How do I calculate the payback period on my solar and battery system?

How do I calculate the payback period on my solar and my solar & battery systems?

Solar batteries are becoming increasingly popular, combined with solar panels as a package rather than solar by itself. This changes how the integrated solar solution manages the electricity generated and how the payback period for a solar and battery system is calculated.

The payback period of any investment is essential to assess before making the purchase, but do not just look at the ROI period but also at the overall benefits over the life of the system. 

The ROI period refers to the time it takes for the initial investment to pay for itself. In regards to a solar system, the money you save through energy savings and other benefits will eventually cover the cost of the system. However, how do you find out how long this will take? This article will give you a step-by-step guide to calculating your payback period. We have a great calculator on this issue, which you can find here. 

The payback period on solar without a battery

First, you must gather information on your electricity usage and costs. Grab your electricity bills and look at how much electricity you use daily (The average household across Australia uses 18-20kwh per day). If you have a smart meter or digital meter, your installer can get detailed usage data in 30-minute intervals, allowing you to see precisely when and how much you are using electricity during the day.

But in most cases, use your electricity bill for a whole year and look at the back of the various monthly or quarterly statements to see your average daily consumption at different times of the year.

From the bill or your energy retailer’s price list, you also can find out your local consumption tariffs. The tariffs show how much you are being charged per kWh of electricity you buy from the grid. You might have a flat rate, meaning all kWhs consumed cost the same no matter what time of the day, or you have a time of use tariff, meaning depending on what time it is, you might be charged different tariffs.

When you get your quote for solar, the quote will give you a forecast of how much electricity you will produce on average per day and year, as well as the cost of the solar system.

So the critical bits of information you want to work out the ROI are:

• Cost of each kWh of electricity used (if you have different rates for different hours for a rough calculation, add the three rates and divide by 3 to get an average kWh cost)
• FIT price per kWh (what you get paid for solar electricity exported).
• Price of the solar system quoted (solar system cost).
• Cost of the solar system with battery option (Solar and battery cost)
• Expected annual solar generation in your postcode for the proposed size solar system. Use our output calculator to get this number. 

Step 1- The initial cost of the system

The first step is to find the total initial cost of your solar system. This total includes the panels, installation and inverter, and any additional equipment you got, such as a battery. The initial cost will depend on the system’s size, the equipment quality and your installer’s experience. Look at your installer’s quote or the invoice in case you purchased the system already. Write this number down – in our example, it is $8,085 for a 6.6 kW system.

Step 2- Annual energy savings

The next step is to find the annual energy savings your system will provide. Like the cost, this will vary between systems due to size and quality. Your savings can be found by multiplying the energy the system produces, which you will get via our output calculator. This calculator gives you an estimated solar generation in kW/h for any postcode and any system size in Australia. 

Then estimate how much of this generation you will use in the house and how much you will export. A 50/50 assumption is often quite accurate. For the cost of electricity, you can find the price per kW/h on the back of your latest electricity bill.  

For example, if your 6.6 kW system in Brisbane produces 10,780 kW/h of solar energy annually the cost of electricity is $0.40 per kWh, and your export payment (FiT) per kW/h is 10 cents, then your income per annum is – as long as you use 50% and export 50% as per below: 

50% of 10,780 kWh = 5,390 kWh x 0.40 cents = $2,156 plus the savings via the export income (FiT)

50% of 10,780 kW/h = 5,390 kWh x 10 cents = $ 539  FiT income.

So the total benefit from that solar system per year is $2,156 (electricity not to have been purchased from the grid) + 539 (export income) = $ 2,695.

If this system originally cost $8,085, then that figure divided by the annual income of $2,695 gives you the result, being a 3-year ROI.

But there is more.

Step 3 – Annual maintenance costs

The third step is to calculate what your annual maintenance costs will be. These costs will include cleaning and general routine maintenance. As the system is new, these costs will be relatively minor in the 1st years – so they will have minimal effect on the ROI calculations.

If you seek to calculate the maintenance costs for solar in future years, first check your system’s warranty and what it covers. For example, your workmanship warranty may cover the 1st general maintenance visit in year three, so the cost impact on the ROI will be zero. 

For the costs not covered by your warranty, ask your installer what the average panel cleaning and maintenance costs for your system are so that you can include them in the long-term calculations. 

When you have your final maintenance and future part replacement numbers, subtract these from your annual energy savings. This will give you your actual savings for 1 or 2 decades.

Step 4 – How to calculate the payback period with a solar & storage battery system

Suppose you have a solar storage battery with your solar system. Finding the payback period changes and gets a little more complicated. Without many measurements and data, we need to make rough assumptions to get general numbers. 

A battery stores your panels’ electricity when you do not use it instead of sending it back to the grid. This means you need to estimate how much battery capacity you will use daily in kWh.

The figure you will need to find is the battery’s usable capacity. Let’s say we purchased a 15.5 kWh battery and can use it safely, meaning draw out to 90%. This means we can extract from fully charged to empty 14 kWh – being 90% of a 15.4 kWh battery. But as we could partly charge and discharge the battery during the day, the daily amount of solar going into and out of the battery could be more than 14 kWh. 

If we export 15 kWh of electricity per day on average, then in our calculations, let’s assume that we absorb via the battery the complete 15 kWh each day and use the full 15 kWh during the night and cloudy days.  

As we get paid 10c per kWh for the exported electricity from the energy retailer but pay 40 cents for the electricity we get from the grid, the benefit of the battery is 30 cents (40 cents – 10 cents) for each stored and used kWh per day.

So the battery makes us on the 15 kWh stored and used daily 15 x 30 cents = $4,50 per day. If this benefit would be constant for the year, then the annual battery benefit would be 365 x $4.50 = $1642.50

 Step 5 – The payback period with battery calculated

To find your final payback period, add your battery cost of, let us say, $13,500 to your solar system price of $8,085 = $21,585. Now add the annual savings from both the solar and the battery together being $2,695 plus $1642.50 together = $4,337.50, yearly benefit.

Now add the solar system costs and the battery purchase cost together, being $8,095 plus $13,500 = $21,595. Divide the total purchase cost by annual savings to find your payback period. So it’s $21,595 divided by $4,337.50 = 4.97 years. Therefore the ROI on a solar and battery in this example is close to 5 years, compared to 3 years for solar only. 

Therefore, a solar-only system looks financially more advantageous than a solar/battery combo.

But batteries will soon be a must-have when we move into the world of EVs. Then there are the benefits of using all the solar power with the help of the battery and having a backup for grid outages.

Then in the future when you purchase an EV, your solar and battery can make sure you literally can drive with the power of your own home power station which will give you further savings, as now your $2500 annual petrol bill will be much much lower.   

If we assume the battery lasts 12 years on a rough calculation after 12 years, not only did we pay for the solar and battery, but we also saved after we paid the system off after 5 years – another 7 years, the annual benefit of $ 4,337.50.

The result

So 7 x $4,337.50 = $30,362.50 overall benefit over the life of the battery, plus many more additional years of solar benefits to add on top. 

Disclaimer: Without the very accurate consumption patterns of each household, meaning detailed individual data, the calculation above makes certain assumptions. It does not consider battery degradation factors and changes to the household, e.g. people moving in or out. Still, it does demonstrate that a solar & battery system will make you money over time.