The figures in the yellow fields are suggestions only. You can enter your own data. Explanations can be found below. If the calculator spreadsheet is not showing, please try with another internet browser.
More calculators can be found here: http://www.environment.nsw.gov.au/business/solar-calculators.htm
Investing in a domestic solar PV system in Australia has become a positive financial investment in most cases.
Unfortunately most installers, consultants and websites only supply the payback time (also called ‘payback period’ or just ‘payback’) to describe the financial situation. (Some call this even ROI, which is wrong, because ROI is used in finance calculations as ‘Return on Investment’ and delivers % as result.) 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 a solar investment to any other investment. And this is an important disadvantage for investments in solar PV.
However investment in solar technology can be seen like any other financial investment. The payback time has to be converted into a comparison rate. The simple spreadsheet below allows the conversion of the payback time into the comparison rate.
The comparison rate is a 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.The 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.)
As an the example on the calculator above an investment of $5000 is calculated having a payback time of 10 years. This may sound pretty poor. According to the calculator the comparison rate (or IRR) is 8.78%. This means the solar investment with an IRR of 8.78% is as good as $5000 invested in a savings account over 25 years with an interest rate of 8.78%. (assuming interests are left in the account for 25 years) So 8.78% looks very good.: the best savings accounts available today are providing far less than half of this interest rate.
Another way to describe the investment quality of a solar PV system is to calculate the levelised cost of energy (LCOE). If the owner sells 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 solar PV. 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 very rare cases where 100% of the electricity is consumed inside the building within a single tariff, the actual electricity price can be used. For other applications where some of the electricity is exported into the grid, a weighted average of tariff price (for savings in demand) and of the feed-back tariff 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. In most cases the cash flow will be positive from year the beginning. That means that the payback time is zero! 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.