Source: MyBroadband

The real cost of a solar power system — and how long it takes to pay for itself

Double-digit annual electricity price hikes and a reduction in solar equipment prices mean investing in generating your own electricity at home could pay for itself in just a few years.

The savings through electricity bill reductions can now make up for the cost of a system on a 5-year loan in about seven to eight years.

Eskom’s electricity tariff hikes have been well above the inflation rate in South Africa since it first started implementing load-shedding in 2007.

The average tariff of 19.59 cents per kWh in the 2007/2008 financial year has exploded to about 166 cents in 2023/2024, a jump of roughly 747%.

Conversely, the prices of solar panels, inverters, and batteries for household and business use have decreased.

According to data from the World Economic Forum, the price of solar power reduced by 80% between 2010 and 2021.

While there was a brief period of increases owing to supply chain constraints brought about by the Covid-19 pandemic, prices have again continued their downward trend.

In South Africa in particular, prices have dropped due to an influx of solar panels, inverters, and batteries in the first half of 2023.

Households have been lining up to buy solar systems amid the worst levels of load-shedding the country has ever experienced.

 

In addition to providing backup power during load-shedding, a solar system can help households reduce their electricity bill substantially.

While the cost of a solar power system can be very expensive, these savings can offset the actual price.

MyBroadband used an online calculator for solar power kits provided by one of the country’s most well-known solar and backup system providers — Solar Advice — to work out the effective “real” costs of various solar systems when factoring in electricity bill savings.

We came up with four Solar Advice systems configured for users with monthly consumptions of 450kWh, 600kWh, 900kWh, and 1,200kWh.

The battery sizes were relatively large for all the users because we assumed they had a typical day-to-night electricity consumption ratio of 40:60.

If you use more electricity when the sun is down, the system’s price escalates substantially because of the cost of the batteries needed to store and discharge electricity generated during the day.

The table below compares the effective costs of four solar power systems for households with electricity consumptions ranging between 450kWh and 1,200kWh.

As shown above, the effective cost of the load-shedding protection is substantially cheaper than the overall monthly cost of the system due to substantial savings in grid electricity.

Eskom says the average household in the country consumes about 900kWh of electricity per month.

Such households who choose Solar Advice as their installer will be paying an effective cost of R1,245.61 per month for protection from load-shedding.

The system’s generation will cover R3,444.60 of the remaining cost on the R4,690.21 monthly electricity bill.

MyBroadband also calculated how long it would take for the cost of each system above to be fully “paid off” through electricity savings.

The following table shows the 900kWh system would be fully paid after six years and ten months, a very short return-on-investment period.

It is important to emphasise that the savings will likely grow in the coming years due to further Eskom electricity price hikes.

If you buy the system before the end of the current financial year, you can also get a tax rebate from SARS of 25% on the value of the solar panels, up to R15,000.

However, if Eskom gets its way with a proposed new electricity pricing methodology, it could introduce higher capacity charges that will increase grid connection costs for some homes and businesses.

Eskom has acknowledged that the Incline Block Tariff structure has incentivised more power-hungry consumers to seek alternative energy sources, costing the utility significant revenue.

Consumers on the most popular tariff plan — Homepower 4 — will pay between R536 and R573 in capacity charges per month without buying one kilowatt-hour of electricity, compared with the current R127 to R136.

The average monthly per-kWh cost of electricity also comes down as usage increases.

Fortunately, Eskom has also proposed a time-of-use Homeflex tariff that could offset some of this impact if solar users can consume their own electricity during peak periods while using Eskom’s during off-peak hours.

In addition, Eskom has proposed that net-billing rates be offered to households, which would reward consumers with electricity credits if they can push power back into the grid.

Eskom has argued this tariff should be mandatory for customers with small-scale embedded generation and the required net-billing meter equipment.

While Eskom wanted the new structure to be implemented from 1 April 2023, Nersa only recently held public hearings on its own consultation paper on a revised electricity price determination methodology, which differs significantly from Eskom’s proposals.