Cut bills by 30%: Are the government’s clean energy loans worth it?
Save articles for later
Add articles to your saved list and come back to them any time.
Among various initiatives in this year’s federal budget was a $1 billion low-interest loan scheme to help households make homes more energy efficient. The details are scarce, but there is no suggestion of any means testing being applied, so it would appear this scheme has broad application.
While Australia’s takeup of solar panels has been impressive, there is plenty more that could be done to reduce our energy consumption. Most solar systems don’t have batteries due to their high cost, many homes still have gas hot water and cooking, and there are still plenty more homes that could have solar panels installed, but haven’t due to high installation costs, because they are either two storeys or have a steep roof.
Can the government’s new Clean Energy Loan Scheme help you save money on power bills?Credit: Bloomberg
So, how might you be able to use the Clean Energy Loan Scheme to do your bit for the planet without adding to your monthly overheads?
I’ve crunched some numbers based on my household’s gas and electricity costs. We are a four-person household in the Melbourne suburbs. In the past 12 months we have spent $3662 on gas and electricity. We don’t have solar panels (too expensive to install due to the aforementioned issues), and we have gas heating, cooking and hot water. Lots of room for improvement.
Energy minister Chris Bowen observed that upgrading an average Australian home from a one-star energy rating to a three-star energy rating would cut energy bills by around 30 per cent. This reduction is therefore my starting point.
However, that feels pretty unambitious, so I’ve also crunched the numbers assuming we could cut our energy bills by between 50 per cent and 70 per cent. Friends and family who have installed good solar systems have almost eliminated their electricity bills, so these higher savings seem feasible.
At these savings rates, our yearly energy costs would reduce by between $1098 at a 30 per cent saving, and $2563 if we could achieve a 70 per cent saving.
If I were to use these savings to then pay off a clean energy loan, how much could I afford to borrow?
We don’t yet know what the interest rate will be on these new loans, however the promise within the budget papers is that they will be low cost. Given the standard mortgage rate now is typically around 6 per cent, I’ve assumed the rate on these loans would be 4 per cent or lower.
My calculations below also assume a 10-year loan, with principal and interest repayments.
If I can cut our energy costs by 30 per cent, I could potentially afford to borrow $9000 – $10,000 to make the changes necessary to generate these savings. A solar system with a battery maybe?
If we could have a bigger impact, and cut our energy costs by 70 per cent, then I could afford to invest up to $24,000 in those changes.
In both cases, the net cost to me is zero. All I’ve done is recycled money that was being spent on gas and electricity bills into paying off a clean energy loan. And of course at the end of that 10 years, one would hope the equipment that I’ve purchased has several more years worth of useful life left in it. Plus, importantly, I will have done my bit for the planet and my grandchildren.
This new clean energy loan scheme certainly looks interesting. I’ll look forward to seeing more of the detail as it is released.
Paul Benson is a certified financial planner and the host of the Financial Autonomy podcast.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
For expert tips on how to save, invest and make the most of your money, delivered to your inbox every Sunday, sign up for our Real Money newsletter here.
Most Viewed in Money
From our partners
Source: Read Full Article