With the carbon tax now operating and energy price rises kicking in, the economics around solar power are making it look even cheaper.

People in New South Wales already know that electricity prices are allowed to go up 18% over the next year from 1 July.

The two main reasons for this are the carbon tax and the cost of distributing electricity, the poles and wires. Households in NSW currently pay between 20 and 30 cents a kilowatt hour, reaching 43 cents at peak.

According to Jeff Bye, from ASX listed CBD Energy, the effect of the carbon tax is just making the gap even bigger between low cost solar power and more expensive traditional generation.

“If you have your own solar power station on your roof you not only avoid these costs but your source of power, the sun, is free and your low cost is locked in for 25 years,” Jeff says.

Solar energy is now costing between 5 and 7 cents a kilowatt hour to produce, with this level applicable over the lifetime of a solar system of around 25 years.

Unlike the increasing cost of building new coal fired power stations, the cost of solar panels has been falling, helped principally by the lower cost of their main ingredient of silicon which has fallen in price from $450/kg in 2008 to around $25/kg today.

Residential installations still have the benefit of qualifying for government sponsored small technology certificates (STCs) and their current two times multiplier, contributing around 25 to 40 per cent to the cost of a solar system.

This means the average cost of installing a solar system can range from $2,000 to $12,000, depending on size of system, giving payback periods of between four and eight years at projected electricity prices.

Given the likelihood of further increases to electricity prices from the carbon tax, payback periods are likely to become even shorter.

The carbon tax applies to Australia’s 500 biggest carbon emitters, with this cost passed on to consumers and government expecting it to result in a cost of living increase of about $9.90 a week, with around 90% of households getting tax relief.

The Australian government estimates the carbon tax will raise $24.5 billion over three years, with about $15.3 billion given back as tax cuts and the rest for industry transition and green programs.

“The renewable energy sector is going to get a big boost from rising electricity prices, despite tax cuts, as the inevitability of cheaper solar power becomes glaringly apparent for households,” Jeff says.

CBD Energy has operations in wind, solar, and energy efficiency, with solar energy activities covering domestic and commercial installations nationally as well as large scale projects in Asia and Europe