Cost – Benefit Analysis Project Essay Example

Solar Electricity Rebate 9


Cost analysis of introducing Solar Electricity Farms/Use of Panels/Solar Electricity Rebate

Background research

Solar energy in Australia is a recent phenomenon. As of February 2014, it was estimated that there are about 3.2GW power in form of installed photovoltaic (PV) in the country, with over 700 MS of power installed every year. At that rate of 14%, it is estimated that solar energy is contributing to roughly 1.1% of the Australia energy generation and consumption[ CITATION Aui14 l 2057 ]. For instance it is estimated that the amount of installed photovoltaic power in Australia as increased 10folds between 2009 and 2011. It is through this growing interest, that the government has introduced the Feed- in – Tariffs aimed at assisting the renewable energy commercialization in Australia electricity rebates are available in majority of the Australia’s jurisdictions. Initially the federal Australian government offered a rebate program of up to A$8, 000 for new solar panels installation in both homes and commercial premises other than schools. This was done through the solar homes and communities Plan. This program was however phased out in June 2009, and a new programme called Solar Credits Program was launched instead. Schools had their unique programs where they received grants of up to A$50,000[ CITATION WAG12 l 2057 ].

A number of states went a step further to introduce a Feed-in- Tariffs aimed at boosting the amount of solar power generated. In 2009, the Australian Capital Territory introduced a gross feed-in- tariff. Under this plan, a rebate of 50.05 cents per KWh was paid for every 10kw system installed, and 40.04 cents/ kWh for every system whose output was between 10 and 30kW. [ CITATION WAG12 l 2057 ]

This Solar Credits Program is an ambitious Renewable object by the Australian government aimed at providing 20% of its energy generation from renewable sources by year 20202. The rebate is basically a subsidy providing an up- front discount on solar power systems purchases[ CITATION Aui14 l 2057 ].

 Information needed to calculate the benefits and cost of this policy/policy change

In Australia, presently there are two modes of rebate refunds available in the stimulation of growth in the solar energy systems. The first mode is through the upfront funding aimed at offsetting the high cost households incur when doing fresh installations. This is given by the Australian federal government, which provides a fixed upfront payment of about $5,000. This effectively reduces considerably the $8,000 total cost. Ideally the incentive has been legislated to decay over time, and to adjust downwards in situation where technology costs decrease. This is based on the Small-Scale Renewable Energy Scheme (SRES), enacted in year2010[CITATION The l 2057 ].

The second mode of payment on top of the mode one described above; is provision of premium Feed- in- Tariffs (FiT) that aims at boosting the sum that a household gets for the electricity generated. The basis for calculation is on an assumption that electricity generated above the half hour household consumption level attracts a premium rate[ CITATION Nic10 l 2057 ].

In establishing the cost benefit analysis, it is prudent to establish first, the distribution generations benefits. The structure provided for in the FiT, needs to capture the accrued benefits of decreased network congestion that a distributed generation can create. This is in terms of generation or time-of-use.

In order determine whether the rebate policy is regressive or retrogressive, it is important to assess the effectiveness of the taxation. Territory and state government recover the money from charging all end users. Therefore customers who are not beneficiaries of FiT scheme provide the subsidy to those customers who have installed the solar systems.

According to an analysis carried out by [ CITATION Nel11 l 2057 ], the cost of small- scale solar PV was calculated using the unit cost or long Run Marginal cost

Cost – Benefit Analysis Project

In their analysis,
Cost – Benefit Analysis Project 1 was taken as 48000 and the installation basic kit
Cost – Benefit Analysis Project 2 was equal to 1.5kW. the annual capacity factor
Cost – Benefit Analysis Project 3was taken to be 16% ( which is relevant to majority of households in Sydney). This resulted into 2.1MWh annual after factoring
Cost – Benefit Analysis Project 4 by 8760hrs per year, as well as capacity factorCost – Benefit Analysis Project 5. Solar Energy losses,
Cost – Benefit Analysis Project 6 was set at 7%, and the household pre-tax was set at 7%. Discount on inflation rate,Cost – Benefit Analysis Project 7 was set at
Cost – Benefit Analysis Project 8 of the yearly consumer price index, which consequently reflects the productivity gains and thus unit pricing.

In this analysis, [ CITATION Nel11 l 2057 ], used total equipment use of 25 years in the first analysis but within the manufacturers specifications. In the second analysis, the estimate assumed an economic life of 7 years, which ideally is the most popular period over which the FiT policies are paid. From this the Long Run Marginal Cost (LRMC) is as follows:

LRMC with a 25 year life span, $5000

$158/MWh for all output

LRMC with a 7 year life span $5000

$294/MWh for all output

Since a $500 output is available through SRES, incorporating the capital grant into equation the new LRMC rates change to:

LRMC with a 25 year life span

$422/MWh for all output

LRMC with a 7 year life span

$785/MWh for all output

Rebates available for small- scale solar PV i.e. Benefits

As earlier indicated, the solar homes and communities program rebate premium have increased from $4000 in federal photovoltaic rebate program in year 200) to $8000 for a 1.5kW solar PV system. Oversubscription has caused the scheme to set a floor level of those with taxable income of less than $100,000 per annum[ CITATION Nel11 l 2057 ].

State and territorial policies

The incentive benefits appear to be more direct and shorter at the state / territory level. The general overview of Feed-in- tariffs in various Australian states and territories are as follows:

Table 1: Source AGL energy

Cost – Benefit Analysis Project 9

From the Long Run Marginal Cost (LRMC) calculations, of the unit cost of a small- scale PV system, at an initial cost of $8000 with an upfront capital endowment was $158 per MWh for a 25 year life span, and about twice for a household looking a 7- year return. Unsurprisingly, it is evident that the rebate policy shown in table 1 above looks very enticing to the consumers.

Overall efficiency value of the policy/policy change

It is worth contrasting the large and small scale renewable energy policies with respect to the rebate schemes. Large scale PV systems leads to both investment and subsequent generation of energy that is distributed to a wide spectrum of consumers. Therefore the accumulated benefits and costs are accrued by all the involved electricity customers. However, small- scale PV systems such as household installed systems leads to benefits only internalised by the concerned household alone, thus taking advantage of the capital subsidy schemes initiated[ CITATION Nel11 l 2057 ].

In order to fully establish the cost- benefit relationship of the rebate scheme it is imperative first to establish the clearly defined policy objective function. This will effective enable one to critically scr4een the FiT designs. This will eventually help to determine where the scheme:

Leads to equitable subsidy distribution as noted earlier private household beneficiaries internalize the cash inflows generated from the funding scheme

The structure of such a FiT scheme should result into a positive smooth growth in solar units demand, and thus local industry capacity growth. The policy settings need to account for changes in technology changes and future energy price changes.


In order to fully assess the total benefits and costs of the policies started, it is important to first to understand the number of systems installed in a given area and their output over the 7- year period. In the absence of such information, one can only rely on information that is available publicly, and thus the resultant estimates will greatly underestimate the impacts being investigated.


Nicholson, W. & Snyder, C., 2010. Microeconomic theory. basic principles and extensions. 10 ed. New York: Thomson South-Western, .

WA Greenhouse and Energy Taskforce, 2012. Supply side options for WA stationary energy: An assessment of alternative technologies and development support mechanisms, Western Australia: Next Energy.

Auistralian Government Renewable Energy Agency, 2014. Australian PV market since April 2001. Available at:
[Online] [Accessed 16 May 2014].

Nelson, T., Simshauser, P. & Kelley, S., 2011. Australian residential solar Feed-in Tariffs:industry stimulus or regressive form of taxation?. AGL Applied Economic and Policy Research , Volume Working Paper No.25.

The Australia Institute , 2010. The Australian Government’s solar PV rebate program:. An evaluation of its cost-effectiveness and fairness,, Volume Policy Brief No.21.