The results of a recent survey by Sun Connect, an Australian solar power installation company, show that rising electricity bills have a major influence on homeowner’s decisions to go solar. Respondents pointed to high electricity bills, anticipated electricity price rises, and pain caused by high power costs, as significant areas of concern. In fact, when solar panel owners were asked why they originally converted to solar, the results show that people were 2.6 times more likely to identify “electricity bills too high” than to claim “environmental responsibility” as the primary reason behind their shift to renewable energy.
This article looks at the Sun Connect survey’s findings and examines the reasons behind the high electricity prices in Australia. It also takes a look at some predictions about the future of Australia’s electrical supply, and shows why switching to solar energy is now such a compelling idea for Australians.
Sun Connect’s Customer Feedback Survey
The Sun Connect survey collected data from a random sample of 2000 of the company’s customers from last year. The survey was conducted to serve the dual purposes of uncovering the drivers behind customers’ purchase decisions, as well as gathering customer feedback for operational purposes.
More than half of the Sun Connect survey respondents (55%) stated that their reason for switching to solar was excessively high electricity bills. Whereas only 21% stated that they made the switch to benefit the environment. These results show that household economics is playing a much bigger role than environmental altruism in Australia’s shift to renewable energy.
When asked to indicate the levels of pain that their electricity bills were causing, 27% of Sun Connect’s customers reported severe pain, 56% signaled moderate pain and 17% identified no pain. At first glance, the fact that most respondents said they were feeling only moderate economic pain seems to almost run contrary to the identification of high electricity bills as a driving force behind solar power installations. However, the survey also revealed that 92% of respondents felt electricity bills would rise over the next ten years, and the bulk of customers (53%) expected increases of a sizable 41-80% on today’s prices. The Sun Connect survey therefore shows that predicted electricity price hikes are expected to amplify the existing levels of electricity bill pain, and are seen as a major factor behind the installation of household solar panels.
With gloomy predictions about rising electricity bills and electricity bill pain, the survey respondents did report a bit of good news. All of the surveyed Sun Connect customers stated that they had seen sizable reductions in their power bills after switching to solar.
While 74% of customers reported quarterly electricity bills in excess of $400 before making the switch, 43% began generating income from their solar panels after installation due to feed-in tariffs, and an additional 27% of customers had quarterly bills less than $100.
The Sun Connect survey results have shown that going solar is a great way to save on power bills, and that fears about the rising cost of grid power is a major motivating factor behind purchase decisions. Are these fears founded? In order to get a picture of what the future holds, let’s take a look at three trends that will affect the future of Australia’s energy consumption.
Soaring Coal And Gas Prices
The last few years have seen dramatic rises in the prices of coal and natural gas in Australia. The country relies upon coal to produce 80% of its energy; Australia has extraordinarily large reserves of the fossil fuel. However, coal prices have been skyrocketing globally over the past few years, and even though Australia utilizes local coal reserves for the production of electricity, the economics of an interconnected global marketplace mean that increases in international coal prices are being felt by local electricity suppliers as well. These increased costs are then passed onto the consumer in the form of higher electricity bills.
The recent flooding in Queensland has also had an adverse effect on the world’s coal supply. With coal mines idle and shipping lines disrupted, this means lost production. Queensland is the world’s largest exporter of coal by sea, and Asia especially relies on this coal for its steel industry. Although the shipping of steelmaking coal has been hit the worst with experts expecting it to rise as much as 33 per cent in price, the thermal coal which is used in the production of electricity will also see an increase. Experts in the coal industry say that, since infrastructure capacity is so tight already, it will be impossible to make up for this lost production in the short term, and electricity prices will rise accordingly.
The RET Scheme
Another factor contributing to rising electricity prices in Australia is the Government’s Renewable Energy Target plan (RET), which was legislated in 2009. The law became operational in 2010, and contributed to increases in electricity prices in New South Wales of approximately 10-13%. There is another increase set for the beginning of 2011.
The Renewable Energy Target has been orchestrated to help the country meet its goal of having 20% of Australia’s power generated by renewable energy sources by the year 2020. Under the terms of the plan, “renewable energy” includes solar power, wind power, bio-energy, geothermal and other sustainable energy sources.
Some of the mechanisms in the RET scheme encourage businesses and households across Australia to switch to renewable energy, in part by offering rebates and other economic incentives. Australia also has state-based solar power rebates, which means that the level of incentive is dependent upon location. A similar system has worked well for Germany, which has become a world leader in solar power generation, in spite of its colder climate.
Interestingly, the introduction of feed in tariffs has provided dual incentive to make the shift to renewable energy. Firstly, as a result of the direct economic incentive provided to households that install solar panels, but also as a result of the impact of the feed in tariffs on the prices of electricity. The costs of buying electricity at inflated feed in tariff rates are being passed onto electricity consumers in the form of higher electricity bills. This in turn is lessening the gap between the price of power produced from fossil fuels, and power produced from renewable sources. Whether by design or externality, the increased power prices are providing added incentive, as shown in the Sun Connect data.
Energy For Australia’s Growing Population
Australia’s booming population is also fueling price hikes in the country’s electricity bills. In 2009, Australia’s population topped 22 million, with a growth rate of 2.1 per cent. To give an idea of just how high this is, consider that it is nearly double the world average of 1.1 per cent. It is more than any of Australia’s Asian neighbors, including China and India, and higher than most countries in the world.
There are several reasons why this population boom places added strain on power prices. Firstly, with the larger population comes increased demand for electricity, which causes increased prices due to simple demand and supply economics. This effect is also amplified because of the continuing increases in per capita appliance usage amongst Australians, whereby every additional resident adds a greater amount of demand to the system than ever before. Secondly, much of the price increase is due to the massive levels of capital expenditure required to upgrade Australia’s power infrastructure to meet the increased demand. Evidence of this can be found in the state of Queensland, which is one of the nation’s fastest-growing areas. The Australian Energy Regulator said in its State of the Market Report 2010: “The Queensland networks have pressing capital requirements associated with population growth, new connections and industrial demand, as well as rising demand per customer.” The report goes on to state that 50 per cent of the average Queensland resident’s electricity bill goes towards network costs alone. The AER is predicting a 2.3 per cent increase every year until 2015. This equates to an average of $50 more per household in this year alone. It is therefore safe to assume that the expectations of the Sun Connect survey respondents are well founded; power prices are set to increase further in coming years.
It’s clear that there are some sizable forces at play in the Australian electricity market, and that the trends are clearly pointing to a continuation of increased power prices. Given that solar power rebates are likely to be a short-term stimulus measure only, this may lead to increased costs in the medium term. As such, it is worth examining the major factors that play into the cost of a solar power installation.
The Costs Of Going Solar
Traditionally, the high upfront installation cost of solar panels has been a barrier to the widespread adoption of solar power technology. However, according to the Clean Energy Council of Australia’s 2010 report, the average price of solar panel installations dropped by about half between 2007 and 2010, and prices are expected to decrease by an additional 60% by 2020. The Australian government has also announced a research partnership with the United States, which will endeavor to make solar energy economically competitive with fossil fuels within the next five years.
Nevertheless, as demonstrated in the Sun Connect survey, people feel a real and immediate need to find ways of mitigating their electricity costs now; there is little enthusiasm for enduring an additional 8 years of high electricity costs while waiting for the costs of solar power technology to decrease further. For the homeowner who is considering the installation of solar panels, there are several factors which contribute to the overall cost:
Energy Needs: Household’s with high electricity needs require bigger systems to offset the high levels of electricity consumption, and this means that they cost more to install. Given that government rebates are capped at maximum levels, there may be a point at which installing additional capacity will generate less of a return on investment than a smaller partial-coverage system. If so, the point at which this occurs is an inexact science, as it includes considerations about predicted electricity prices for the life of the system. Furthermore, a percentage return on investment is not always the best measure of benefit, as it is also important to consider the gross benefit in monetary terms.
Budget: The costs of a solar power system are skewed towards the initial installation; maintenance costs are very low. However, given that these upfront costs can be quite substantial for very large systems, affordability plays a role in the final cost of many installations. Therefore, the overall cost of a solar power system may be heavily dependent upon the available budget.
Quality: There is a high degree of variability in the quality of solar power installation components. The inverter, the mounting system, the cabling and accessories, and even the panels themselves are available at various levels of quality. This may be reflected in terms of power generated, warranty, durability, and reliability. As with most types of products, high quality components are generally more expensive.
Government Rebates and Market Incentives: There are a number of elements to consider here. Firstly, the level and nature of the available feed-in tariff plays a large role in the effective costs of a solar power system, particularly when it comes to whether it is a gross feed-in tariff or a net feed-in tariff. These tariffs vary on a state by state basis, and some states are more generous than others. Secondly, the availability of national and state based rebates is also a significant factor as they can add up to many thousands of dollars. Lastly, household solar power installations are eligible to trade the Renewable Energy Credits (RECs) generated by the production of renewable energy. These RECs have a value in the marketplace. The level of this value and the way in which it is accounted for by the solar panel installer will be factored into the price of the system.
In summary, Sun Connect has demonstrated that electricity prices are expected to rise over the coming years, and that this is a significant factor in many people’s decisions to go solar. Due to large forces at play with the world’s coal supply, a booming population that will increase energy needs, and a program to get the country greener by 2020, Australians can expect to see electricity prices continue to climb.
Although solar panel installations require an initial upfront investment, this cost has been declining dramatically in recent years and is expected to continue its descent in the years to come. It should also be remembered that although the Sun Connect survey revealed that economic fundamentals play a major role in household decision making, the reality is that solar power is also helping to create a more sustainable future. Australia is the lucky recipient of huge quantities of the sun’s energy; it receives the highest average solar radiation of any of the Earth’s seven continents. The future’s looking bright for a more environmentally sustainable Australia, and a much healthier planet.