Solar hot water systems: Pros and Cons

Fast read

In Australia, homeowners can choose between gas hot water, a heat pump with a tank, replacing an existing electric HW tank or purchasing a solar hot water system. While solar hot water systems have over 65% efficiency and lower ongoing costs, their higher initial purchase costs and decreased government rebates challenge their ROI.

Valuable roof space and aesthetics are additional concerns. An example demonstrates that, over a decade, a solar hot water system might save only a marginal amount compared to a conventional electric hot water tank, especially after considering booster costs.

Long-term, the most beneficial approach, both environmentally and financially, may be using surplus electricity from solar PV to power hot water generation. Heat pumps and storage tanks are also becoming more and more popular.

What are the pros and cons of Solar hot water systems?

Let’s say you built a new home and you have to make a decision about which hot water system you want, then there are only four options in Australia. They are as hot water,  instantaneous or via a tank, in some States still an electric hot water tank, a heat pump with a tank, and a solar hot water system. The choice largely depends on your locality, budget, and the environmental impact you aim to have.

If you have an existing home, then you can always still replace the standard electric hot water tank with a new tank, but this option does not apply to new builds in many States. This is because some Australian States have stringent energy efficiency regulations that encourage or mandate the use of more energy-efficient water heating systems in new constructions.

Naturally, everyone would think a solar hot water system would be the clear financial and environmental winner because they will have lower running costs, as during sunny periods they do not use electricity to heat the water. Of course, if it’s cloudy or rainy the booster element will still draw electricity, just like the standard electric hot water tank.

The appeal of solar hot water systems lies in their ability to drastically reduce dependency on the grid, especially in sun-rich regions like Queensland and Western Australia. So is solar hot water the best option? 

The pros of solar hot water systems

  1. With an efficiency of over 65%, meaning 65% of the energy hitting the solar thermal collectors is being transferred into the water, versus for example, a PV panel conversion efficiency of somewhere in the early 20%, Solar hot water wins hands down on efficiency. It’s a very fit-for-purpose technology. The stark contrast in efficiency levels underscores the potential of solar thermal technology in optimising energy usage for hot water systems. 
  2. Also obviously ongoing running costs are another plus because they are much lower than gas or an electric tank, that runs on a thermostat and heats up every few hours. 
  3. Environmentally lower electricity use also could mean less CO2 generation, if the original electricity comes from coal or gas-fired power station – so there are potential environmental benefits. Furthermore, reducing the dependency on fossil fuel-based electricity contributes towards a lower carbon footprint, aligning with broader sustainability goals.

But what about the true ROI when the higher initial purchasing costs are taken into account? But we get to this later.

solar thermal system

The case against solar hot water systems

  1. Every year until 2021, the Government decreased the rebate (STCs) for solar PV on the 31st of December while keeping the rebate for solar thermal consistent. However, from 2021 onward, the Federal Government chose to reduce the annual STCs for solar hot water as well. This reduction potentially diminishes the financial incentive for homeowners to opt for solar hot water systems.
  2. Roof space is becoming very valuable, with the emergence of solar electric PV as the dominant home renewable technology. Therefore the solar hot water collectors take up valuable roof space, that could be occupied by electric solar panels. The competition for roof space highlights the burgeoning dilemma homeowners face in choosing between solar hot water and solar PV technologies. 
  3. Visually, solar hot water systems can be ugly, especially the units with the tank on the roof. The solar hot water split systems are aesthetically slightly better, but a sleek, full black PV panel in my opinion always looks better. Aesthetics can be a subjective matter but it does play a part in the decision-making process for some homeowners. 
  4. The initial purchase cost of a solar hot water unit exceeds $4000, which challenges its perceived financial advantage. If you connect the system to a booster, it will increase the electricity costs, particularly during winter and on rainy/overcast days when the solar hot water collectors can’t produce enough hot water.
  5. The installation of a solar hot water system can be more complicated than other hot water heating methods, so there is also a higher cost for installation, than other options and this might deter some individuals who might be looking for an easy, hassle-free installation.

What about the Return on Investment (ROI)?

Sample 1: Existing home over 10 years

A replacement electric 315l tank will cost around $1800 to replace and around $550 per annum to run for a 3-4 person family. Therefore over 10 years to keep the family in hot water will be $7,300.

A solar hot water split system in a no-frost area will initially cost around $4,300 after rebates and maybe $5,000 in frost-prone areas. If one chooses a stainless steel electric tank, then such a system should have no issue lasting 10 or even 12 years.

If the system is NOT boosted the initial purchase cost is the only expense over 10 years. Therefore the 10-year total outlay of $4,300 for example is $2,500 less than the conventional electric hot water tank. 

hot water shower

So what’s the verdict?

Nevertheless going with the non-boosted solar hot water means when we run out of hot water in a week of ongoing rain, hot water will be hard to come by. So who wants to shower in cold water? The reality is that most solar hot water systems will have an electric booster.  Now we have to add about $220 per annum to the overall cost and the total for 10 years is $6,500 compared to $7,300 for an electric tank system.

A marginal financial advantage of $800 over 10 years, with the disadvantage of a higher initial purchase outlay.  In frost-prone areas, the actual overall 10-year purchase and running costs are pretty much the same at $7,200.

The biggest long-term advantage for environmental and financial benefits in regards to hot water is to utilise the export electricity from a solar PV system and channel it into the hot water generation via a heat pump and electric tank set up. So if you want to know why electric heat pumps are the best way to make cheap and sustainable hot water check this out here

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