Evaluating the Cost-effectiveness of Heat Pumps vs. Solar and Resistive HWS
Mr Smith recently wrote to SolarQuotes about his experience at ‘Sustainable Home Day’ where he asked the panel, “whether we should use heat pumps, or spend the same money on resistive hot water systems + extra solar?”
This subject has been a burning issue for some time now and could get me in a lot of hot water if I don’t tread carefully. There are passionate advocates on either side of the argument who swear by their weapon of choice.
In this article, I’ll do my best to leave bias out of it and let the numbers do the talking. First, we’ll look at the basis for Mr Smith’s hypothesis, then I’ll break it down again from a different angle to try and determine the long-term cost-effectiveness of installing a resistive element electric storage hot water system (HWS) + additional solar vs a hot water heat pump.
Key Factors and Assumptions Influencing the Comparison
To do any comparison, assumptions have to be made to have a baseline to work from. These assumptions may or may not reflect every reader’s situation. However, it will hopefully provide a starting point to do your own analysis.
Some variables that could change the outcome would be location, electricity tariff, feed-in tariff, rooftop solar size, demand, upfront costs, degree of automation, lifespan, maintenance, etc.
I’ll leave a link to my simple spreadsheet at the end of the article. You can download it, and then plug in your variables to see what you can make out of it. I’d be happy to see your results.
Which is cheaper in the long term – a hot water heat pump or a resistive element electric storage HWS + additional solar?
Mr Smith’s Hyposesis
Mr Smith writes:
“A good heat pump that has a 6-year ‘parts only’ warranty on the pump, and the 500W of solar panels to run it, looks like costing about $5200 fitted (including a $945 rebate) when installed as part of a large PV system.”
“A restive element storage tank using 8kWh/day, and 2kW of panels to run it with a timer will cost $3500 when installed together with a large PV (SolarQuotes prices $1.11/watt).”
Additional Solar
So Mr Smith’s assumptions are that he would need 2kW of additional solar to cover his 8kWh per day load if he had a resistive element storage HWS, or 500W additional solar to cover the load from a good quality hot water heat pump.
That sounds about right, assuming a heat pump with a CoP (Coefficient of Performance) of 4 would theoretically use about 25% of the energy as a resistive HWS to heat the same amount of water. After that though, his logic doesn’t make much sense to me.
CoP (Coefficient of Performance) is the ratio of electrical energy in – to heating energy out. The ratings should be shown on the datasheet. Remember that the measurement is at standard test conditions in the lab.
The next assumption is that Mr Smith has already decided to install a PV system, and the additional solar panels to cover his HWS load would hypothetically be installed on the same day. Another assumption is that the design of his system would allow this modification without upgrading the solar inverter.
Upfront Costs
Using Mr Smith’s numbers, 500W of additional panels for the heat pump load would add about $600 to the installation price at $1.11/watt. That leaves $4,600 for the heat pump (supplied and installed).
Woah, Mr. Smith is going top shelf for his heat pump!
2kW of additional panels for the resistive element storage HWS would add about $2400 to the installation price at $1.11/watt. That leaves $1,100 left for the HWS, plus the timer (supplied and installed).
Hmm, I’m not sure; the HWS sounds too cheap if the timer is included.
Running Costs
Despite my misgivings, let’s run with it and finish Mr Smith’s comparison. He hasn’t given me his running costs, so I’ll work it out. That shouldn’t be too difficult. Before I do though, we should address the next major stumbling block.
I have an inkling that Mr Smith thinks because he’s added enough additional solar to cover his hot water heating load, he’ll have free power from the sun to do the job. That may be why I don’t have any of his forecast running costs.
“… We should objectively look at the issue without bias of ‘energy efficiency’, cos free is free no matter how efficient our machine is… ” says Mr. Smith.
As most of you know, free isn’t actually free when it comes to energy. There’s always a cost – even for renewable energy. The only free energy is the energy you don’t use. That, Mr Smith, is why ‘energy efficiency’ matters.
PV Self-Consumption: Is Free Really Free?
Among other things, in most cases of PV self-consumption, the cost of electricity used is equal to the amount you would have otherwise received as a feed-in tariff. But wait, there’s more.
Assuming that the HWS is set to run in the middle of the day, to take advantage of his ‘free’ solar power and off-peak tariff rates, there is no way he would be able to run off 100% solar power using a ‘dumb’ timer because the sun isn’t always shining, so the shortfall would be taken from the grid.
It would be possible to harness closer to 100% energy from the PV in a more sophisticated system with a hot water PV diverter or other smart energy management system. But this would add at least $1000, and there would still be a shortfall on some days. We’ll stick with the timer for now, at Mr. Smith’s request.
A heat pump can get more PV self-consumption than a resistive element HWS because it draws less current, so there would be fewer occurrences where the grid would have to step in and supply the shortfall. Having a higher current draw, the resistive element would poke its head outside the solar yield curve more often, and the grid would have to take up that slack.
Hypothetical daily solar yield + heat pump load showing the grid supplying the shortfall when the sun isn’t shining.
Hypothetical daily solar yield + resistive element storage HWS load showing the grid supplying a greater amount with the same solar yield as the first diagram.
A bit of guesswork is required next. I’ll assume that in the heat pump scenario, 70% will be covered by solar, and 30% by the grid. For the resistive element HWS, because of its higher current draw, let’s say 50% will come from solar and 50% from the grid.
I’ll also need to plug the tariff rates into my spreadsheet. Mr Smith hasn’t shared his own, so I’m picking a popular AGL plan with an off-peak (10 am-3 pm) rate of 31.63c and a feed-in tariff of 6 cents. Another thing – he says the warranty period for the heat pump in question is 6 years, so we’ll run the numbers over a 6-year period, with the recommended service every 5 years.
Opportunity Cost Or Lost?
Mr. Smith says we should account for a lost opportunity cost, the interest otherwise earned from money going towards a more expensive heat pump rather than a good old-fashioned electric storage HWS.
“… So the free powered heat pump costs $1,700 more upfront than the free powered resistive HWS, and this $1,700 at 5% interest will cost an extra $85 every year… “
I’m going to knock that idea on the head straight away for two reasons:
- I don’t think his upfront costs are accurate.
- Even if they were, we would equally have to account for the opportunity cost of money going towards the running costs as well.
We’re splitting hairs here and could be creating a lot of unnecessary work for little change to the outcome, so we’ll keep it simple and move on. Also, his maintenance cost of $100 to replace the anode every 5 years looks too low, but won’t have much effect on the outcome either.
Let’s Crunch Some Numbers
6 Years
- Resistive element storage heater + additional solar
Storage HWS (installed): $1,180
Timer (installed): $130
Additional 2kW solar (installed): $2,220
Electricity (8kWh/day): $3,308
Maintenance (5yr anode): $100
TOTAL COST OVER 6 YEARS: $6,938 - Hot water heat pump + additional solar
Heat pump (installed): $4,615
Additional 500W solar: (installed) $555
Electricity (2kWh/day): $599
Maintenance (5yr anode): $100
TOTAL COST OVER 6 YEARS: $5,869
The hot water heat pump has a $1,069 advantage after 6 years.
But The Old Fashioned HWS Will Last Longer!
Mr. Smith doesn’t think a hot water heat pump will last as long as an electric storage HWS. Maybe he’s right. Let’s rerun the numbers over 12 years and assume the heat pump will be replaced after the 6-year warranty period.
12 Years
- Resistive element storage heater + additional solar
Storage HWS (installed): $1,180
Timer (installed): $130
Additional 2kW solar (installed): $2,220
Electricity (8kWh/day): $6,616
Maintenance (5yr anode) $200
TOTAL COST OVER 12 YEARS: $10,346 - Hot water heat pump + additional solar
Heat pump (installed): $9,230
Additional 500W solar (installed): $555
Electricity (2kWh/day): $1,199
Maintenance (5yr anode): $200
TOTAL COST OVER 12 YEARS: $11,184
The old-fashioned HWS now has a $838 advantage after 12 years. The battle is on! Or is it?
The Verdict (Take 1)
Hold on, not so fast! Even though we have run some numbers through a spreadsheet, due to the vast amount of variables, it’s still only possible to make the best guess about the future based on information available today. As much as I am a proponent of the ‘keep it simple’ philosophy and by no means an early adopter, my gut feeling tells me the hot water heat pump will win by a mile. Here’s why:
1. Mr Smith’s upfront costs are unrealistic for the savvy buyer, so the above calculations are inaccurate, and we need to rerun the numbers.
2. Energy prices are skyrocketing and forecast to stay high, swinging the balance in favour of the heat pump as time passes.
Running The Numbers Again
So, one of the problems with Mr Smith’s hypothesis, apart from all the other problems, is that the prices quoted for both the heat pump and the electric storage HWS aren’t giving a like-for-like comparison.
His calculations are based on a top-end-of-the-market Reclaim Energy REHP-CO2 315L heat pump suitable for a large family ($4,615 installed ouch), compared to a mid-range 250L Rinnai Electric Hotflo electric storage HWS suitable for a medium-sized family ($1,180 installed – really?), and a timer ($130 installed – not by any sparky that I know!)
This time I’ll use an iStore 270L hot water heat pump ($2,850 installed), and keep the 250L Rinnai Electric Hotflo electric storage HWS ($1,180 installed) + $250 minimum for the sparky to throw a timer into the switchboard while he’s there. These systems are low/mid-priced and designed to suit a medium-sized family’s hot water needs.
6 Years
- Resistive element storage heater + additional solar
Storage HWS (installed): $1,180
Timer (installed): $250
Additional 2kW solar (installed): $2,220
Electricity (8kWh/day): $3,308
Maintenance (5yr anode): $100
TOTAL COST OVER 6 YEARS: $7,058 - Hot water heat pump + additional solar
Heat pump (installed): $2,850
Additional 500W solar (installed): $555
Electricity (2kWh/day): $599
Maintenance (5yr anode): $100
TOTAL COST OVER 6 YEARS: $4,104
The hot water heat pump now has a massive $2,954 advantage after 6 years! Let’s crunch the numbers over 12 years and assume the heat pump dies halfway through as before.
12 Years
- Resistive element storage heater + additional solar
Storage HWS (installed): $1,180
Timer (installed): $250
Additional 2kW solar (installed): $2,220
Electricity (8kWh/day): $6,616
Maintenance (5yr anode): $200
TOTAL COST OVER 12 YEARS: $10,466 - Hot water heat pump + additional solar
Heat pump (installed): $5,700
Additional 500W solar (installed): $555
Electricity (2kWh/day): $1,199
Maintenance (5yr anode): $200
TOTAL COST OVER 12 YEARS: $7,654
The hot water heat pump still has an advantage of $2,812 after 12 years.
Yeah But
Yeah but what if Mr Smith has a 10kW rooftop solar system?
Good point. A bigger system would allow him to utilize more solar self-consumption. It still won’t give him 100% solar unless he spends more money on smarts. Let’s say he can harvest twice as much solar as before to meet his hot water needs. That would be 75% for the electric HWS, and 85% for the heat pump.
My 6-year calculation comes up with:
Resistive element storage heater + additional solar – $5,931
Hot water heat pump + additional solar – $3,936
Still a cost saving of $1,195 for the heat pump over 6 years.
I could go on changing variables to suit different scenarios, but I won’t. That’s why I’m letting you play with the spreadsheet. You can try to swing the outcome in favour of the old-fashioned HWS by using less hot water or allowing for a larger PV system. Your electricity tariff may be less than the one I used. Perhaps you could include a solar diverter in your calculations to see if it might be justified. Maybe the CoP of 4 is too optimistic for a heat pump?
The Final Verdict: Why Heat Pumps Hold the Advantage
By my calculations and estimations, I think it would be unlikely that a resistive element electric storage HWS + additional solar would be cheaper over the system’s lifetime than a hot water heat pump. Energy prices dictate consumer behaviour, and there is an unstoppable groundswell of appetite for sustainable, energy-efficient products. In today’s reality, energy efficiency is important, Mr. Smith, and the only ‘free energy’ I know about is the energy you don’t use.
Please download the spreadsheet I used for the calculations in this article and prove me wrong.
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