Written by Nathan @ thatpowerguy
Having made a solar power investment, it is important to squeeze the most out of your system.
When your solar power system is generating more electricity than you are using, which can be pretty common on clear sunny days, this excess energy will flow back into the local power network.
You may be able to sell this excess energy back to your electricity retailer and receive it as a credit on your power bill, or as separate passive income, which is where solar buy-back rates come in.
However, the importance of the buy-back rate will depend on both the size of your solar system and how you use your electricity during the day. We cover this below.
What Is a solar buy-back rate?
The ‘buy-back rate’ defines how much you are paid per unit (kWh) of excess electricity which flows back into the lower power network.
In order to earn money from this excess energy, there will typically be a written agreement between yourself and your power retailer which sets out the terms and conditions for the buy-back, referred to as a ‘buy-back agreement’ or a ‘distributed generation agreement’.
Sometimes you’ll hear the buy-back referred to as an export tariff’ or ‘feed-in tariff’ which are common terms used overseas. Don’t worry, they all mean the same thing.
How important is the buy-back rate to your setup?
The importance of the solar power buy-back rate to your setup depends on a few things, mainly:
- The size of your solar power setup, and
- How much power you are using during the day.
This is the same no matter whether you have a residential or commercial solar power system. We will delve into each of these two items below.
Solar Power System Size
Basically, the larger a solar system is – especially for residential customers – the more likely you are to export power during the day.
If you have a smaller system, say 1.5kW to 2.0kW (up to approx. 8 panels), you are likely to be using 85-95% of the energy generated – or more if you change your behaviour to maximise the use of solar generation. The buy-back rate is probably only a minor consideration for you.
Owners of larger systems are likely to export a significant portion of the power generated, therefore you need to spend the time to get a good buy-back rate, as it may have a significant impact on the return on investment (ROI) from your solar system.
If you have a really large residential system (typically over 10kW) you’ll likely have some special terms applied by your retailer as to how you operate the system, and you may even be exposed to the ‘spot price’ of electricity rather than a flat rate for each unit of excess power.
Your daytime power usage and working from home
One of the wonderful things about solar power is that if the sun is out, you are generating free renewable energy.
In sunny Napier, Hawke’s Bay a typical household might purchase power at $0.25 per unit including GST.
If you are selling excess energy, and as an example have an agreed buy-back rate with your retailer of around $0.12 per unit including GST, you are only receiving half of what you purchase power for.
So the conclusion is simple – the more of your own energy you use the better.
It is increasingly common these days to work from home for one or more days per week, just as I do in the engineering field.
Here’s a quick example of how this might affect your consumption.
Example 1 – Away from home during the day
For this household of four, the kids are at school until 3pm, with no one at home during the day. The household energy consumption in blue demonstrates a typical ‘morning peak’ and ‘evening peak’ while the most solar power is being generated around noon.
You can see that most of the energy generated by their solar system is exported to the local power network to be used by others.
Therefore, the buy-back rate is important to ensure they are squeezing the most out of their solar investment.
Example 2 – Working from home
This is the same household, but one or more of the family working from home.
The solar power generated is the same, but the family are now using more than 70% of the energy – with a heatpump running during the day to keep them comfortable, plus a little extra energy consumption for the office setup and coffee machine.
Is having a sharp buy-back rate is still useful? Sure – but I would say not quite as important as getting a good rate on imported power.
What rate will I receive?
The buy-back rates vary by electricity retailer but are typically in the range of $0.08 to $0.12 per unit of electricity, plus GST (if applicable).
You can find here a comparison of solar buy-back rates currently on offer.
If you have a large residential system (typically over 10kW) or a commercial system, you will likely want to play close attention to what buy-back rate you are offered and any terms attached as it may have a significant impact on the return on investment (ROI) from your solar system.
Conclusion – so how important is the buy-back rate?
The larger your system gets, the more important the buy-back rate should be to you.
But – and this is a key point – it’s really important to understand your energy consumption as demonstrated by the example above.
The most economic solar installations are often on the houses and businesses that consume the majority of the energy generated. If this is you, the buy-back rate is likely not as important as getting a sharp deal on imported power.
If you are considering a solar investment – a good place to start is three free quotes for a system to suit your situation.
About the author – Nathan @ thatpowerguy
Nathan is a professional electrical engineer and the ‘guy’ behind That Power Guy - a site established to help ordinary kiwis navigate the NZ power industry, cutting through the technical complexity and marketing spin. Outside of all things electricity, he’s a family guy – hanging out with his wife and two busy young kids at the beach or out on a kayak adventure. You can reach Nathan via his website thatpowerguy.nz