How solar pays for itself and batteries reduce bills

Find out how a rooftop solar system pays for itself and how a battery reduces your electricity bill.

How solar saves you money

How much money your household or business saves from solar depends on what happens with the electricity generated by the system.

The electricity generated by a home or business rooftop solar system may be:

  • used to run appliances (self-consumed)
  • sent to the electricity grid (exported)
  • wasted if the export limit (how much electricity can be exported to the grid) has been reached (curtailed)
  • used to charge a battery if the system includes one.

Solar can reduce your electricity bill through:

  • self-consumption
  • solar export
  • reducing peak demand

You can save the most money by self-consuming, or using, the electricity generated by your solar system.

Sangita has a rooftop solar system on her house, but no battery.

You can think of a solar panel as being a bit like a tap with water flowing out of it.

The power output (measured in watts or kilowatts) is how fast electricity flows out of the panel. You can think of this like the flow rate (litres per second) of water from a tap.

The amount of electricity (or electrical energy) generated over a period of time is measured in watt-hours or kilowatt-hours. This is like the total volume of water that comes out of the tap over a period of time.

Savings from self-consumption

When you use solar generation to power your home or business appliances, you need to buy less electricity from your electricity retailer. This is called solar self-consumption.

Every kilowatt-hour (kWh) of solar generation that your household or business self-consumes means one less kilowatt-hour (kWh) of electricity bought. The amount you save for each kWh self-consumed depends on the rate you pay (c/kWh) to your electricity retailer. This rate can vary with the time of day, day of the week or time of year, depending on your electricity pricing plan.

Earnings from solar export

When your rooftop solar system is generating more electricity than your household or business is using, the excess solar is exported to the grid. You will receive a credit on your bill for the exported electricity if your electricity plan includes a feed-in tariff. 

If your system has an export limit agreed with the distribution network service provider, any excess solar over the export limit will be curtailed (wasted) and you won’t receive any credit for it. Read more about export limits.

Feed-in tariffs are typically a lot lower than the rates you pay to buy electricity from the grid. So, self-consuming your solar generation saves more money than exporting it. Learn about how to increase your self-consumption.

Reducing peak demand

Many business pricing plans, and some household plans, have a demand charge tariff.  This means the electricity bill includes a charge based on the peak demand, the highest amount of power drawn from the grid at any time. If the solar system is generating electricity at the time of this peak demand, it will reduce the peak demand charge.

How batteries reduce your bills

A battery can reduce your electricity bill by allowing you to:

  • increase self-consumption
  • take advantage of time of use tariffs
  • reduce your peak demand
  • participate in a virtual power plant
  • reduce curtailment(likely to be only a small saving).

Savings from increasing self-consumption

A battery can store energy generated by your solar system for later use, when the solar system is not generating electricity. This increases solar self-consumption and reduces the amount of electricity you need to buy from your electricity retailer. Savings from self-consumption are greatest if you have a time of use electricity pricing plan and use stored energy from your solar during the more expensive peak periods.

If you have a feed-in tariff, it also decreases the amount you are paid for solar exports, but this is generally much smaller than the increased saving.

Batteries can operate differently depending on the type of electricity plan or tariff.

Taking advantage of time of use tariffs

If you are on a time of use tariff, your battery can be charged with low-cost electricity from the grid during off-peak periods and then discharged to run appliances during peak periods, avoiding paying for peak rate grid electricity.

With a time of use feed-in tariff (available in some areas), you can also export electricity to the grid in the evening for an increased bill credit.

Reducing peak demand

Many business electricity pricing plans and some household plans, have a demand charge based on the highest amount of power drawn from the grid at any time. If this peak demand is at a time when the solar system is not generating electricity, your battery can be discharged to reduce the peak demand and therefore reduce the demand charge.

Participating in a virtual power plant

A virtual power plant is a network of batteries that is operated in a co-ordinated way by an electricity retailer or other organisation. A virtual power plant can operate like a traditional electricity generator or big battery—buying and selling electricity.

If you join a virtual power plant, your battery will be controlled by the virtual power plant operator for some or all of the time in return for financial benefits. These could include:

  • reduced electricity prices (or even a 'zero bill guarantee' where you let the virtual power plant operator control your battery in return for a zero-cost electricity bill)
  • increased feed-in tariffs
  • an upfront discount on your battery system cost
  • a regular payment instead of a bill

The upfront cost of the battery should be considered in any assessment of the benefits.

Things to consider before participating in a virtual power plant:

  • possible reduced battery lifetime as your battery may be charged and discharged more than usual
  • possible loss of power back-up if your battery is configured for this purpose - you may be left with no stored energy in your battery to use in a power outage (some virtual power plants reserve part of your battery for back-up use)
  • possible impacts on your battery warranty.

Each virtual power plant has different financial benefits and different risks. It can be tricky to work out the best deal. Read the details carefully and look for online reviews. Your solar retailer or installer might be able to help you.

Reducing curtailment

Without a battery, if your connection agreement with your distribution network service provider includes an export limit, there may be times when some of your solar generation is curtailed (wasted).

In some areas, curtailment can sometimes happen automatically to help manage network voltage.

With a battery, this excess generation can charge the battery and be used at another time, instead of being curtailed. This can reduce your electricity bill.

However, for most solar systems, the amount of electricity curtailed is small, so the savings from reducing curtailment are modest.

Payback period

The payback period is the amount of time it will take for your electricity savings to match the cost of the system. For a rooftop solar system, this is typically much less than the lifetime of the system.

The actual payback period depends on many factors, including weather, maintenance costs and future electricity prices.

You can get an estimate of the payback period for a solar system and/or battery using SunSPOT. SunSPOT does not currently include the option to explore the benefits of virtual power plants, or charging a battery from the grid.

A battery will not pay back its upfront cost as fast as a solar-only system and may not even pay itself off within its lifetime. Depending on your situation, purchasing a battery may not be financially beneficial. However, there may be other good reasons for purchasing a battery.

For example, if you buy a system to provide back-up in a power outage, the lifetime bill savings from the combined solar and battery system may still cover the total investment cost.

Learn more

Sangita has a 6.6 kW rooftop solar system. The graph shows her average solar generation and electricity use over a day in summer and how this affects her bill.

Graph - Solar consumer Solar

This is a summer average and will vary from day to day. For example, on very hot days Sangita may use more electricity to run her air-conditioner. In winter, Sangita’s solar will generate less and she may use more electricity for things like heating.

Sangita now has a 6.6 kW rooftop solar system with an 8 kWh battery. The graph shows her average solar generation, electricity use and battery charging and discharging over a day in summer and how this affects her bill.

Graph - Solar consumer Battery

This is a summer daily average and will vary day-to-day and seasonally. It also assumes standard battery operation under a flat rate tariff. There are alternative battery operation modes with different outcomes.

A 6.6kW solar-only system would cost Sangita $7,000 and save her $1,600 in an average year through self-consumption and export. The solar system will take about 4.4 years to pay itself off ($,7,000 / $1,600 = 4.4 years).

Graph - Solar consumer Rooftop solar investment cash flow

A solar and battery system would cost Sangita $22,000 and save her $2,100 per year. The solar and battery system will take approximately 10.5 years to pay itself off ($22,000 / $2,100 = 10.5 years). If the battery has a warranty of 10 years, this could mean that Sangita’s rooftop solar and battery system is not paid off before the battery warranty expires. However, it may be worthwhile because of the other benefits it provides.

Learn more about batteries.

Graph - Solar consumer Rooftop solar and battery investment cash flow