Investing in solar do the numbers stack up?

  By Mike Ross

Installing solar has always been on my list. After we moved house earlier this year, we finally took the plunge. I analysed the numbers the same way I would any investment. My conclusion: For the right household, solar can generate investment returns that compare favourably with many traditional investment options.

We had considered solar at our previous home, but the case never quite stacked up. Part of the roof was shaded by a large Pohutukawa, reducing expected output, and we were unlikely stay long enough to recover the cost before selling as our family grew.

Our new house made solar a much better fit. As a family of five, with one of us working from home most days and an EV to charge, our electricity use is high enough to make the economics more attractive. Access to a green loan made the case stronger still (green home loans are generally available as top-ups to an existing home loan).

Unfortunatly, our EV spent much of the first two months off the road after someone drove into it, so our real-world data is still limited. Even so, I’m confident solar will prove to be a worthwhile investment, and one more homeowners should consider.

The economics

The numbers surprised me. Based on conservative assumptions, a solar investment generates an expected annual return of around 11%, produces more than $110,000 of electricity savings over 20 years and, even after allowing for the initial installation cost, is expected to leave us around $72,000 better off.

An annualised return of 11% stakes up really well against the expected return on a Balanced investment portfolio (~6%) or even a 100% share portfolio (8%-9%) after tax. Over the 20-year life of the system, total electricity bill savings are projected to be almost three times the initial investment. No forecast should be treated as fact, but those numbers compare favourably with many traditional investment opportunities.

If you’re borrowing to pay for the system, a useful question is how long the electricity savings will take to repay the loan.

-       With a standard loan at 6% interest, the savings would repay the loan in about 13 years.

-       With a Green Loan offering 1% interest for the first three years, the payback period falls to about 11 years.

-       With Westpac’s five-year interest-free option, the payback period falls to about 10 years.

Learnings

Making an informed decision took more work than expected. We obtained three quotes, and the recommendations varied significantly, from the number of panels and battery size, to expected generation and projected savings. If you’re considering solar, get multiple quotes and ask the provider, ideally with the installing electrician, to visit the property before finalising its recommendation and price.

Solar providers naturally want to present their systems in the best possible light. One proposal suggested our system would pay for itself in about four years. It may still have been a good option, but anyone relying on that payback period would likely be disappointed. Treat provider projections as a starting point, not the final answer.

Installing the panels is only part of the process. The next challenge is choosing the right electricity plan. Retailers reward solar generation in different ways, and the best option depends heavily on your usage patterns, export levels, and ability to shift electricity use to off-peak periods. I haven’t switched plans yet; I want several months of real-world data before committing to what is likely to be a multi-year contract.

Finally, roof orientation, shading, switchboard capacity, wiring, and local network constraints can all materially affect the outcome. A system that works brilliantly on one property may be entirely inappropriate for another. Our electrician estimated that 30%-40% of Wellington houses weren’t appropriate for solar for these reasons.

The biggest savings usually come from using your own solar electricity rather than exporting it to the grid. Households with EVs, batteries, people working from home or the ability to shift electricity use into the middle of the day generally see much stronger economics.

Final Thoughts

Good investment decisions are not always found in traditional investment products. Sometimes the best opportunity is reducing a future expense.

Will our solar system achieve the optimistic four-year payback periods sometimes presented in marketing material? Probably not.

Will it still prove to be a good investment? I think there's a very good chance it will.

[And its sustainable too]

Additional Reading

For those interested in learning more, I found these resources particularly useful:

• Jesse Mulligan's article: "Sooooooo-lar Power"
• Rewiring Aotearoa's Electric Homes Report

Both provide useful perspectives on the economics of home electrification and solar in New Zealand.