If structured correctly, a new solar PV system owner can actually get themselves into a situation where the savings on their energy bill is more than the cost of servicing the loan to buy and install the system. Let’s check out an example to show you how it works.
We will use an example household which uses 37.9 kWh of electricity per day and note that the electricity usage component of their bill is $989. After the installation of a 4 kW solar PV system at a cost of $8,000, they are able to reduce their consumption from the electricity grid to 23.5 kWh per day. The 4 kW Solar PV system produces 19 kWh of electricity on an average day, some of that electricity is used for the household’s consumption and any excess electricity generated is sent out to the electricity grid for a small credit on their bill. The sum of the usage cost and the small credit gave the household a new quarterly electricity usage component of $582. So they are saving $408 per quarter.
Now let’s assume they funded the $8,000 capital cost of the solar PV system by use of a loan at a rate of 8.4% p.a. over a 10-year term.
The quarterly repayments on the loan would be $297 (that’s $23 per week). So the household is paying $297 per quarter as principal and interest repayments on their loan to save $408 per quarter on their electricity bill. They’re ahead by $111 per quarter, from day one (that’s $8.5 per week). Then, once the loan is fully repaid, they own the solar PV system outright, and from then on are saving the whole $408 per quarter on their electricity account. Also it is worth noting, by this time electricity rates will probably be higher, which would magnify the returns even more. For the amounts used in this example, every cent per kWh electricity rates go up, the savings increase by about $10 per quarter.