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The Economics of Solar Energy: Costs, Incentives, and Return on Investment in Australia

by | Mar 22, 2023


Australia’s abundant sunshine and increasing energy needs have led to a growing interest in solar energy. The country’s solar energy capacity has expanded rapidly over the last decade, and it now ranks among the world leaders in solar power generation. In this article, we will delve into the economics of solar energy in Australia, exploring the costs, incentives, and return on investment for both residential and commercial installations.

  1. The Cost of Solar Energy Systems in Australia

The cost of a solar energy system in Australia depends on several factors, including the size of the installation, location, equipment used, and the installer’s fees. However, the cost of solar panels and related equipment has dropped significantly over the past few years, making solar energy more affordable for consumers. As of 2021, the average price for a residential solar energy system in Australia ranged between AUD $3,000 to $10,000, depending on the system size and quality of components.

1.1 Solar Panel Costs

The most significant cost component of a solar energy system is the solar panels themselves. The price of solar panels depends on factors such as their efficiency, wattage, and the technology used. Monocrystalline panels, which are more efficient and have a higher wattage, tend to be more expensive than polycrystalline panels. However, the price of solar panels has been decreasing steadily due to improvements in manufacturing processes and economies of scale, with a drop of more than 70% in the past decade.

1.2 Inverter Costs

Another important cost component is the inverter, which converts the direct current (DC) produced by the solar panels into alternating current (AC) suitable for use in homes and businesses. The cost of an inverter depends on its capacity, efficiency, and features such as remote monitoring and system optimization. The price of a residential inverter can range from a few hundred to a couple of thousand dollars, depending on its specifications.

1.3 Installation Costs

The cost of installing a solar energy system varies depending on factors such as the complexity of the installation, the installer’s experience, and the location of the property. In general, the cost of installation can range from $1,000 to $3,000 or more for a residential system. However, this cost can be offset by various incentives and rebates offered by the Australian government and state agencies.

  1. Incentives and Rebates for Solar Energy in Australia

The Australian government has implemented various incentives and rebates to encourage the adoption of solar energy. These incentives help reduce the upfront cost of installing solar systems, making them more accessible to homeowners and businesses.

2.1 Federal Incentives

The primary federal incentive for solar energy in Australia is the Small-scale Renewable Energy Scheme (SRES). The SRES provides Small-scale Technology Certificates (STCs) to eligible solar installations, which can be traded for cash or used as a discount on the installation cost. The number of STCs a solar system receives depends on its capacity, location, and the current market value of the certificates.

2.2 State Incentives

State governments in Australia also offer various incentives and rebates to promote solar energy adoption. These incentives vary by state and may include feed-in tariffs, which pay solar energy system owners for the excess electricity they generate and feed back into the grid. Some states also offer low-interest loans or grants for solar energy system installations, particularly for low-income households or those in regional and remote areas.

  1. Return on Investment for Solar Energy Systems in Australia

The return on investment (ROI) for a solar energy system in Australia depends on factors such as the system’s cost, incentives, energy production, and local

electricity prices. However, with the declining cost of solar panels, increasing electricity prices, and government incentives, solar energy systems have become an increasingly attractive investment for Australian consumers.

3.1 Payback Period

The payback period for a solar energy system is the time it takes for the system to generate enough savings in electricity costs to cover its initial investment. In Australia, the average payback period for a residential solar energy system ranges from 3 to 7 years, depending on factors such as system size, location, and the available incentives. As electricity prices continue to rise, the payback period for solar systems is expected to decrease, making them even more financially viable.

3.2 Long-term Savings

Solar energy systems have a typical lifespan of 25 years or more, which means that homeowners and businesses can enjoy long-term savings on their electricity bills once the system’s payback period has passed. In addition, solar energy systems often require minimal maintenance, which further contributes to their cost-effectiveness. The long-term savings from solar energy systems can be substantial, with some Australian households saving thousands of dollars over the lifetime of their solar installation.

3.3 Increased Property Value

Installing a solar energy system can also increase the value of a property, as prospective buyers increasingly recognize the financial and environmental benefits of solar energy. Research conducted in Australia has shown that homes with solar energy systems sell faster and at higher prices compared to similar homes without solar installations. As solar energy becomes more widespread, this trend is likely to continue, further enhancing the ROI of solar energy systems.

  1. The Future of Solar Energy in Australia

The economics of solar energy in Australia are becoming increasingly favorable as solar panel costs continue to decline, electricity prices rise, and government incentives remain in place. In addition to the financial benefits, solar energy also provides significant environmental advantages by reducing greenhouse gas emissions and Australia’s reliance on fossil fuels.

As the cost of energy storage technologies, such as batteries, continues to decrease, the combination of solar energy systems with energy storage will likely become more common, allowing households and businesses to store excess solar energy for use during periods of low sunlight or high electricity demand. This development will further enhance the economic viability of solar energy in Australia and contribute to the country’s transition towards a low-carbon economy.


In conclusion, the economics of solar energy in Australia are highly favorable, with decreasing costs, strong incentives, and attractive return on investment. Solar energy systems not only offer long-term financial benefits for homeowners and businesses but also contribute to a cleaner, more sustainable energy future for the country. As technology continues to advance and the market matures, it is expected that solar energy will play an increasingly important role in Australia’s energy mix, driving further economic and environmental benefits.