People should be considering solar hot water (SHW) and solar power (PV) in combination, rather than entirely covering their roof with PV
Prior to 2010, the word ‘solar’ referred more to Solar Hot Water (SHW) than to PV. While solar power was a cottage industry, there were tens of thousands of SHW units being installed every year. At its peak in 2009, the Australian SHW sector installed 200,000 solar water heaters (including air-sourced heat pumps), compared to just over 50,000 PV systems. This all changed in 2010 as PV overtook SHW to be the dominant solar technology in Australia.
Over the same period that government subsidies for solar hot water were diminishing, PV enjoyed a substantial support from state and commonwealth governments. But now that subsidies for PV have been wound back, its worthwhile re-considering which technology produces the better financial outcome. SunWiz was contracted by Apricus to investigate the circumstances in which each technology is more favourable… and the results surprised us.
How the technologies compare
PV systems have the advantage of producing electricity, which can be used in any household appliance and excess generation can be exported to the grid. The disadvantage with PV is that electricity cannot be cheaply stored, and the electricity exported to the grid typically receives a feed-in tariff that is commonly less than one third the cost of grid-supplied electricity. By contrast, one of the significant advantages of SHW is that it comes with in-built energy storage. SHW also offsets what is typically a household’s largest area of energy consumption, hot water supply. While a household cannot “export” excess solar hot water, a suitably sized system will only “waste” a very small % of the total energy produced by the system.
When considering which technology produces the best financial outcome, the key factors to consider are price, energy generation and utilisation, the value of the energy generated, and the system lifetime.
- Price: After STCs are accounted for, installed evacuated Tube SHW systems cost about $5000 compared to an entry-level 1.5kW PV system for around $3000, a 3kW system for around $5000, and a 5kW system for around $7500. Victorians receive an additional discount for SHW from VEECs, with a value of approximately $400-$800 depending upon the application.
- Energy generation: A SHW system will save 40% more energy than a 1.5kW PV system. A 3kW PV system will commonly produce more energy than most SHW systems.
- Energy utilisation: this varies widely from household to household. Referring to the graph below, the energy export from a 1.5kW PV typically system installed on households with typical energy consumption of 15-20kWh/day is about 22% for houses that are occupied during the daylight hours and 37% for houses that are unoccupied. Installing a 5kW system on a household with typical consumption levels would amount to oversizing: though it would produce 100% of typical household’s energy needs it would export 67-74% of its generation. (To assist the PV industry and its customers, SunWiz has created for free tool to calculate PV system exports: Australia’s most accurate calculator of exports). By contrast, Solar Hot Water’s in-built storage means that most of its energy production is utilised, though again this depends upon hot water consumption volumes, boosting settings, and has seasonal variation.
- Value of energy generated: A PV system offsets 20-40c/kWh, depending on where you’re located. However, excess energy that is exported to the grid offsets only 6-8c/kWh. The value of energy savings from a SHW unit depends upon the fuel that is displaced: off-peak electricity at 10-17c/kWh or natural gas equivalent to 10-18c/kWh or LPG equivalent to 21-29c/kWh
- Lifetime: a PV system should last 25 years, though it would probably need an inverter replacement over that timeframe. A SHW system should have more than 10 years’ lifetime.
To investigate the circumstances in which each technology is more favourable, SunWiz created a model comparing the financial outcome from an investment in PV to one in SHW. To account for the wide variances in householders’ individual circumstances, we modelled 9 different locations across the country, hot water boosting from both off-peak electricity and gas (natural gas in cities, LPG in rural areas), and two different electricity consumption profiles reflecting actual consumption from a household away in the daytime and one at home during daytime. We assumed optimal production from PV, whereas SHW energy yields were based upon STC calculations. Some of the factors we considered were:
- Which is the best financial evaluation measure?
- Payback doesn’t account for benefits accrued over differing product lifetimes, but is easily understood.
- Bill reduction is hugely important for most purchasers – even if solar hot water were to provide quicker payback, it can only address the hot-water portion of your bill. By contrast PV can make a bigger dint in an energy bill.
- Even the Internal Rate of Return (IRR) has complications. The IRR can be considered as a ‘comparison rate’ on a solar investment, but should it be calculated over the lifetime of the SHW system, the PV system, or the typical home ownership duration. In our case we calculated benefits over 10 years, though both technologies can have longer lifespan than this, particularly so for PV.
- Whereas PV is a discretionary purchase and SHW can be a discretionary upgrade, SHW can be considered part of an essential service when an existing hot water unit has failed and needs replacing. In that case, the owner is faced with a choice between a conventional electric or gas storage tank (costing ~$1200) or upgrading to a solar hot water system. As such, a solar hot water system that replaces a failed boiler has a marginal cost that is $1200 lower than a discretionary retrofit solar hot water system, even if they both have the same ticket price.
- The payback period of both technologies depends heavily on the utilisation of the received solar energy, which varies by daytime energy consumption profile and showering habits.
Energy consumption levels and daily consumption profile vary greatly from house to house. Even after concentrating only on typical consumption levels, there were so many combinations of location, consumption profile, system size, hot water boosting method that it is difficult to produce universally-applicable take-home messages. In part two of this article we will more closely examine individual outcomes. However, the following generalities apply across the board:
- If you use gas boosting for your hot water, then solar hot water can often produce greater financial returns than PV, especially if your existing hot water service has reached the end of its life.
- In some cases, a small (1.5kW) PV system has better financial return than a solar hot water system, but the increased amount of energy export from a large (5kW) PV system can mean its payback is worse than Solar Hot Water.
- In Queensland and Victoria, if you have off-peak electric hot water, installing Solar Hot Water and a small PV system produces more savings than a large PV system, for about the same price. VEECs provide an additional discount to Victorians installing SHW systems.
What we also will see in part 2 is that there is good reason to install both technologies. In order to minimise energy bills in a financially-optimal way, a good approach can be to first install a SHW unit, then fill the remaining roof space with PV panels. Part 2 of this article will also examine how the results vary by location.