New study finds Evacuated Tube solar hot water often pays for itself quicker than typical solar electricity systems

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.
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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.
solar-hot-water-systemHow 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.

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  • 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.

Considerations
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.

Findings
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.
In part 1 of this article, we found that in most cases for a typical household, evacuated tube Solar Hot Water (SHW) has a quicker payback than PV. In part 2 we will more closely examine why this is the case. We’ll also see that combining both technologies can produce the best outcome for a household.
Use both SHW & PV for combined benefits
The most popular PV system size is now about 5kW, though 3kW systems are also popular. 1.5kW systems are no longer common. Consider that for about the same price as a 5kW system (~$7500), you could retrofit your hot water system and almost have enough change left over to buy a 1.5kW PV system. SunWiz’s analysis showed that evacuated tube SHW was often more financially favourable than PV, but in circumstances where heating hot water was cheap due to low-priced off-peak electricity or natural gas, a small PV system would have better financial outcome than a solar hot water system.
With this in mind, you may be best served by buying a SHW unit and filling up the rest of your roof (or your budget) with PV. In most cases, this would maximise the savings on your energy bill. To illustrate this point, the chart below compares the electricity savings from putting on a 5kW PV system to those of installing a 1.5kW system and converting your off-peak electric water heater to SHW. The chart illustrates that the savings are comparable.
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One key caveat applies to all of this however; While SHW has in-built storage, if you’re not using much hot water, most of the solar energy will be wasted. It is therefore important to choose a suitably sized solar hot water unit to match your usage. Likewise, if you’re a frugal electricity consumer, you might expect high export levels from even 3kW of solar power. Individual circumstances are the key, and we encourage you to either use SunWiz’s free export calculator, or for tailored results PVsell allows you to tailor your advice to the homeowner and upload metered data or use a library of real load profiles.
Detailed results
As mentioned, the study covered a large combination of inputs to help indicate outcomes for the wide range of individual circumstances. Later in this article we will provide summary analysis by location, combined with a complex chart that allows individual circumstances to be examined. First, the results are best introduced by way of example. We’ll use Sydney as our example. Referring to the table below, columns show the system price, bill saving in year 1, payback, and Internal Rate of Return (IRR) over 10 years; rows show the outcomes for a selected retrofit or replacement SHW unit compared to a range of PV system sizes for households with a consumption profile away during the day, or home during the day.
From the table we can see for Sydney:

  1. The Apricus Evacuated Tube SHW payback ranges from 5.0 to 11.0 years depending on whether it is replacing an electric (peak) hot water system, a gas system or an electric (off-peak) hot water system (respectively).
  2. The PV payback ranges from 5.9 years to 8.2 years, whether householders are home during the day and install a small system or whether they are away during the day and install a large system (respectively)
  3. Apricus SHW systems have quicker payback in the following circumstances (compared to all PV options):
    1. Replacement of natural gas hot water system
    2. Retrofit of a natural hot water system, unless the householder is home weekdays and installs a PV system 2kW or smaller;

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Extending these results to more locations, we encounter the complexity of displaying the myriad of combinations and permutations. For those of you who hate graphs and just want the easy summary, you can find it beneath. For those of you who love graphs, the chart below compares the 10-year IRR from a range of PV system sizes (lines representing different consumption patterns) with those of solar hot water (retrofit or replacing water heaters (large or small dots respectively) fuelled by electricity or gas (green or purple dots respectively). To interpret the graph, look for the combination that most closely represents your circumstances: first the location (horizontal panes), then investment timeframe (upper or lower pane), and then find the dot that matches your hot water situation (purple = gas, green=electricity; small dot = replacing a broken water heater, large dot = retrofitting solar to an existing hot water unit), and compare the IRR for SHW to the range of IRRs for different sized PV systems depending on your consumption profile (home during the days = blue line; away during daytime = orange line). Note that the Victorian results don’t incorporate VEECs, which provide an additional discount that improves the financial outcome for SHW.
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Remembering individual circumstances may cause significant variation from the statements below, here are the take-home messages for typical households in each location:

  • NSW Metro: if your hot water is gas-boosted, in most cases SHW has quicker returns. If you’re water heater is electric boosted, then PV has quicker returns.
  • NSW Regional: if your hot water is gas-boosted, SHW has quicker returns. If you’re water heater is electric boosted, in most cases PV has quicker returns.
  • QLD Metro: SHW makes quicker returns than a PV unit in most circumstances, though in some circumstances you can get quickest returns from a small PV unit.
  • QLD Regional: If you’re using LPG to heat your water, then you’ll get quicker returns from a SHW unit than a PV system. If you’re using off-peak electricity, PV or SHW may pay for itself quicker, depending on your circumstances.
  • SA Metro: In most cases a PV unit will pay for itself quicker than a SHW unit. Consider SHW if you’re using gas boosted hot water, especially if your hot water tank is reaching the end of its life.
  • TAS Metro: If your hot water tank has reached the end of its life, SHW makes good sense in most circumstances. Otherwise PV pays for itself sooner.
  • VIC Metro: PV pays for itself quicker than SHW in most circumstances, but if your hot water tank has reached the end of its life then SHW combined with a small PV system is the optimal combination. VEECs may make retrofitting SHW to an existing tank has comparable economics to PV.
  • VIC Rural: If you’re using LPG to heat your water then SHW pays for itself sooner than PV. If you’re using off-peak electricity to heat your water, then combining SHW and a small PV system is the optimal combination when your water heater reaches the end of its life, particularly if the additional discount offered by VEECs is factored in.
  • WA Metro: If you’re using gas to heat your water, then SHW pays for itself quicker than PV if your water heater has reached the end of its life. Otherwise PV offers quicker payback, though best to combine a small PV system with SHW if you’re using gas-heated water.

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