Feed in Tariffs Keep Getting Lower. Is Solar Still Worth it in 2021?

Across Australia, feed-in tariffs are sitting at a historical low and are getting lower every year. This downward trend is leading many people to see solar as “not worth it anymore”, a “waste of money” or, in some cases, a “scam”.

One of the most common misconceptions we hear about residential solar systems is that the only way they save you money is via the feed-in tariff you receive when you send electricity back into the grid. This really isn’t the case at all.

In this post, we’re going to break down the reasons why feed-in tariffs have changed so drastically and hopefully provide some insight into how solar actually works in 2021 to save you money.

feed in tariffs

Why did feed-in tariffs use to be so high?

When residential solar entered the Australian market in 2009, high feed-in tariffs, along with up-front grants and other state and federal government schemes, were introduced as an incentive for homeowners to install expensive solar systems.

Emphasis on the word EXPENSIVE.

Let’s try to put this into perspective; when feed-in tariffs were at their most generous (two or three times the retail cost of electricity), solar system prices were astronomically (3-4 times) higher compared to what they are now. In fact, solar panel prices have dropped almost 80% over the last decade.

Early adopters’ of new technologies tend to pay high prices for systems which are often not as efficient as later designs. When early-adopters of solar technology made the investment, they really needed that feed-in tariff to achieve a decent payback period (the length of time it takes to recover the cost of installation).

By using a feed-in tariff to stimulate demand, governments assisted early adopters financially but also, through increased demand, drove the industry to develop new and more efficient systems.

Although feed-in tariffs have dropped significantly, solar customers today are not only paying significantly less upfront for their systems, but are also reaping the benefits of technological advancements that make their systems not only far more efficient but last considerably longer than their early counterparts. Federal and state rebates* to assist with the upfront cost of solar, while also lower than before, are also still available, making the cost of solar very affordable for most Australians. With payback periods typically less than 5 years, any feed-in tariff you receive is really just a bonus.

*Side-note: another common misconception is that the feed-in tariff is Australia’s ‘solar rebate’. The federal rebate is a different incentive offering a point of sale discount on the upfront cost of your system.

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Why have feed-in tariffs fallen so low?

There are a few reasons why feed-in tariffs have fallen from their early highs. One of these reasons, you may be surprised to hear, is that they were more successful in their original goal than anticipated. In New South Wales, for instance, it was found that incentive-driven solar uptake occurred faster than expected and the scheme’s first renewable target milestone was reached two years ahead of time. The carrot of high feed-in tariffs did what it was supposed to do.

One of the main reasons is due to reductions in wholesale electricity pricing – a direct result of the successful uptake in solar. Sustained lower wholesale electricity prices generally lead to reductions in feed-in tariffs.

There was also concern that the feed-in tariff, which is paid by retailers, had inflated prices for non-solar households. In addition, there was evidence that some applicants were intentionally adding solar systems beyond their household requirements, and the cuts were intended to minimise windfall profits under the scheme.

The key to solar savings: self-consumption

Did you know that you get much better returns when YOU use your solar-generated electricity? Self-consumption is worth roughly twice as much as your feed-in tariff!

Any electricity you generate with a solar system and don’t feed back into the grid (because you’ve used it to power something in your home), is essentially ‘free’, or 0c per kWh.

We hear you – the sun isn’t out 24 hours a day, so this means that you can only get your ‘free’ electricity from around 8am – 6pm. What if you aren’t home during the day to take advantage of peak solar energy production? If you drive to work in the dark and back home in the dark on weekdays, for example, your day-time energy usage is going to be very low.

If you aren’t at home during daylight hours, the key to reaping the full benefits of solar is to plan ahead with timers on your appliances, charging devices during daylight hours to use at night and scheduling energy-intensive activities for the weekend when you at home during the day. This might sound like a hassle, but the small effort it takes to change your consumption habits can save you thousands every year.

COVID has also enhanced the business case for residential solar.

Despite relaxed COVID restrictions in some parts of the country, more Australians are taking up the option to work from home, according to a new report from the Australian Institute of Family Studies (AIFS). The studyfound that, among the employed survey respondents, 67% were sometimes or always working from home compared to 42% pre-COVID. Couple this with home-learning in Victoria and NSW, and this represents a significant increase in daytime power consumption for millions of Australians that can be serviced with solar-generated electricity.

Getting the best value from your excess solar generation

To get the best value for your excess solar generation, be prepared to monitor prices and switch retailers when there’s a better deal. If you have rooftop solar panels and you’re not receiving any feed-in tariff, it probably means your electricity plan doesn’t have a buyback feature. This can be rectified either by changing your energy plan or by changing your electricity retailer. Energy Matters’ fast and free energy comparison tool targets competitive deals in your postcode area, and compares against your current energy bill.

Keep in mind that the highest feed-in tariff rate is not necessarily the best. In many case, energy retailers give with one hand and take with another; so they pay a lot more for your fed-in electricity, but they’ll also charge you a lot more if you want to buy electricity.

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Solar battery storage

Of course you could increase self-consumption significantly with the investment of a solar battery. You can store the energy your panels produce during daylight hours so you have it for use at night time. The payback period for solar batteries typically sits around the 10-year mark, about the same time as the life of the battery. For many, buying a solar battery is not so much an economical decision as it is a lifestyle choice. To learn more about solar batteries and whether or not they are worth the investment in 2021, check out our recent article on the hot topic.

Yes, solar is still worth it despite low feed-in tariffs

Despite what many think, customers who invest in a solar system today aren’t getting the ‘raw end of the deal’ compared to early adopters. When you consider the dramatically reduced cost of solar combined with the vast improvements in system efficiency and longevity, feed-in tariffs are not the ‘sine qua non’ they once were for making a good return on investment.

To truly make the most of your solar system and your potential savings, you should try to maximise your solar self-consumption, either through adjusting your consumption habits or adding battery storage (if feasible).

Looking at going solar? Energy Matters can assist you with up to 3 FREE, obligation-free quotes from trusted local installers – it’ll only take you a few minutes. You can also call us on 1800 EMATTERS or email our friendly team for expert, obligation-free advice.