Since the start of the ‘solar boom,’ the government rebate schemes have changed considerably. This has left a lot of people confused about how solar really works and how much it should cost. In the early days of solar, there were lucrative financial incentives paid to businesses and homeowners to install solar and feed the solar power back into the grid.

These rates were as high as $0.66 per kWh in NSW with the cost of power at approximately $0.20 per kWh. This scheme was known as a ‘Gross Metered Feed-In-Tariff’ where every kWh of electricity produced from the solar panels was fed back into the grid. In 2012 this scheme was scrapped, and the current rates for selling to the grid are around $0.06, so less than 10% of what they were previously.

When the $0.66 tariff was introduced, solar panels cost more than double what they do now. Pioneering investors needed something attractive to take the risk of 'adopting early,' which is exactly what the Government did to kick-start the solar industry. Once the industry took off and became competitive, the tariff was reduced. Falling solar panel prices, fierce competition between retailers and increasing electricity prices now provided enough organic incentive for people to invest in solar.

The new tariff of $0.06 works under a ‘Net Metered Feed-In-Tariff.’ This means that residential and commercial customers only feed back excess solar electricity that they are producing and not using. The bulk of the solar electricity produced by the solar panels will be fed directly into the electrical appliances at the property. This means that when the solar panels are producing electricity, the property is not buying power from the grid.

The graph on the right shows how how the electricity consumption profile would look for a property under the net metered scheme.

The orange line represents the production curve of the solar system as the sun passes over the roof. The blue line is what the household's old power usage would look like without solar. The grey line represents the household's new electricity consumption profile, which it will get billed on.

This is essentially how a ‘Net Metered’ commercial solar installation works. During the day, when the solar panels are producing power, the savings are made by not having to buy expensive power from the grid. This is called the value of avoided costs.