How Solar Can Reduce Your Electricity Costs

With electricity costs projected to increase throughout 2020 and beyond, more and more people are turning to installing solar panels at their home addresses with the intention of reducing their electricity bills – but how does it work?

Let’s look at an example monthly electricity bill to better understand why it’s important to consider how solar can reduce your electricity costs. The average Melbournian spends an average of slightly over $124 per month on electricity alone. Over the course of a year the total comes to shy of $1500 and this is reportedly higher for those aged between 20 and 34 years old at an average of over $1600 per year.

If we look at a period of 30 years, that same monthly expenditure of $124 balloons to a staggering $44,000+ paid to your utility provider. The shocking truth about this is that these figures don’t include increases in the aforementioned electricity rates, likely making your 30-year electricity costs a lot higher than what you’d expect. This is because people don’t notice incremental changes over a long period of time – but they make a huge difference.

So, taking this very real scenario into consideration, anything you can do to reduce this expense would free you up economically to make decisions that would benefit your life and livelihood greatly. This is where solar power comes in.

Reduce Your Bills with Solar

Installing solar panels at your residence can help to reduce your electricity costs and, in some cases, reduce your electricity bill to zero. The savings you can make by getting a solar panel system installed are directly related to the costs associated with installing it in the first place and the electricity rates in your area.

Thankfully, in recent years, the costs of purchase and installation of solar has been cut almost in half for systems that are now more powerful, more efficient and more reliable. Electricity rates, on the other hand, have increased from 2013 with the introduction of the carbon offset price, causing increases in that same year of over 70%.

Since then, that carbon offset price has dropped and electricity rates have fallen slightly. Nevertheless, they have still been growing steadily between 6-10.8% every one to two years.And this trend is set to continue on into the distant future.

How Does Solar Work?

A solar panel system installed at your residence can alleviate these electricity rate increases. All that you are doing is harnessing the power of nature and using that power in your home or feeding it back to the grid if it’s not needed. Let’s break it down.

A solar panel system works by converting the energy stored in sunlight into electricity – more precisely, it generates it in the form of a Direct Current (DC). This form of electricity is transferred into a solar inverterwhich converts the Direct Current into an Alternating Current (AC). This electricity is then sent to your switchboard, which allows you to use the AC electricity all throughout your home.

The key here is the switchboard.  It is an important part of the solar panel system that makes sure that your home utilizes the newly acquired solar energy first before drawing additional energy from the grid. The next step of the process is your meter – which in the case of solar panels, will require a bidirectional utility meter.

This special meter records all of the electricity that is drawn into the house from the grid and the amount of solar energy that is directed back to the grid. This part of the process is termed “net-metering” and it is how a solar system can help you in reducing your electricity costs.

The Savings

How you save money is two-fold. The first saving is in the solar energy that you are using in your home before drawing any additional electricity from the grid and, ergo, your utility provider. The second is that any unused solar energy is redirected back to the grid, generating more electricity for your utility provider and earning you credit with them – this is known as a “feed-in” tariff (FIT).

Your monthly bills will be calculated by recognizing how much electricity you’ve used that has been generated from your solar system and how many credits you’ve earned from the electricity you’ve essentially “sold” back to the grid.

The best part of this process is that due to how reliable and advanced the technology has become, you don’t need to manually adjust the solar panel system – it decides when to turn on and off and when to switch between electricity generated through solar panels and when to draw power from the grid.

There’s also very little maintenance in terms of the time you have to spend preserving it as there are no parts that move in a solar panel system and very little to go wrong.  A quality solar system installed at your property will last a considerable amount of time, well into the future – making it a smart investment.

It would be fair to say that the only real cost of getting a solar panel system installed would be the initial overhead cost – and that is true. However, there are several incentives and options you have when it comes to lowering the financial blow of your household setup to use solar to reduce your electricity costs.

Small-Scale Technology Certificates (STCs)

Otherwise known as STCs, you are eligible to claim these when you purchase a solar panel system. The quantity of STCs you can get is primarily related to the amount of solar energy generated by your system. Due to this, bigger systems will mean you generate more power and more STCs. Another determining factor in how many you can receive is also dependent on your area too.

But what can you do with them? As an electronic commodity, your certificates exist in the “Renewable Energy Target” registry database (RET for short) – and you can use them in several ways.

The first function is selling it like any normal commodity. STCs can be sold through the market where pricing per unit fluctuates just like regular products reacting to the power of an open market. Another way you can choose to sell them is through the governmental STC “clearing house.” Selling them in this way guarantees you a fixed unit price of $40, excluding GST. A third way to use them would be to use an STC agent that can negotiate a discount of your electricity rates or even receive a deferred cash payment, utilizing them like stock.

What’s the process to get them? When you get your solar panel system installed, you’ll receive an STC Assignment Form. After signing this and providing a certificate of installation from your solar system provider, you’ll be registered on the RET registry, where you’ll start to earn them for use in the ways described.

Government Rebates

When you’re thinking about installing a solar panel system at your property, it’s also important to note that you can reduce the costs by applying for the government rebate program.  This helps to alleviate the initial startup and feed those savings back into reducing your electricity costs. Each state in Australia has different criteria and value when it comes to their solar panel (also known as “PV”) rebate schemes.

Let’s look at the example of being in Melbourne again – from the perspective of doing this process in Victoria.

Before contacting a solar panel provider, Victorians must check their eligibility in the “Solar Homes Program” (SHP) and then get in touch with one of the approved solar panel providers to get an official quote.

Victorian Eligibility Criteria:

  • You must be the owner-occupier.
  • The household must have a combined taxable income of less than $180,000 per annum.
  • It must be already built and under three million in value.
  • The property does not have an existing solar panel system.

It must be noted here that to be eligible for the rebate scheme, the solar products chosen to be installed must be on the approved products list which you can also find by checking the criteria with the SHP and your provider.

After the quote has been approved by yourself and your provider, they will send it to the “Solar Victoria Portal” (SVP) which will automatically start the process for the assessment on whether or not you’ll be eligible for the rebate. You do not need to provide any details until the assessment has gone through and you have been approved on their end. Once it is ready, providing details of your monthly income and your electricity rates are all that is required.

If everything is approved at this point, and you are eligible for the rebate, your solar provider will receive the rebate and reduce the amount from the cost of your solar panel system – meaning you’ll only pay the outstanding amount directly to your provider when the solar panel system is installed at your property.

Zero-Interest Solar Panel Loan

In addition to the rebate scheme above, you can also apply for a zero-interest loan for your solar panel system, and it works in tandem with the rebate scheme to reduce the overhead costs.

The amount that you can apply for in Victoria is equal to the amount you’ll receive in your solar rebate, meaning you can reduce the overhead costs greatly. The loan can be paid off sooner if you choose to do so, but it must be paid off over a four-year period following the installation of your solar panel system.

In Victoria last year, the maximum amount that you could apply for is up to $1850. Let’s look at a scenario to put this into perspective.

A Victorian who is eligible for a rebate of $1850 from the government for the installation of their solar panel system also applies for the zero-interest loan. They obtain the full amount equal to their rebate, gaining another $1850 to go towards their solar panel system.  If the system they’ve chosen only costs $3700 (after the STC rebate), they will not be paying any costs upfront. If they opt for a more expensive system of say $6000, then they will only be paying just under half of that for the installation.

These might seem like big figures, but if you take into account how solar will be reducing your electricity costs, the system will eventually pay for itself and then you’ll be making even more savings. In Victoria, homes with normal solar panel systems typically save an average of in between $850 and $1000 per year on their electricity bills. This means that the loan and the overhead costs would be “credit neutral” within the first few years of owning the system.

One thing to also note about the above scenario, is that bigger and more expensive systems tend to generate more electricity and therefore increase those savings more.

Another Way to Save with Solar

A final way to increase the savings you can make with solar will be to ensure you use your most power-hungry appliances and electronic devices during the daytime.

This all goes back to the switchboard. During the day, as long as your system is producing enough power, you’ll be more likely to cover your own electricity use because the switchboard will be utilizing the solar

power first and foremost. This may seem like common sense, but many people install solar panel systems and still have most of their electricity use at night, reducing their savings by quite a considerable margin.

This can be difficult to achieve in the darker winter months where sunlight is less prevalent and days are shorter.  So, a bit of forward planning can lead to further reductions in your electricity costs during these times of year.

Reduce and Save For Tomorrow!

With the information above and the examples provided, you can easily see why solar power is becoming one of the most effective ways in reducing your electricity costs.

In saying that, not only is solar a huge benefit to your household’s bottom line – it is environmentally friendly too: Firstly, you don’t draw as much power from the grid which may be using non-renewable energy sources. Secondly, you’ll be inputting renewable energy into the system, meaning those same energy sources will be used less.

The more people that make the switch to solar, the less the industry will rely on fossil fuels.

This is the true power of solar.

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