Solar Panel Rebate To Be Phased Out From 1st of January 2017

The projected solar rebate for a 5kW system in Zone 3 with a $37 STC price.

The solar rebate which currently reduces the cost of rooftop solar in Australia will be phased out with the first reduction starting in less than 8 months on the 1st of January 2017. The rebate will reduce by one fifteenth of its current amount on the first day of each new year until 2030 and will end on the 31^st of December that year. At the start of 2017, the rebate of $3,990 that most Australians would receive at the moment for a 5 kilowatt rooftop solar system will fall by around $266 down to $3,724. The phase out encourages Australians to install rooftop solar sooner rather than later.

Terminology Note:  The Solar Rebate Is Not Technically A Rebate

The Australian Government Clean Energy Regulator say the solar rebate is not technically a rebate. Instead it apparently should be called something along the lines of, “Payment for small-scale technology certificates.” But in real life:

1. This effectively gives you money back on the cost of your rooftop solar system.
2. The dictionary says that when you get money back on something that’s called a rebate. And,
3. They didn’t come up with a convenient term for it, so it’s their own damn fault if people call it a solar rebate. Personally, I plan to call it a solar rebate until at least 2030, which is the year it will disappear.

Don’t worry too much about what you call it. At the moment there are no vocabulary police in Australia. Of course, that will all change the day I become Prime Minister.

What Is The Solar Rebate?

The solar rebate is part of Australia’s Renewable Energy Target and was introduced at the start of 2011. It lowers the cost of rooftop solar to households and businesses through the ingenious creation of valuable pieces of paper called Small-scale Technology Certificates, or STCs. Just how many of these wonderful STCs are summoned out of the ether when you whack a solar system on your roof depends upon how much electricity it is expected to generate. A 5 kilowatt system will receive twice as many as a 2.5 kilowatt one, and a sunny Central Australian location is worth more than a system in cloudy old Melbourne.

This map shows the 4 different zones that determine how many STCs you will receive per kilowatt of solar panels for each remaining year of the rebate:

The 4 zones that determine how many STCs you get per kilowatt hour of solar panels for each remaining year of the solar rebate.

Rooftop solar systems receive one STC for every estimated 1,000 kilowatt-hours of electricity they generate over a period of 15 years and they get them in advance when the system is installed. Because electricity retailers are required to hand over a certain number of them each year to prove the amount of renewable energy generated is increasing, there is a market for STCs that allows them to be turned into dollars. In most cases, Australians choose to allow their installers to lower the cost of their rooftop solar system using the STCs received and not handle them personally.

For an example of how this works, if I had a 5 kilowatt system installed before the end of the year in Sydney, which is zone 3 on the map and the zone in which most Australians live, I would receive 103.7 STCs. Looking up today’s price for STCs I see they are $38.50 each which is a little above the average it has been for the past three years. So if the full cost of my system was $12,000 my 103.7 STCs would lower it by $3,992. This would make the total cost of the system to me a much more affordable $8,008. Or a straight $8,000 if my installer likes to round down.  However, I can’t rely on STCs always being this high and the price my installer will offer is based on the average amount they expect to receive for them and not just today’s high price.

How The Solar Rebate Will Be Phased Out

Currently rooftop solar systems receive 15 years worth of STCs in advance when installed. On the 1st of January 2017 that decreases to 14 years. On the 1^st of January  2018 it decreases to 13 years.  This reduction will continue year for year until 2030 when a single year’s worth of STCs will be given and on the 31^st of December that year the rebate will end.

Will the rebate be scrapped early?

Because the solar rebate has survived long enough to start being phased out gradually, it is possible that politicians will lay off trying to kill it and let it reach the end of its life naturally. But this is no guarantee. Some of our politicians are so detached from reality they are off floating beyond the orbit of Pluto.

Will this bloke kill the rebate early if he wins the election?

If the Coalition wins the federal election there is good chance they will try to utterly destroy the solar rebate and the entire Renewable Energy Target along with it, global warming be damned.  They are still the same mob that cut the Renewable Energy Target in June last year and Australia’s new ringleader has given zero indication that he will do any different.  It is possible that if they do win they may not feel strong enough to axe the solar rebate, as it is fairly popular and not killing untold millions through human caused climate change does poll well.  No doubt to their regret.

But I’ve always been an optimist, so I’m going to assume the solar rebate will stay in place.  And I’m also going to assume the price of STCs will stay around where they have been for the past 3 years at $37 each. And note this is only an assumption. The price of STCs can and will fluctuate. But with a $37 dollar price the solar rebate will be:

Zone 1

[wpdtable id=”5841″]

Zone 2

[wpdtable id=”5842″]

Zone 3

[wpdtable id=”5843″]

Zone 4

[wpdtable id=”5844″]

From the table we can see that with a $37 STC price, the solar rebate I would receive for a 5 kilowatt system in Zone 3; which includes Brisbane, Sydney, Canberra, Adelaide, and Perth; would be $3,840 this year. And it will fall by $260 to $3,580 at the start of 2017. And it will continue to fall by the same amount at the start of each year until it is only $260 in 2030.

Getting The Most Out Of The Solar Rebate

The number of STCs received is based upon the number of kilowatts of solar panels installed and not the size of the inverter.  So if you have 3 kilowatts of panels connected to a 5 kilowatt inverter, you will only receive STCs for the panels.  Also, you can only get STCs for panels that, in total, don’t exceed the size of your inverter by more than one third.  So if you have 4.5 kilowatts of panels connected to a 3 kilowatt inverter you will not get any STCs at all, because you broke the rules. Naughty you. The panels will have to be paid for in full by yourself. A good installer will know this and will not let such a fate befall you.

For many installations it makes economic sense for the panels to outsize the inverter while staying within the one third larger limit. This is because while the system’s maximum output is limited by the size of the inverter, the extra output they produce on cloudy days can make up for this. And it can increase a household’s self consumption of solar electricity which improves the return on rooftop solar now that feed-in tariffs available to most Australians are very low.

What About Solar Hot Water Systems?

Solar hot water systems receive STCs and these will also be phased out. However, because they only receive 10 years worth of STCs up front instead of 15, there will be no cut to their rebate until the start of 2022. From that point on, the number of years worth of STCs received will reduce at the rate of one per year until the rebate ends on the 31st of December 2030.

Note that solar hot water does not receive STCs in the same way as solar PV.  People in zones 1 and 2 will receive fewer STCs than people in zone 3, despite the fact they get more sunshine.  This is because people in the sunnier parts of Australia use less hot water and so they will have less of a reduction in their electricity or gas use.  It is certainly not because the rumor that Queenslanders never bathe is true.

Will The Cost Of Rooftop Solar Increase?

While the solar rebate will decline, the cost of rooftop solar is unlikely to increase because the very large reductions in its cost we have seen over the last few decades are likely to continue. The rate of decline may not be as great as it has been in the past, and it may occur in fits and starts, but it is not likely to stop.

The solar rebate will decline by 6.67% at the start of next year. As the rebate is now around 57% of the total average cost of a 5 kilowatt system, all else equal, this represents a price increase of about 3.8%. As this increase is less than a third of the average yearly price decline since the introduction of the solar rebate, it is very unlikely the phase out will cause the cost of rooftop solar to increase.  And also, unless you enjoy gambling, you will probably want to pay a little more than the average price to make sure you get a system with high quality components installed by a trusted business, so the percentage increase in the cost of a quality system would be even less.

Taking inflation into account, only four years ago the average cost to a household of a 5 kilowatt system was twice as much as the average cost today. That’s a decline of over 15% a year which is extremely impressive. I wish chocolate would decline in cost like that.  It may be optimistic to expect this rapid decrease to continue, but if we assume it slows to a more sedate rate of 10% a year, then with the phase out we can still expect a price decline, in real terms, of around 6% a year. And even if we pessimistically assume the price decrease will slow to only 5% a year, which is not something I think will happen, then with the solar rebate phase out we could still expect a small price decline of around 1% a year.

Can I Afford To Wait To Install Solar?

If you are considering getting rooftop solar installed, there is no better time than the present. Even though I think the cost of solar will continue to decline, it makes no sense to wait because the savings you will make by having solar now should greatly outweigh any saving you’d make by delaying. This was true before the planned solar rebate phase out and it is especially true now.

Just 5 years ago, or even 4 years ago, it was possible to argue that waiting for system prices to fall could save money. But while a 10% decline in price 4 years ago might have saved over $1,300 dollars on a five kilowatt system, the same 10% decline now will only save around $700. As solar gets cheaper, every percentage point of cost decrease saves you less money while the amount of electricity you save by having a system stays constant.

The general rule of thumb is, if you live in Australia, installing at least a small rooftop solar system will save you money. Sure, there are exceptions to this. Perhaps you owe money to a smoulderingly attractive loan shark who will break your heart unless you pay her back. Or maybe you switch off your power at the mains just before dawn and sleep through all the hours of daylight in a lead-lined coffin. But most people come out ahead financially. And even if you are one of the rare exceptions whose wallet won’t benefit from installing solar, you might want to consider it for environmental reasons because buying gills for your grandchildren could be damn expensive.