Eco Investor May 2014

Editorial

Triple Bypass for Fossil Fuels

Given our climate, everyone in Australia who can afford it should have a solar hot water system. And finally I got around to getting one. So this editorial is about property improvement and comparing investing in your property to investing in shares. It's also about my triple goal of bypassing coal, gas and oil.

Our gas hot water system still worked but it was old and getting more and more expensive to run. Our last four gas bills totaled $960 and that was just for hot water and a cook top for a family of five. (Although two of them are teenagers, and teenagers, I recently discovered, are well known in the hot water industry for their long hot showers).

So it was time to replace the hot water system. The first choice was what type of system? An instant gas unit was the cheapest, less than half the price of other systems. But I wanted to get away from the high running cost of gas that will only rise more with time, and I wasn't comfortable with using a consumable for every degree of heat.

So what form of solar? As our house doesn't have a lot of north facing roof, I was initially attracted to a heat pump. But I changed my mind when I was told they can run for eight hours or more in cold weather and make a little noise when running, which didn't suit our backyard. I then worked out that a solar collector could work on our garage roof, which does face north, so solar hot water panels were, after all, an option.

The end of the gas line. The editor’s former gas hot water system has been replaced with an electric boosted solar hot water system. No more gas will flow here.

The next question was what type of boosting? Instant gas boosting would have been an easy option, but I chose electric boosting as I have recently cooled on gas as an environmental solution, and in the future I want to install PV panels which could reduce electricity and the cost from the grid. I was told that solar hot water usually needs no boosting for the hot half of the year, and that also impressed me.

Another choice was a flat panel collector or evacuated tubes? I was attracted to the Apricus evacuated tube system, which is said to be highly efficient. But it was the most expensive. Solahart and Rheem both had cheaper flat panel systems. But Solahart's needed to face west, which I felt didn't suit our garage roof which is shaded from the west in mid to late afternoon; and by the time Rheem sent their quote (I'm told due to office computer issues) I had decided on the Apricus evacuated tubes.

After some negotiation the final quote for the Apricus system came down to $5,643, enough of a discount to get me over the line. However, at some stage soon I will need to get a timer so I'd say the system will come in at around $6,000.

That's a lot, and I couldn't help but compare the return on $6,000 invested in a solar hot water system and invested in shares.

Of course, an exact comparison is not possible as it remains to be seen how well the system works, how much it cuts our gas bills, how much electric boosting it needs, and how much electric boosting PV panels may provide when I get them.

But some things are clear. While shares give a financial return, a hot water system also gives hot water. With shares the capital can be withdrawn at any time for a profit or loss, whereas with a hot water system the capital is embedded in the house and the financial return is the money saved. The system has to save enough money to recoup the capital cost and then make a profit. The longer the period of profit the greater the final return. So the system needs to last. We are talking many years, up to 10 to recoup the capital and a few years more to make a good return.

Of our $960 gas bill, about $210 was service charges, which seems a lot. It's hard to know how the $750 was split between hot water and the cook top but there is no doubt most of it was hot water. Our average useage over the past 12 months was 68 megajoules per day. In the two weeks since we installed the solar hot water system we've used an average of 3 MJ per day. How's that for a reduction?

So I'll be conservative and say that around $700 goes on hot water. But I would not be saving that, as I need to add the cost of electric boosting. That is also hard to know but internet talk is around $100 to $200 per year and judging by the boosting so far that seems about right. So let's say around $200.

On those numbers I could be saving around $500 per year. If that's right, it would take 12 years to recoup my capital. $500 per year would be around 8.3 per cent per year, which is around the same as a good share dividend including franking.

But it's not the whole story. Gas prices have tripled in the last 10 years. If they do that again or even just double it will reduce the payback time to around 7 to 9 years. That's a return of 11 to 14 per cent per year. After that, the savings and return rise exponentially.

So the financial benefits compare well with shares.

Last year we switched our home electricity to Momentum Energy, which is part of Hydro Tasmania. Not only is the electricity cheaper as it doesn't get the carbon price, but we were able to say goodbye to coal power.

With the electric boosted solar hot water system, we have mostly said goodbye to gas power.

I would also like to say goodbye to oil. I can do that with an electric car, but like many people I will have to wait until the second hand market gets deeper. Going by the numbers I have read, an electric car would save thousands every year that now goes on petrol.

So I am feeling good. With hydro electricity I bypassed the coal peddlers. With solar hot water I have mostly bypassed gas. With an electric car I will bypass the oil peddlers.

Bypassing gas, coal and oil is possible and a goal worth aiming for - and it makes financial sense.

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