WACC of Average Australian Household - 6.15%

I was reading an article the other day about solar power and how a lobby group for this power industry was saying that PV power had obtained grid parity in Australia (i.e it was now the same price to add Solar Power to the grid as it was for Coal power).
This was obviously a ridiculous statement in my opinion (coal power in Australia is the cheapest there is at the wholesale level), but there was another question when it is put as "socket parity". i.e is it as cheap for the consumer to put solar cells on their roof and have a reduction in their power bills as it is to just keep on buying power from the major suppliers.
It's obviously an interesting question, but impossible to answer without knowing what the Weighted Average Cost of Capital (WACC) is for the average household in Australia. The reason we need to know this value is so we can discount the future cash flows of the savings in power to see if these cash flows in the future do in fact exceed the Present value of the expense of adding these cells (quite a large investment).

Anyway, another way to look at the WACC is the opportunity cost of capital..i.e the alternatives to put your money. And the two main places the average household in Australia would put their money is in their superannuation or into their mortgage (through an offset account, or making extra payments).

So using some ABS info (Household Wealth 2009-2010), we see that the average super balance of the average household is $116,000. The average Mortgage debt is $188,000. Thus if we look at total capital, we are looking at ($304,000) per household, where 38% (116,000/304,000) is Superannuation and 62% is Debt. For the purposes of this calculation, we are assuming this capital position is unchanged going forward.
Now what are the rates of return on both Super and the Mortgage Debt. Super is easy. Using APRA data, we see that the average 8 year (2004-2011) rate of return on the top 200 superfunds is 5.5%. We also assume contributions are taxed at 15%
For Mortgage debt, the rate of return is the interest saved when money is placed in an offset account or taken off the loan. Thus it is the average mortgage rate from the banks. Using RBA data, we find that the 8 year average (2004-2011) is 7.05%. Another assumption being made here is that the mortgage is for an owner-occupier and so is tax-free.

Using this information, we can now calculate the WACC. The formula is :-
(%Debt)*(Rate of Return on Debt)*(1-Tax on Debt)+(%Super)*(Rate of Return on Super)*(1-Tax on Super)
Throwing in our figures, we get
0.62*0.0705*(1-0)+0.38*0.055*(1-0.15)

= 0.04371+0.01777
= 0.06148
= 6.15%

What this effectively means is that Households need to make a 6.15% return on any investment for it to add more value to the Household that just throwing excess cash in the Mortgage account and Super.I just don't see how Solar Cells can do this, but with the price of electricity rising, who knows? In a future blog post I will check to see whether this is true.