As energy prices around the country soar and concern about electricity bills mounts, solar panels are increasingly being installed by homeowners wishing to take advantage of a system that produces greener energy and insulates them from rising energy prices. But what do you need to know before installing a solar photovoltaic (PV) system on your roof?

How solar photovoltaic (PV) systems work

Flat solar modules mounted on your home's roof convert energy from sunlight into direct current (DC) energy. A device called an inverter then changes the DC energy into alternating current (AC) electricity. This can be used to power your household appliances. A grid-connected system can feed excess energy into the electricity network, while a standalone system needs batteries to store excess energy.

Solar panels work best when they're north facing, pointed directly at the sun, at an optimal angle and not blocked by trees or shading. The effectiveness of solar panels also depends on where you live and the weather.

Choosing an installer

The Clean Energy Council (CEC), Australia's peak body representing the clean energy sector, accredits both installers and systems that meet certain standards. To be eligible for any small-scale technology certificates, systems must be installed by a CEC-accredited installer.

Retailers can also sign up to the CEC's voluntary code of conduct, which demonstrates a commitment to best-practice installation.

So your best bet is to look for an accredited company that is a signatory to the code of conduct, has been in business for a while and has an established track record, relevant experience, specialist expertise, and a good reputation.

Does the solar PV system meet standards?

You should ensure that any solar PV system you consider has met Australian and international standards. To be eligible for small-scale technology certificates, your solar panels must be certified – ask your installer to supply proof. You can check the CEC's list of currently approved inverters and modules to confirm.

How much panel capacity do you need?

Nowadays you don't make much money from feeding electricity back into the grid. So you want to maximise your own use of your solar PV and minimise your export into the grid.

Unless you're able to get (increasingly rare) high feed-in tariffs or store your surplus energy using (still expensive) batteries, to get a system that is going to pay for itself quickly, you need to calculate how much electricity you use in your home during daylight hours when your panels are generating at their peak and match the size of your system to that consumption pattern. You can find useful information about your energy use by looking at the previous year's energy bills.

If you don't consume much energy during the day then you'll want a smaller system. If you do, you'll want a bigger one.

Warranty period

Manufacturer warranties range up to 25 years. Solar systems should last at least that long, so you look for an installer who's offering a warranty or guarantee for that length of time.

How much do solar panels cost?

The cost of a solar PV system will depend on many variables including the system size and the quality of components used. According to the Alternative Energy Association (ATA), the overall average cost of a fully installed 2.0 kW system, before rebates and discounts, in 2013 was roughly $4400. But larger systems will cost more – in our recent solar survey, we found on average our members paid $8243 after all rebates and discounts. This price difference could probably be accounted for by system size – 90% of those surveyed had systems over 2.0 kW, with 49% installing systems of over 4.1 kW.

Solar incentives

There are two main incentives that can help pay off solar PV systems: small-scale technology certificates (STCs) and feed-in tariffs (FiTs).

Small-scale technology certificates (STCs)

Under the federal government's Solar Credits Scheme, eligible households receive money for STCs created by their PV systems. STCs were formally known as renewable energy certificates or RECs. Currently, the scheme allows you to cash in the certificates you could earn over the next 15 years straight away.

While the government has set a price of $40 per STC sold through the STC Clearing House, the price you get will vary depending on how you choose to sell your STCs.

The easiest and most common option is to allow someone else – usually the installer – to sell them on your behalf. This may then be applied as a discount to your installation costs. The benefit is that the process is easy, with all the paperwork taken care of for you. The downside is you're likely to get less money per STC – you can expect about $30 per STC.

The second option is to sell the STCs yourself, which involves considerable paperwork, applications and fees. Depending on the number of buyers and the time it takes to complete the process, it may be months after installation before you receive your funds. There's no way to tell exactly how long you could be waiting, which means unless you have the capital you might find yourself out of pocket. However, you should get a better price. On average, CHOICE members who sold their STCs themselves got a price of $33 per STC, with the highest price per STC being $37.25.

A typical 2.0 kW system installed in 2015 in Sydney will generate 41 STCs over 15 years. Assuming a sale price of $30 per STC, that's a $1230 saving off the cost of the system. To calculate how many STCs a system will generate, you can use the government's calculator.

Feed-in tariffs (FiTs)

A feed-in tariff (FiT) is the rate you're paid for electricity that grid-connected panels contribute to the local network. There are two types of FiTs: net and gross.

Almost all FiTs around Australia are now net FiTs. This means a household is only paid for surplus electricity fed into the grid after domestic use is subtracted. If your system produced 3000 kWh, for example, and you used 2500 kWh of electricity in your home during the day (the time when your PV system was generating power), the rate is only paid for the 500 kWh difference.

Gross feed-in tariffs, where households are paid for all the electricity their panels produce, irrespective of their own domestic electricity consumption, are no longer available for new applicants in any state or territory.

FiT rates around the country have plummeted over the past few years. Coming off a high of up to 60c per kWh in some parts of the country several years ago, FiTs are currently sitting at close to 8c, depending on where you're located and which energy retailer you choose.

Solar panel buying guide checklist

  • Improve the energy efficiency in your home to save up to 30% on your bills. You can do this by turning off appliances, using the dishwasher and washing machine only when full and purchasing energy-efficient appliances.
  • Assess what energy you currently use and the system capacity you need (and can afford).
  • Check if your roof faces the right direction. Only north-facing panels will produce their full capacity.
  • Ensure there are no trees, power lines or other structures shading your roof.
  • Find out what local council approval is needed. Increasingly, local councils have staff on hand to assist with making the best decisions on solar.
  • Try to figure out your system's payback time.
  • Get multiple quotes from installers to ensure you're getting a good deal.
  • If you can't afford the upfront costs, consider solar leasing and power purchasing agreements.
  • Make sure the installer is accredited by the CEC and that the panel meets the required standards.
  • Check out the CEC guide to installing solar in your home.

Questions to ask a potential installer and energy retailer

  • What is the FiT you'll be paid and how often will you get it? How will you receive it: as a discount off your energy bill or as a standalone cash payment?
  • Will you need to change to a new meter and what will it cost?
  • What is the cost of the electricity you purchase from your retailer (in cents per kWh), and will you lose your off-peak rates if you install solar?
  • Will you be charged a higher daily fixed charge if you connect your solar PV system?
  • Do you have to pay any additional fees?

State-by-state information

For more information on feed-in tariffs state by state, contact the following government bodies: