*Use yellow fields for entering your own data; green fields for changing the chart and orange fields (to be seen when scrolling to the right) as default values. If the calculator spreadsheet is not showing, please try with another internet browser.*

For a more detailed solar PV results use this calculator: http://www.sun2steam.com.au/index.php/solar-pv-investment-calculator/

More calculators can be found here: http://www.environment.nsw.gov.au/business/solar-calculators.htm

#### Investing in a energy savings measures like insulation, solar or heat pump hot water, energy saving appliances, and LED lighting are not only helping the environment but can also be a positive financial investment.

Insulation can be done in various ways like roof, wall and/or roof insulation, double glazed or other kinds of energy efficient windows, draft stoppers and energy saving curtains. Energy not consumed is the cheapest form of energy as it does not need to be produced.

There are many websites with valuable information around. A good start is to get advice from supplier independent websites like for instance government websites like this one: http://www.livinggreener.gov.au/energy/your-home-and-rental/building-renovating-energy-efficiency.

Fore most of the energy saving measures the cost are known and the energy savings can be calculated, either by the product or service providers or by independent websites like the one mentioned above. For heat energy usually the unit MJ is used and for electrical energy kWh is the most commonly used unit. The spreadsheet above allows the use of any of these units and various time periods for day to year can be used when entering the data.

In regard of financial considerations often only the **payback time **(also called ‘payback period’ or just ‘payback’) is given by suppliers or installers. But for other investments like savings accounts, real estate or term deposits, a payback time is usually not given. This means that there is no direct way for comparing energy savings to any other investment. However a direct comparison is necessary if a consumer wants to find out if it is better to invest some spare money in energy savings measures or to bring the money to the bank. It is also important to work out if it is worth re-drawing from the home loan in order to finance energy saving measures.

A better way of describing the financial value of energy saving measures is to use the **comparison rate**. The comparison rate is term defined for home loans by the Australian Government and must be given with all domestic home loan products. However the calculation works both ways. In case of solar PV the owner is the ‘bank’ and will receive his ‘payments’ either from savings on grid demand or from an existing feed-in tariff or from a combination of both.

**comparison rate**is calculated in the same way as the

**‘Internal Rate of Return’ (IRR)**(see Excel function) which is used in financial mathematics. In simple terms the comparison rate (IRR) describes the interest rate of a fixed rate savings account which – with the same amount invested – returns the same final financial outcome as the investment project. (Sometimes it may be useful to use the Excel function XIRR instead of IRR.)

Another way to describe the investment quality of a solar PV system is to calculate the **levelised cost of energy (LCOE)**. Energy savings can be calculate in the same way as energy. The only difference is that it is a cost reduction instead of a cost. If the owner saves electricity at the LCOE value, he will just break even at the end of the project. A higher price for electricity than the LCOE will lead to a financial gain.

Both IRR and LCOE take the time value of money into account. That means that because of inflation and interest rates $100 in my hand today have a higher value than $100 which I will get at a later date. The formula for LCOE needs for this purpose to know the** discount rate**. The discount rate is something like an interest rate and can be different if you pay for the investment in cash or with a loan.

The spreadsheet above calculates these key figures for an investment in energy savingsmeasures. It does not take taxes and depreciation in consideration. (The bank also does not tell you the interest rate after tax, but before tax.)

It also produces the **accumulated cash flow** (not corrected for time value of money) and the **net present value (NPV)** which is essentially the accumulated cash flow with a correction for the time value of money.

The** payback time** (not corrected for the time value of money) can easily be looked up on the chart as the point where the line for the accumulated cash flow crosses the timescale.

The value for the ‘**electricity price**‘ in the spreadsheet below needs some explanation: Only in cases with a flat rate the electricity saved the actual electricity price can be used. For all other applications where the consumption of electricity is reduced during several tariff periods, a weighted average of tariff price should be used. Scrolling down the spreadsheet reveals a cost estimator which can be used for this purpose.

Example: 40% export at 8 cent/kWh and normal tariff of 25 cent/kWh –> ‘electricity price’ = 40% * 8 + (1- 40%) * 25 = 18.2 cent/kWh

The ‘**discount rate**‘ is only used for the calculation of the Net Present Value. A simple assumption is to use the best interest rate for safe investment (bank accounts, term deposits) when the solar plant is bought with cash OR to use a relevant loan interest rate when the PV plant is financed.

In many cases it can make a lot of sense to finance the PV plant with a redraw from an existing home loan. The use of the solar income can also help to pay off the home loan faster.

Comments and questions can be posted as a ‘Reply’ below.