How Does Solar Panel Home Works?

Solar power is the most invested and principal alternative energy source in Australia. A growing number of homes and businesses are turning to solar to reduce electricity costs and their impact on the environment, but do you understand the basics of solar energy technology? How does it work?

This article aims to cover how solar panels convert heat from the sun into usable electricity. First, we dive into the science behind solar power and list a few important factors you should consider before investing in a solar system.

Solar power works by converting light from the sun into electricity. This electricity can then be used in your home or exported to the grid when it’s not needed. This is done by installing solar panels on your roof, which generate DC (Direct Current) electricity. This is then fed into a solar inverter which converts the DC electricity from your solar panels into AC (Alternating Current) electricity.

Things To Consider Before Installing Solar

The sun provides what is essentially a limitless source of green energy, yet solar power still has its pros and cons. Here are three factors to consider before investing in solar:

Solar Panel Efficiency

Solar panels are much less efficient than traditional power sources. To illustrate, a coal power plant can convert around 70 per cent of the energy contained in coal into useable energy. By contrast, the world record for solar cell efficiency is 46 per cent, with real-world efficiency usually being a lot less (around 10 to 25 per cent) due to cheaper construction of commercial panels. This low efficiency means we have to use more solar panels to produce enough electricity, holding solar power back from its full potential as an alternative energy source.


Solar panels need sunlight (duh), meaning that the climate and weather has a massive impact on the output of your solar panels. While most of us enjoy a warm and sunny climate here in Australia, many parts of the world are not so lucky. Cloudy countries will not produce nearly enough solar energy for it to serve as a reliable energy source.


Solar panels, unfortunately, remain quite expensive, costing anywhere between $2,500 and $12,000, depending on the size. To put that into perspective, a relatively standard 4kW solar system will cost you around $5,000, excluding installation costs. The silver lining is that the price of solar has come down considerably in recent years and is expected to keep falling.

While solar technology has a long way to go, it is a fantastic alternative energy source with limitless potential. We hope this article has given you a better understanding of solar power’s workings, practical benefits, and challenges.

With solar power, you don’t need to switch it on in the morning or switch it off at night – the system will do this seamlessly and automatically. You also don’t need to switch between solar power and the grid, as your solar system can determine when is best to do so based on the amount of energy being consumed in your home. A solar system requires very little maintenance (as there are no moving parts), which means you’ll hardly know it’s there. This also means a good quality solar power system will last along.

how does solar panel home works (1)Your solar inverter (usually installed in your garage or an accessible spot) can provide you with information like the amount of electricity being produced at any particular point in time or how much it has generated for the day or in total since it has been operating. In addition, many quality inverters feature wireless connectivity and sophisticated online monitoring.

FAQs About Solar Panel At Home

Solar panels work through a series of events that allow customers to take advantage of the sun’s rays. This process essentially takes place in five steps:

  • Sunlight hits the solar panels on rooftops.
  • Solar cells are activated and produce electrical currents.
  • Electrical energy is converted via a solar inverter.
  • Converted electricity can be used to power you’re home.
  • Excess electricity can be fed back into the grid for a small rebate off your energy bills.
  • Your solar panels are made up of silicon photovoltaic (PV) cells. When sunlight hits your solar panels, the solar PV cells absorb the sunlight’s rays, producing electricity via the Photovoltaic Effect. The electricity produced by your panels is called Direct Current (DC) electricity, which is not suitable for your home by your appliances. Instead, the DC electricity is directed to your central inverter (or micro inverter, depending on your system set-up). 
  • Your inverter can convert the DC electricity into Alternating Current (AC) electricity, which can be used in your home. From here, the AC electricity is directed to your switchboard. 
  • A switchboard allows your usable AC electricity to be sent to the appliances in your home. Your switchboard will always ensure that your solar energy will be used first to power your home, only accessing additional energy from the grid when your solar production is insufficient. 
  • All households with solar are required to have a bi-directional meter (utility meter), which your electricity retailer will install for you. A bi-directional meter can record all the power drawn to the house and record the amount of solar energy exported back to the grid. This is called net-metering. 
  • Any unused solar electricity is then sent back to the grid. Exporting solar power back to the grid will earn you a credit on your electricity bill, called a feed-in tariff (FiT). Your electricity bills will then consider the electricity you purchase from the grid, plus credits for the electricity generated by the solar power system that you don’t use.

To assess whether it’s a worthwhile investment, first, it’s important to understand how installing solar panels will reduce your electricity bill. We are ignoring the environmental benefits for now!

Offsetting Your Energy Consumption

The primary way solar can help you tackle your energy costs is by reducing the amount of electricity you need to buy from your electricity retailer, which typically will cost between 15-40c per kWh. A grid-connected solar system will prioritise solar energy and harmoniously supply any remaining energy needs from the grid. A typical household may expect to offset 30% to 70% of their energy usage with solar panels, depending on how much their electricity is consumed during daylight hours. This offset percentage can get closer to 100% by installing a battery storage system.

Feed-In Tariff For Excess Energy

The amount of energy generated by your solar panel system is dictated by the sun, not your energy consumption, so there will be times when surplus energy is created and can be sold back to the grid for a rate called a ‘feed-in tariff’. These feed-in tariffs vary by state and which electricity retailer (e.g. AGL, Origin etc.) you are with. Typically you can usually find a feed-in tariff between 3-12c per kWh. Your ability to access a feed-in tariff is usually limited to a maximum solar system size – for a full explanation of what is possible state by state, read this guide. 

Some Options For Increasing Self-Consumption

Increasing your self-consumption of solar energy will reduce your energy bills. In addition, to improve your return on investment, you can consider applying a timer on common household appliances, such as:

  • Electric hot water system
  • Washing machine
  • Dishwasher
  • Swimming pool pump
  • Underfloor heating system

You can buy programmable wall-socket timers from a hardware store for under $50, or an electrician can install one for you.

To work out how much you will save on your energy bill, you first need to work out the right system size for your needs. As discussed above, you save money by offsetting the amount of electricity you are buying (self-consumed energy) and by selling electricity for a feed-in tariff. There are different rates for buying and selling energy, so understanding how much solar energy you will be self-consuming is important in estimating your savings.

Simple solar payback period free calculator using the Solar Choice advanced calculator. We have created the below five scenarios that look at the savings from different system sizes with some typical assumptions made on energy consumption. We suggest you have a play with one or both of our free to use calculators:

  • Easy to use the calculator
  • Advanced calculator for more precise results

The price of solar depends on where you live, what type of system and products you select and which solar company you sign up with. As part of our free compare the market service, we collect live and up to date price information from 100s of solar installers around Australia, and we publish average pricing by capital city on the Solar Price Index:

  3kW 4kW 5kW 6kW 7kW 10kW

All $3,980 $4,610 $5,110 $5,740 $6,700 $9,180

Adelaide, SA $3,360 $3,920 $4,420 $4,920 $5,920 $8,210

Brisbane, QLD $3,940 $4,530 $4,960 $5,460 $6,970 $8,750

Canberra, ACT $3,560 $4,090 $4,440 $5,010 $5,780 $7,610

Darwin, NT $5,810 $7,130 $7,950 $8,970 $10,090$13,670

Hobart, TAS $4,880 $5,630 $6,280 $7,010 $7,640 $10,560

Melbourne, VIC $3,720 $4,150 $4,560 $4,890 $5,630 $8,080

Sydney, NSW $3,690 $4,160 $4,600 $5,190 $5,930 $7,780

Perth, WA $2,870 $3,230 $3,660 $4,430 $5,670 $8,810

Note the average prices in the above table include:

  • A full turnkey system – all products, labour, equipment hire
  • The government STC rebate (more on this below)
  • GST

Beware Of Cheap Solar.

Inevitably once you start looking into solar, you will start to come across some ‘too good to be true prices for solar – One Time Offer $2,500 for 6.6kW! We recommend treating these companies with caution as they usually make major sacrifices on customer servicing, product quality and installation procedures. See this ABC coverage which covers some examples of what can go wrong.

They may be offering a ten year + warranty on their installs or products. However, that warranty is only valuable to you if the company is still around and there is a clear Australian warranty claim process. We receive many phone calls from orphaned customers from years ago trying to contact Chinese factories to claim a warranty.

Ultimately if it looks too cheap, it probably is, and a too cheap solution will cost you more in the long run than a well-priced system.

Always do your research on the solar installation company and their products. See our five questions you should ask your installer or email us or call us on 1300 787 273 if you need any help.

The Science Behind Solar Panels

Solar power works by utilising a chemistry phenomenon known as the ‘photovoltaic effect. Essentially the photovoltaic effect describes a reaction where certain materials generate an electrical current when exposed to sunlight. Silicon is well known for these properties, and that’s why it’s used in nearly all types of solar panels. In contrast, traditional power generation systems rely on an energy source to spin a turbine, in turn charging a generator that creates an electrical current – prime examples are coal power plants, wind turbines and hydroelectricity plants.

What Do Solar Panels Do?

Without going too deep into the science behind the photovoltaic effect, essentially what happens is that when photons of light hit the n-type layer of silicon on top, it gives energy to an atom’s outermost electrons allowing electrons to break away from their atomic orbits. The flow of these free electrons forms a DC electric current. An inverter then transforms this DC into useable AC electricity. The loose electrons will eventually flow to the p-type silicon, while any excess electric current your household does not use is fed back to the grid.

What Are Solar Panels Made Of?

Solar panels are comprised of an array of solar cells, which are the smaller blue or black squares within the panel. Solar cells in most commercial panels are usually made of two layers of silicon, described as a p-type on the bottom and an n-type on top. These layers are sandwiched together by thin metal lines, which serve as the solar cells conductor.

Of course, different brands might use slightly different materials or grades of silicon to make their solar panels more efficient than competing brands. The silicon can also take completely different structures; Black solar panels are said to be ‘monocrystalline’, with higher efficiency ratings due to their uniform structure. Blue solar panels are known as ‘polycrystalline’, meaning they have multiple silicon structures, making them slightly less efficient but generally more affordable.

What Extra Costs Should I Prepare For?

how does solar panel home works (2)There is a range of additional costs that could apply to residential projects. Fortunately, as part of our online quote comparison service, we ask installers to advise what they would charge for the common extras that come up. See the below table to see if any of these common items would apply to your home:

Extra Cost

  • 2 Story Building
  • Tile Roof
  • Kliplok Roof Sheeting
  • Tilt Frames
  • Switchboard upgrade
  • 3-phase properties

Range-Based On Our Price Database

  • $200 to $800
  • $10-$50 per panel
  • $10-$50 per panel
  • $25 to $50 per panel
  • $1000+
  • $500+


  • We need to use edge protection and hire a scissor lift
  • Extra work is required for installers as they need to remove many tiles to fasten mounting structure to roof battens
  • Specialised non-penetrative clamps required, which are not required for other roof materials
  • Usually only required if your roof is south-facing or completely flat to correct tilt or prevent dirt build-up
  • No electrical contractor can install solar on a switchboard that isn’t to code without replacing it first
  • Properties with a 3-phase power supply require compatible solar inverters that are more expensive than single-phase inverters

What About Batteries?

Currently, batteries cost approximately $1,000 per kilowatt-hour (kWh) of capacity installed. This means a typical home battery would cost around $10,000. However, as we’ve demonstrated in-depth, the economic case for solar batteries is not quite there yet. We expect that batteries will become viable for homeowners in the next 2-5 years, but that depends on manufacturers significantly increasing their production scale.

Selecting Good Quality Solar Equipment

By now, you’re likely a bit anxious about how to choose solar panels for your home. As with many purchases, there are high-quality, cost-effective, and cheap and nasty products that will cause more problems than benefits. Solar is a long term investment, and given it requires accredited electricians to fix issues and replace equipment, our advice is to stick with the good brands.

While there is no substitute for good old-fashioned research, we have identified three easy tests to determine if a solar panel brand is ‘good’. Firstly you can look at Bloomberg NEF’s tier 1 ranking. This ranking highlights the most financially secure solar panel manufacturers, which indicates whether they are likely to be around if you need to claim a warranty. As a second test, you can see if the solar panel brand is mentioned as a ‘top performer’ in PV Evolution Labs independent testing, which is completed every year. Finally, through some googling, you should establish whether the manufacturer has an Australian office and contact number. If your installer is no longer around, this will be crucial if you need to claim a warranty directly.

Selecting A ‘good’ Solar Installer

Selecting a good solar installer is more difficult. Over the last 12 years, we have vetted over 1,000 solar installation companies to be part of our comparison service. You can click the link below to compare quotes from good solar installers instantly. Solar Choice’s Due Diligence Process:


  • Verify company trading history via ABN Lookup
  • Check publicly-listed reviews (Google reviews, Product Review, Trust pilot etc.)
  • Check Clean Energy Council accreditation, Energy Contractors Licence and Masters Electrician membership
  • Check products they are putting as their standard offers on the Solar Choice comparison portal
  • Request feedback from each customer six months after install is completed

Minimum Requirements

  • One year trading history (ideally five years +)
  • Minimum of 20 five-star reviews and over four-star average
  • Clean Energy Council accredited for design and install of grid-connected Solar PV systems
  • No ‘cheap and nasty products
  • Customer reported issues are very rare. Any identified customer issues are resolved promptly and fairly.


The Small-scale Renewable Energy Scheme (SRES) was introduced to support the uptake of renewable energy in Australia. The SRES works by issuing Small-scale Technology Certificates (STCs) to homes & businesses that install systems under 100 kilowatts (kW) in terms of the DC Solar Panel capacity. The STCs are officially created once a Clean Energy Council Accredited Solar Installer has commissioned the system. The Solar Installer sells the STCs either on the market themselves or via a broker/aggregator, meaning the end-customer only needs to pay the difference.

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