Does going solar make sense?
ELECTRICITY is expensive and Jamaica has a lot of sunshine, why not install some solar panels on the roof and forget about JPS once and for all? If only it were so simple.
There is enough evidence to suggest that solar water heaters will more than pay for themselves. The Office of Utilities Regulations (OUR) says that it can be economical depending on the particular design, financing and specific application. "At present solar thermal (heating) represents the most feasible way to use the sun's energy and this is encouraged."
Is that right? A fully installed, medium-sized solar heating system for a four-person household could cost just over $120,000, based on checks by Sunday Finance.
According to JPS, the average electric water heater operated three hours a day will use about 135 kilowatt-hours (kWh) a month, or about the same amount of electricity to run a 60-watt light bulb for six years.
At current rates (around $36 a kWh for the average residential customer using 200 kWh a month), that would rack up a bill of $58,000 in a year.
On the face of it, it seems that it would take just over two years in savings from your electricity bills to payback for a solar heating system, which would deliver hot water for at least another 10 years.
But simple conservation techniques, such as running a electric heater for only half hour in the morning and again in the evening, could save you up to $40,000 for the year.
That would mean it would take closer to seven years for the solar heater to pay for itself, when compared to the electricity you would pay for using an electric heater.
Electricity rates do fluctuate, which could lengthen or shorten the pay back period. But there are still other things to consider, such as the amount of earnings you give up by not simply investing the money.
Saving accounts hardly pays any interest but fixed income accounts and bonds issued by the Government can still give returns up to nine per cent a year, while there are other ways to make even higher returns, such as looking to the stock market.
Let's say that you put the equivalent of the solar water heater cost (in this case $120,000) into an investment that gives you five per cent a year. Untouched, it would grow to about $195,000 within 10 years. A similarly sized electric heater could rack up at least that in electricity bills over the same period, not to mention the $50,000 you would have to spend to buy and install it.
Still, the solar water heater seems to be the better option, unless watching your money grow in some account will warm you better.
Another consideration is whether repaying a loan used to buy the solar water heater is cheaper than the electricity you would use with an electric one.
The National Housing Trust (NHT) offers low cost loans that would cost $136,000 to repay over five years, which once again suggests that you should get savings.
So the solar water heater appears to pass the economic test, but what about the electricity you need to run your refrigerator or your lights at night?
Solar photovoltaic (PV) systems (which uses the sun's energy to generate electricity) are said to last for 25 years. They sell for around US$5,000 ($435,000) per kilowatt (kW) — the power requirement for four medium-sized refrigerators — but they cost twice as much when you include the batteries needed when the sun goes down.
Jason Williams, an engineer at Isratech (a company that sells renewable solutions), says feasibility boils down to you deciding what high-powered appliances you can live without. "Persons who are insistent on using their electric stoves, large air conditioners will find the grid power to be more practical."
Vendors of PV systems boast that they will pay for themselves within six to eight years, especially since solar panel prices have fallen and the cost of electricity has risen dramatically over recent years.
Let's do the math. A typical two kW PV system (see box 1) will cost around $1.7 million and can generate nine kWh a day (under ideal conditions), which suggests that it could save you $118,000 a year. Seems like it would take closer to 16 years to recover the money spent.
What's more, the electricity savings may never catch up with the money if it were invested -- the money would double by year 14.
Nevertheless, given the unpredictability of electricity rates, you could still take a bet on the system's ability to pay for itself.
The minimum repayment cost for an NHT loan for solar panels would exceed the electricity savings by about $30,000 a year -- at least until electricity rates rise by another 30 per cent.
However, when the loan is repaid in 15 years you should have another 10 years of electricity savings.
Loans of such size require traditional assets as collateral, such as houses, so Jamaica Solar Energy Association (JSEA) is working on a way to make them more accessible, according to the lobby group's president, Roger Chang. "If the equipment itself can be used as collateral that will make it more accessible."
Yet there are other things to consider. Remember that our calculations up to now were based on ideal conditions.
Solar panels output gradually falls to 80 per cent of the electricity it was meant to generate. Dust build up on the panels also reduce the efficiency of the system. Clouds, especially those dark rainy ones, reduce the amount of electricity the system produces, which also lessens the amount of charge that goes to the batteries.
A battery's lifespan is not based on years but cycles. One cycle is when the battery is discharged and then charged again. The PV system vendor will account for this of course and size the bank of batteries to a level that will give it a long enough life -- 10 years if you are lucky.
Given that batteries cost 40 to 50 per cent of the initial set-up cost, the price you pay to replace them may be more shocking than those electricity bills you get every month.
On the other hand, the economics of PV systems improves significantly if it has grid access.
Grid access means that JPS customers would sell excess electricity to the grid and take electricity from the grid supply when the sun is down.
JPS has taken on their first net billing customer, who has connected his system to the grid and who will be paid for any excess energy that flows from the PV system. Eleven so far have been issued licences to do just that.
However, the rate JPS will pay is lower than the electricity rates charged to customers. The OUR established the net billing purchase price to be $18.42 per kWh, which is around half the rate JPS charges.
If say, 70 per cent of the electricity you generate is not used when the sun is up and is sold to the grid at half the price you pay JPS, you could save the equivalent of two-thirds of your electricity bill. At that rate you might get back what you spent on setting up the system in year 13, and your electricity savings may almost match investment earnings.
Chang says the legislation needs to go a step further, bringing the rate that JPS pays in line with what it charges, and his lobby group is pushing for that to happen. "We not stopping there."