is reduced to $68. Not bad!

This is an example of how buying an ‘oversized solar system’ can make a huge impact on your power bill. It involves actively managing your power consumption to ensure most of your usage is during the daytime. It is also a lot more effective if you have time-of-use billing because any power you use at night is a lot cheaper as it is during the off-peak billing period.

We typically aim for our customers to use 70% or more of the solar power if the solar system isn’t oversized.

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.

6kW solar panel installation Sydney

Beyond just the immediate savings on your electricity bill, there are some significant factors to consider in switching to solar power. Read everything you need to know before investing in solar for your home. This guide is a thorough overview of all things solar, from system sizing to financial options.

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