My Solar Powered Home - 1 Year On
Just over a year ago before I pressed the FIRE button, I blew a little over R300,000 / $20,000 / £15,000 on converting our home to be Solar Powered.
There was three reasons for making such a major investment:
Reduce our long term cost of electricity and in turn, our monthly spending
South Africa has a unique "Feature" called Loadshedding, nobody told me about this before I arrived here but the short version is that the South African government couldn't manage a fair ride, never mind a national power grid. The State Owned monopoly energy provider (Eskom) is a failed business and cannot produce enough energy to power the country. As a result of this, South Africa has long spells of rolling blackouts where the electricity goes off for anywhere between 2 and 12 hours per day. Being solar powered means my Wifi, TV, Lights and Fridge all stay on so I have the 4 essentials of modern life
I believe in investing where I can do a little good for the world and not consuming fossil fuels is up there on my list. Most of South Africa runs on coal fired power stations (Although I live about 30 km away from a nuclear power station which is terrifying considering the lack of investment into energy infrastructure in the country)
I know a little bit about energy as I spent a large part of my career working for a large utility in the UK. I find solar power fascinating so it was an easy decision to try to become self sustaining from an energy perspective.
So I opted for a bit if a monster system, for anyone who is interested in such things, we have 6.6kw of Solar panels, feeding 11.4kw of batteries through a 10kw Three-phase Hybrid inverter. Try saying that with a mouthful of gobstoppers!
We are only now having our electricity meter changed to one that allows us to feed excess energy back into the grid to help the Loadshedding situation (and reduce our bills further) so that should mean we essentially pay nothing for our energy moving forward.
In the last year though, our investment has saved us around R2,000 / £133 / £100 per month or R24,000 / $1,600 / £1,200 for the full year.
Based on that alone, the system would pay for itself in around 12.5 years. The life of the system is around 20 years before it will need to be replaced so that means 7.5 years of free energy.
Looking at it that way, the total ROI on my R300,000 / $20,000 / £15,000 would be around R150,000 / $10,000 / £7,500. Not bad but pretty hard to get excited about.
The magic starts to happen when you start feeding in, which is happening now. At this point, our return goes up to R34,000 / $2250 / 31,700 a year and a slightly improved payback time of just under 9 years. Total ROI now jumps to R375,000 / $25,000 / £18,750. Things are starting to get a little more interesting.
What we've left out so far and is the 4th and probably most important reason for installing solar is my knowledge of how the energy wholesale markets work, my experience of the electricity price for the last 20 years and the fact that Eskom needs vast amounts of money to renew infrastructure and needs to increase prices on top of that just to break even.
That all means the electricity price is going north, and I mean to the North Pole. In the UK when the energy industry opened up to competition, prices were increased by between 10% - 35% every year for at least 10 years, occasionally they went down due to public pressure but the price was perpetually rising and ended up with the UK government placing a cap on prices in 2018.
South Africa has all of that to come and it's going to be much worse.
So let's start applying some of that to our business case. I'll be super conservative and say the average price increase for domestic energy in South Africa will average 10% a year for the next 20 years. I have no doubt that even if there is an energy industry in SA in 20 years, prices will be much higher than that but I'm happy to keep it low for this example.
Now let me show you what I would have spent if I hadn't fitted Solar:
You should be but it is more likely to happen than not and it's more likely to be significantly worse than that.
Now as you can see, my investment looks kinda good, in fact hella good. I'll have got my R300,000 / $20,000 / £15,000 back by around February 26, just 5 years.
But look at the overall ROI by 2040. My ROI will be a massive R1,855,267 / $123,684 / 92,763. That is a 618% return on investment or an easier to get your head around 31% IRR (Internal Rate of Return).
And within reason, as long as the sun keep shining on Africa (it's been good for about a billion years so far) I can use as much electricity as I like and I'll never be thrust into darkness by Eskom again.
And that is why I like renewable energy so much and I invest heavily across my portfolio in solar, renewable, alternative energy and electric cars etc. It is quite literally the future.
The final argument for home solar is that think of it as freezing inflation. You're spending money at the value it is today, but it's going to be producing energy in 20 years when that money is worth much less but the energy is worth much more. That's a bit of an out there statement but it is as true as my name is Mr H (which it is, honest)
Now, to the risks and the cons. There are a few.
Breakdowns - I had an inverter break down in November and it took 10 weeks to fix (that was due to poor process not poor equipment, but it happened). That meant I had to use the grid like everybody else and I was subject to Loadshedding. It was however a temporary problem but it did have an upside, I got a new inverter so there's a good chance my system will now last 21 years. every cloud!
Moving House - If you decide to move house you need to either pay for all the solar to be moved or you need to try and recover its cost as part of the sale. In 2021 that's tough. My view is though that within 5 years, Solar will be like a swimming pool or air conditioning or electric garage doors and gates, they make your house more attractive which means a high price. I would immediately factor in the cost of adding solar to a house that didn't have it and try and get that knocked off the price.
Warranties - The good news is that most solar panels come with a 20 year warranty. But batteries come with more like 10 and inverters can be as little as 5. As long as everything last to 5, you're theoretically break even but you're no better off. You are taking a bit of a gamble that the kit will make it to 20 years. The technology is pretty new and I don't think the latest version of solar batteries (Lithium-Ion) has even been around 20 years so who knows. The good news is that the kit is coming down in price every day and the tech is becoming more efficient so if you do have to take a hit on a battery or two, you should be able to improve your ROI and recover the loss.
One last point is similar to above, the price of solar has now dropped to be the cheapest form of energy. Just in the year I've had it installed, I bet I could buy a better kit now for R200,000 / £16,600 / £10,000 so the ROI is improving every day. That does mean though that we can probably expect a shortage of panels, inverters and batteries as industry scrambles to save costs. that may start to drive prices back up so if you were considering solar, it's probably a really great time.
All in all, investing in Solar for your home is a no-brainer if you're not planning to move inside 5 years or you think about it and have it installed in a way it would be easy to take with you (don't worry about the panels, they're cheap enough to replace but the inverter and batteries is where the money is).
For people on the FIRE journey it's even more of a no-brainer as it wipes out your electricity bill and therefore takes a sizeable chunk of your FI number.
Let me quickly show you my little dashboard that I have running on a screen in my house. This is right now and it's close to 4pm South Africa time on a fairly standard late summer's day:
I think if you click on it you'll see it full screen. What this is telling me is that right now; the sun is producing 5kw of energy per hour, the house is using 2kw of that. The batteries are 100% charged so that will keep giving us free electricity after the sun goes down (It will last until about 4am on a normal day so we switch to grid for about 3 hours a day between 4m and 7am), 1.8kw is feeding into the grid (which I'll get paid for) so somebody else can use that electricity instead of burning more coal. I am currently using zero energy from the grid and won't now until the batteries run out tomorrow morning.
I hope this is useful to somebody who has thought about it but hasn't pushed the button yet. I wouldn't hesitate to add solar if we bought another house (which if you've read last week's post, is unlikely)
If you rent, there is also another way to achieve a similar outcome, you can buy solar panels on someone else's roof and offset the cost of your electricity 100%. Obviously the ROI model is slightly different but the objective is the same. My weapon of choice for that model is The Sun Exchange (Tribal FI readers get their first solar cell free by using that link) and as of today, I have 52kw of solar panels live producing energy on other people's roofs so when you consider my home runs on 2kw on average, we own enough solar panels now to power 29 houses, I'm practically a 1 man renewable energy company, now that is cool!
If anyone has any questions on getting solar installed or renewable energy in general, feel free to have at it in the comments. I'll respond to every comment until there's too many for that to be possible.
Until next time, keep living.