How to calculate your expected solar savings

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When talking to a solar power retailer, you’re often told how much you’ll be save on your energy bill if you switch to solar power and those savings also determine how long it will take you to pay back your solar power system. But what are these calculations based on and how can you calculate your potential solar savings yourself? In this article we explain it all.

Calculator on table

You might feel that the numbers your solar power retailer gave you sound just a little too good to be true (and they might well be), or you want to calculate what your return is without having to rely on the solar power retailer to do the calculations. Whatever the reason, it’s good to know how to calculate your solar savings yourself.

And it’s easy!

It all starts with the feed-in tariff

With a solar power system, you generate electricity. You can use this generated electricity yourself, or you can sell it back to the grid. When you sell it back to the grid, your energy company pays you a credit for this.

Depending on the state you live in and the energy provider you with, this rate can be as high as 60 cents per kilowatt hour (kWh), but generally is around 10 cents per kilowatt hour. 

Your solar power retailer might have recommendations on which energy company has the best feed-in tariffs available, but always make sure to check the numbers yourself.

Find out how much energy your solar power system will produce

How much electricity your solar power system generates obviously depends on its size, but things like geographical location, panel orientation and system quality also play a big role. Your solar power retailer will be able to make an estimate on how much electricity your system would generate, but generally speaking however you can expect close to the following numbers:

System sizeAverage daily productionAverage yearly production*
4 kW17 kWh6,205 kWh
5 kW20 kWh7,300 kWh
6 kW23 kWh8,395 kWh

And knowing our feed-in tariff, the calculation becomes very easy:

Electricity generated * feed-in tariff = your savings

That’s not the whole story however.

Less electricity bought from the grid

The above assumes you don’t use any electricity yourself and instead sell all the generated electricity back to the grid. Most people however, use a large portion of the electricity they generate themselves. Thus reducing the amount of electricity they buy from the grid.

Electricity from the grid is on average 28 cents per kilowatt hour. Meaning you pay roughly three times as much for a kilowatt hour as your electricity company pays you for a kilowatt hour.

Ignoring the fact that that might seem somewhat unfair, it also means that you save a lot more money by using the electricity generated by your solar power system yourself. 

Say for example that your 5 kW solar power system generates 7,000 kWh per year. If you sold all of that to the grid with a 10 cents feed-in tariff, you would save $700. 

If, instead you used all that electricity yourself, that would mean you didn’t have to buy 7,000 kWh from your energy company at 28 cents per kW, saving you a whopping $1,960 in a single year!

So with a 5 kW solar power system, your solar retailer would say that your yearly savings would be between $700 and $1,960 depending on usage.

(RELATED: Want to know out if you’re eligible for $2,225 Victorian solar power rebate? Check out our ‘solar power rebate article‘ that contains all the information you need. From the eligibility criteria to a quick step-by-step on how to claim the rebate.)

Self-consumption

Just as most people don’t simply sell 100% of the electricity they generate with their solar power system back to the grid, most people also don’t use 100% of the electricity they generate themselves. That’s why most solar power retailers ask you how much energy you use at nights and throughout the day, also known as self-consumption, because that’ll help narrow down how much you’ll save.

Generally self-consumption sits between 30% and 60%. Let’s keep things simple and assume your self-consumption is 50%. Meaning half of the electricity your solar power system generates is sold to the grid and the other half you use yourself, instead of buying electricity from the grid.

With the same 5 kW solar power system as before, that means 3,500 kWh per year is sold back to the grid at the 10 cents feed-in tariff determined earlier. That’s $350 you’re energy company is paying you.

The other 3,500 kWh per year your solar power system generates, you use yourself. Which reduces the amount of electricity you buy at 28 cents per kWh from your electricity provider by 3,500 kWh. A $980 saving.

Combined that means you save a solid $1,330 on electricity every year. And that’s with conservative numbers. 

Applying the math to the lifetime of a solar power system

Modern solar power systems easily last 15 to 20 years, and when you take that into consideration, the numbers quickly become big. 

After 15 years and by the time the warranty finally runs out on your panels, you will already have saved nearly $20,000 with a 5 kW system. 

That’s a brand new car you can buy, just with the savings on your daily living costs.

That’s why solar power is often considered a no-brainer. However, now you don’t just have to take the solar power retailer’s word for it. You now know how to do the calculations yourself. 

Let’s make it easier

Solar Power Co is the go-to for everything to do with solar power systems. We take the guesswork out of finding quality products and reliable installers so you don’t have to.

If you’re not sure where to start, or if you have any questions about what solar power system would be right for you, we’re here to help. It’s as easy as a click of a button.

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