Is a bigger solar system always better?

Homeowners installing solar power systems may get a better return from a slightly bigger system.Kristy Hoare, managing director of My Solar Quotes, says she analysed 279 residential solar quotes provided to New Zealand homeowners this year and found the median payback for a system without a battery was 6.9 years.But systems under 5kW performed much more poorly, with a payback period of 11.1 years. Depending on the output, this could be about a dozen panels.She said smaller systems had a median price of $11,490.But slightly bigger systems, with a median cost of $12,148 and delivering up to 7kW, had a payback time of 6.6 years.Hoare calculated that all systems between 7kW and 20 kW would have payback periods between 6.8 and 7.7 years."A huge part of the system cost is actually in the labour," she said. "You get someone out to your house and you have to put scaffolding on… just that cost alone makes the smaller systems not as good for payback."More than half of solar quotes included a battery, she said.That would increase the median payback for all systems to nine years because it would roughly double the price of the system. She said about 30 percent of people went on to install batteries."The value isn't only in the payback with batteries, it's the energy resilience side. Being able to power your home during a power outage is incredibly valuable."A spokesperson for Rewiring NZ said it would always recommend people opted for a bigger system if they could, because many households would increase their power use once solar was installed."We've heard from a lot of installers - more at the high end - that 9kw systems are the norm in New Zealand now. This is quite a long way above what EECA says is the average and about what the average has been in Australia in recent years. In Australia, this is actually increasing, in part because of the battery subsidy and EV adoption, solar system size is also growing."We know people love a payback period, but we do like to point out that it's better to look at ROI or yearly net savings in comparison to doing nothing."Rewiring calculated that solar should deliver $1000 a year in savings on top of the cost of paying off the system.Gareth Williams, chief operating officer of the Sustainable Energy Association of New Zealand, agreed the incremental cost of adding more panels to a system was relatively low."A 7 kW system may cost $14,000. The cost of another kW - roughly two panels more - would add only about $1000. The effective cost of energy that the extra panels generate is only around 5c/kWh - which is therefore worthwhile based just on export value. Furthermore, in winter or on overcast days the extra generation will have higher value in offsetting homeload."In terms of balcony solar the payback period is similar to larger rooftop solar systems; however, the long-term savings are significantly lower."Powerswitch general manager Paul Fuge said one of the most important factors affecting solar payback was whether people were with the right retailer and on the right plan."Solar buy-back rates, which determine how much you're paid for excess electricity exported to the grid, can vary significantly between retailers, from around 8 cents per kWh to more than 20 cents per kWh in some cases."Batteries can also play an important role. On some electricity plans, households can effectively arbitrage electricity prices by storing energy when prices are low and exporting it, when prices are high."However, being able to do so is contingent on being on the right electricity plan. At present, only a relatively small number of plans offer pricing structures that make this worthwhile, although we expect more retailers to introduce these types of products as solar and battery uptake grows."He said it was difficult to draw broad conclusions about how long a system would take to pay for itself based only on its size."While larger systems can often be more economical on a cost-per-watt basis because installation costs don't increase proportionately with system size, it would be wrong to assume that a larger system will always deliver a faster payback for every household. Payback is highly household-specific and depends on a range of factors that can vary from one home to the next."A key consideration is how much of the electricity generated by the solar system is consumed within the home. Self-consumed solar power is generally worth more to the household than exported electricity because it offsets power that would otherwise be purchased from the grid at higher retail rates. By contrast, electricity exported to the grid is usually paid out at a lower rate than the price consumers pay for grid-supplied electricity. Simply put, retailers buy electricity from you for less than they sell it back to you."This means system sizing can be critical for payback. A small household installing a large solar system will export a significant proportion of its generation, extending the payback period. Conversely, a larger household with higher electricity use may be able to utilise more of the energy generated and achieve a faster return on investment."He said it was important to choose a reputable installer that did not have incentives to sell larger systems than a household needed.Power retailer Octopus said solar generation had increased 56 percent last year and it was seeing more customers install bigger systems. "We expect this change in market prices to continue to become more pronounced, we've seen in countries around the world that as solar penetration grows those day time energy prices fall."It said that it had led it to launch a new pricing plan that gave free power between 11am and 2pm everyday.Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money.