EECA's new tool shows how long it would take to get value.
The Energy Efficiency and Conservation Authority (EECA) has released a new calculator that estimates how much value you could get from installing a solar PV system. However, for many households the results suggest solar panels could be more white elephant than golden ticket.
PV panels, mounted on your roof, generate electricity whenever the sun shines. This electricity then supplies your home’s energy needs, with surplus power sold back into the grid. It sounds too good to be true: all the free energy you need and payment for any excess you generate. Unfortunately, it isn’t that straightforward. The economics of grid-tied solar PV systems are dependent on where you live, your home and how you use electricity. The EECA calculator uses this data to assess the economics of installing solar photovoltaic (PV) systems.
First, the calculator asks for your address, then uses National Institute of Water and Atmospheric Research data to work out how much sunshine reaches your property during the year, taking into account shading from hills. Next, you enter the general direction your roof faces along with your roof’s pitch (the calculator presents diagrams of options for you to choose from, though clued-up homeowners can enter exact figures for orientation and roof angle).
Then, using a recent power bill, you enter information about your electricity tariff and energy use, before telling it whether you use much power during the day and your primary space and water heating sources. Lastly, you’re given the option to enter the cost of a solar PV system if you’ve already received a quote, along with whether you plan to pay for it with savings or a loan.
The calculator then uses this information to work out how long it’d take to pay off your solar investment, along with your estimated total earnings over 25 years based on a “net present value” (NPV) calculation. The NPV method compares the upfront price of a solar PV system with how much the system will ultimately save – or cost – you over its lifetime. The calculator also produces a detailed PDF report showing estimated annual solar generation, along with other results.
For my north-facing Wellington house, it’d take me 19 years to get my money back on a 3kW solar system, taking into account interest I would have earned had I kept the money in the bank. After 25 years, the expected life of a system, I’d be $2400 better off (if the system’s components had not needed replacing or repair, in my view an optimistic assumption).
However, that figure assumes I paid for the system from my savings. If I’d instead taken a loan out at 6% per annum to pay for the system, the calculator says it’d take longer than the typical system lifetime of 25 years to pay off, meaning I’d lose money on the investment.
According to the calculator, the best thing I could do to improve the economics of solar would be to start working from home. If I used a decent amount of energy on weekdays, payback time falls to 15 years and the estimated total earnings over 25 years reach $5100. This is because the price electricity retailers pay for surplus solar power hovers around the 8¢/kWh mark, under a third of the retail price of power, meaning you’re better off using power when it’s generated rather than selling it back into the grid. Moving further north would also improve my earnings, while returning to my hometown of Dunedin gives a fairly dismal result.
There are a couple of things we think could have been made clearer in the calculator. The first is that only a few electricity retailers will buy surplus power from a grid-tied PV system, namely Contact, Genesis, Mercury Energy, Meridian and Trustpower. Also, there’s nothing stopping these retailers cutting the rates they pay for your surplus power, which currently sit at 7 to 8¢/kWh, as the setting of buyback rates remains unregulated.
Most lines companies are also reviewing the way they charge for their services, which could lead to higher fixed daily charges for solar households, and therefore a longer payback time for any grid-tied system. Hawke’s Bay lines company Unison has already introduced higher charges for homes with distributed generation.
That said, we think the calculator is an excellent tool that should be the first port of call if you’re considering going solar, and a much-needed antidote to the sometimes extravagant claims made by solar companies. It confirms the findings of our investigation last year into grid-tied PV systems that concluded while they can make economic sense for some households, it’s limited to those with high levels of daytime energy use.
Note: this calculator only applies to grid-tied, battery-less solar PV systems. At present, high-capacity batteries remain prohibitively expensive for many households. But watch this space: lithium-ion batteries are rapidly falling in price. Last year, Deutsche Bank predicted that within 5 years they’d become cheap enough to make battery-integrated solar systems economically viable. This would remove the need to sell surplus power back into the grid at low rates and make solar a far better bet for Kiwi homes as a battery could store power generated from a PV system to use at times when the sun isn’t out.