How to get the best payoff from solar panels

Solar panels now stack up financially for many households in all three of the country's biggest cities, as well as Queenstown.

A new in-depth study by the Energy Efficiency and Conservation Authority (EECA) says plunging panel prices and rising electricity bills have tipped the scales in favour of rooftop solar for many homeowners.

EECA says it is the first New Zealand study to use detailed and high-quality data for both solar supply and residential demand to work out whether - and when - rooftop solar pays off.

"We've now got to that point with those (standard) 5kW systems with a house that's got electric appliances, where you can pretty much say this is going to be a good investment," says EEC spokesperson Gareth Gretton.

"If all the pieces of the puzzle are right for your house, then you don't need to sweat this decision for a year. It's actually a good decision," he says.

"So if you have a north facing roof, it's not flat, it's not shaded. You've got electric appliances in your home, you're able to use some of the electricity during the day and you've got a good price for your solar, it's going to be a good investment."

The study found there were exceptions, such as houses with shaded or flat roofs.

Although many households with rooftop solar do use batteries to store electricity during the day so it can be used later, the study found batteries needed to come down in price before they make sense economically.

Sun spots

Of the four cities studied, EECA found Queenstown homeowners stood to gain the most from installing solar panels, followed by Auckland, then Christchurch, then Wellington.

"As a very proud Wellington I do like the emphasize that Wellington came out bottom, not because of our lack of sunshine, but because we tend to have quite low electricity prices relative to some other places," said Gretton.

Proud Aucklanders can be reassured that Auckland came out second for sunshine hours, after Queenstown.

But Gretton said power prices had more impact on the returns than sunshine hours.

Queenstown was top for sunshine hours, then Auckland, Christchurch and Wellington - in that order - but the differences between the three main centres were not huge, he said.

EECA calculated the rate of return on investment households could expect over a year - meaning that if they could borrow money to install rooftop solar at less than that rate of return, they would be making money.

Gretton said a lot of households were seeing about 9 or 10 percent per year from installing rooftop solar panels. Those calculations were for a 5kW, north-facing solar panel system on a roof that had at least a 30 degree tilt, with no battery included.

"There's a pretty wide range of return but it's pretty much never below 6 percent," he said.

"At the very extreme end, and I should stress these number are unusual, but nevertheless they're real, there were returns of up to 14 percent."

Gretton said those returns stacked up well, considering some banks were offering green loans - which can be used to buy solar panels - at zero or one percent interest rates.

With batteries still relatively expensive compared with the panels themselves, Gretton said the study found households could get a better return on investment by using a home's hot water cylinder to store heat when the sun was out, by setting a simple timer. The water could be used when the sun had gone down - a more affordable form of energy storage than a battery.

'Gives flexibility'

Kate Gunthorp has been tracking her family's electricity consumption closely for three years.

A self-described energy nerd and a sustainability professional, she's been eagerly waiting for a solar panel system, which was finally switched on at her Auckland home last week.

She and her husband are hoping to have close to zero power bills most of the time.

Gunthorp says her main goal is giving she and her husband flexibility, for example in case there's a time in the future when they no longer do "big corporate jobs".

"For us, my husband and I both work full time we've got young kids, so to have that flexibility - that's $660 savings a month - to have that flexibility means it's $660 that we don't have to earn."

The family uses a lot of electricity and recently switched their gas hot water for a hot water heat pump.

"We use way less energy now that we are all-electricity than we did when we were electricity plus gas, because the hot water heat pump is so much more efficient," she says. She had also been on an efficiency drive, but they were still high electricity users.

She calls her new system solar "on steroids" - an extra-big array of panels, a battery and the latest smart circuit technology at a total cost of $45,000.

Households that have big electricity bills, like Gunthorp's, stand to gain the most from solar, according to EECA's study.

But in ballpark figures a standard array of panels - with no battery - could cost more like $11,000, Gretton says.

The study found the best returns actually come from a modest sized system.

As for the roof, Gretton says a roof tilt of more than 30 degrees was ideal, but not a major factor - as long as the roof was not flat.

But heavily shaded roofs or roofs that are multi-level or tricky to install might not be worth it, said Gretton.

He said batteries for household use were still relatively expensive compared with similar-sized EV batteries, though EECA expected the prices to fall in the next few years. When that happened, the economics of adding a battery should change, he said.

Gretton said if electricity retailers moved towards pricing structures that charged more for electricity used at peak times, the financial payback from batteries could also improve.

That was because homes with rooftop solar and batteries could store electricity during the day and either use it themselves - saving money at peak times- or sell it to the grid at a higher rate.

Gretton said recent changes by the government to expand the permitted voltage range for electricity networks would ease restrictions on how much electricity rooftop solar owners can sell back to the grid - and improve the payback of panels.

Mike Casey of non-profit Rewiring Aotearoa said with panels now affordable, the next step should be finding ways to offer the financial benefits of solar panels to groups such as renters and the elderly, who could not borrow against their mortgages and/or did not own their homes.

He said the government should find ways to make owning batteries more lucrative, as the Australian government was doing, because having batteries benefited the whole country.

"Every battery you install in a home removes that home from those peak periods and reduces the need to build more poles and wires. That's not really recognised at the moment," said Casey.

Here's how to get the best payoff from solar panels, according to EECA's research.

1. Best location

Of the four cities studied, Queenstown had the best returns, with the most sunlight hours per year and moderate electricity prices.

EECA calculated the financial returns from installing solar panels in Queenstown at about 7-14 percent per year for a north-facing, 5 kW solar array at a 30 degree tilt with no battery storage.

Auckland had the second best returns, with the second-best sunlight hours after Queenstown and higher electricity prices, making solar PV attractive. The rate of return on investment was about 6-12 percent per year.

Christchurch had slightly less sunlight than Auckland and lower electricity prices than in Auckland and Queenstown. The rate of return on investment was about 6-11 per cent per year.

Wellington had the lowest sunshine hours due to a higher number of cloudy days per year and moderate electricity prices

The rate of return on investment was lower than other centres but can still reach 10 per cent for some households.

2. Batteries

The study looked at solar panel costs today, but estimated batteries costs as it expected them to be in a few years time, because EECA expects batteries to get cheaper and it did not want the study to get outdated too quickly.

"Right now today adding a battery to your solar install will not increase your rate of return, it will actually decrease it," said Gretton.

"But we think that's going to change because batteries are coming down in price.

"If you look at the cost of an EV today and how big the battery is in that EV, and you look at the cost of a battery in a box outside your house, the two are a bit out of step. You're getting fantastic value buying an EV today and a battery in a box is not such good value for money."

The other thing that could make batteries more economic is more targeted rates for electricity - charging more at peak times such as cold winter evenings.

Right now electricity bills are rising largely because the fixed monthly lines charges are going up - which is not something that rooftop solar with a battery can help with, so long as the home remains connected to the grid.

"More complex, more cost reflective prices are really good for batteries because batteries are performing a big service to households and the grid when they are feeding electricity in at peak times. So we need more targeted, time of use charges to make the case for batteries," said Gretton.

"It not only saves homeowners with these batteries money because they're not having to buy/import electricity from the grid at these peak times at a higher rate, but they will also be rewarded for putting electricity into the grid at this time."

In the meantime, the study found a straightforward hack in the form of the humble electric hot water cylinder.

"Your straightforward hot water cylinder is actually the lowest cost form of storage you can have right now," said Gretton. "[Solar panels] coupled with your hot water cylinder, either with a device called a diverter or a simple timer will actually give you better returns than a battery right now."

These devices timed the hot water cylinder to heat when the sun is out, storing the hot water for later.

In the future, Gretton said using EV car batteries as storage would solve a lot of problems with reducing strain on the grid.

"Cars have big batteries for relatively low cost compared with stationary batteries," he said.

"The vehicle-to-grid-technology needs to come down in price, and the manufacturers of EVs need to come to party because they need to warrant that is it is okay.

"At the moment the problem is the manufacture is probably going to say, we won't warrant your EV if you do this with it, but the potential of this is absolutely huge. It provides so much short term battery capacity as such comparatively low cost that at a stroke it would really solve our peak demand problems."

3. Face north

"I think most people know that north facing is best and it certainly is," said Gretton.

The study also looked at solar generation from panels facing northwest, and half east and half west.

"Some people are talking about that being a good idea because it purportedly maximises the generation you get in the mornings and evenings, but what we found is over the course of a year you do lose out quite a lot on generation capacity and you really lose out in the winter months... you're never getting the sunlight directly on your panels, whereas with north and northwest you're at least getting it some of the day," he said.

"Basically if you go to northwest, you're dropping down by about ten per cent, if you go east/west you're dropping off about 20 percent (compared with north facing). It is just best to go north, so if you're not going to go north you need to go into any investment knowing what you're losing out on."

"We'd be pushing to north or near-north-oriented and not really advising east/west."

4. Tilt

This one is more minor. EECA took the standard roof as being on a tilt of 30 degrees. "You get a few percentage uplift for 45 degrees and lose a little bit for 15 degrees. But the conclusion there is that your roof is obviously what you've got, so you maybe don't worry about that one so much," said Gretton.

He said installing brackets to mount the panels on a different angle was probably not worth it.

"It obviously costs money to put those brackets in, so you've got to look at the return on investment. Unless your roof is flat or nearly flat, just put them parallel with the roof plane."

5. Right size

This bit is technical, but solar panels produce DC (direct current) electricity and it needs to be converted into AC (alternating current) in order to connect the panels to the grid.

The device that does that is called an inverter.

The study found having slightly more capacity in your panels than in your inverter - called "overpanelling" - generated the best returns.

"What we found is the way to optimise the package is to put in something like 6KW panel capacity and a 5KW inverter. It's basically because those solar panels will only produce 6KW on a sunny day in the middle of the day, so a lot of the time a 6KW DC system will only produce 5 kw or 4KW or on a really cloudy day less again.

"And so because an inverter is a relatively large line item on your system cost, you're actually maximizing the value of the inverter and the whole system by making the inverter run at fill capacity more of the time," said Gretton.

They found it improved the returns by 10 percent to overbuild the panels a little.

Gretton said when people were shopping around, they needed to understand whether what they were being quoted was the capacity of the panels, or the inverter, and what the difference was.

"It's something you should be asking anyone giving you a quote about, because we found it a pretty unambiguously good idea to do this overpanelling thing."

As for the 6kW panels/ 5kW inverter system that features throughout much of the study, Gretton said that was a decent size to be starting with for most households.

"That would be a really good system size to start your thinking with right now, it's a really common size and will probably give good returns for most households."

6. Feeding back to the grid

Selling surplus electricity to the grid on a bright sunny day when you are not home - but other people in your area need electricity - can improve the returns.

But different local electricity networks have different limits on how much households can export.

Government changes to the maximum permitted voltage should help companies ease up on these restrictions, said Gretton.

"This basically gives the networks more headroom to receive this electricity from inverters," he said.

The study found there was a difference in returns between people living in an area with a 5kW limit on exporting electricity from rooftop panels and people living somewhere with a 10kW limit.

Basically, Gretton said, a higher limit meant you can build a slightly bigger system on your roof and generate better returns.

"We've been talking about 5kW as being the standard... but if you have a 5kw export limit in place you get your maximises return with a system that is more like 3-4KW.

"There is an economy of scale with a solar instal. If you look at cost per kilowatt, in ballpark figures it's $2000 per installed KW (so $10,000 in round numbers for 5kW) but as you go to larger systems that per kilowatt cost comes down a bit," he said.

A small note of caution - Gretton said if everyone in your neighbourhood got solar, there was a chance that even with voltage limit increase, particular streets may have limits on how much they can export, making it harder to sell to the grid.

"It's really about looking at what you're using in your home," said Gretton.

7. Shop around

Finally, Gretton said the biggest thing people can do is shop around.

"If you're able to get a really competitive installation price, you're guaranteed to have higher returns. in some ways easiest and best thing you can do is making sure you get a good price, while obviously making sure you get a good install as well."

And: "Look at warranties on performance, ie output and how long it is guaranteed to not break for - you want long warranties on both," he said.

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