While I have great respect for the work many financial advisers do in keeping their clients on the straight and narrow by balancing budgets and maintaining investment strategies, there is one approach that practically none of them seems to promote.
What is more, it is a plan that provides an internal rate of return (IRR) of more than 20%, free of tax, with almost minimal market volatility. That strategy is to implement a home solar geyser solution.
Far be it from me to criticise the financial advisers, because, in researching the issue, I found an astonishing paucity of literature that bridges the gap between technical information and financial output. I suspect it is partly because the average journalist will struggle to break down the technical component of the input, whereas the average technical and engineering writer is, surprisingly, a poor communicator to Joe Public (they are generally trained to write to each other, not to ordinary people).
I could also point out that when I was studying engineering, my lecturer (the late Mel Siff) panned my efforts at technical writing — it is an utterly different style from writing for publication!
I think it is fair to point out, of course, that demonstrating the viability of something like a solar geyser is the kind of problem that seems to start with a “how long is a piece of string” element to it. To bridge this divide, I decided to begin by looking for a starting point that just about anyone could understand.
That place of departure is to consider a normal electrical geyser being kept at a constant temperature and never being used in a whole year. In South Africa the 150l geyser is fairly standard, and to maintain that at 65°C all year round would take 2.5kWh per day, which translates to 900kWh per year. If we then assume usage of 50l per day of hot water, that goes up to 2,000kWh per year; for 100l per day it goes up to 3,100kWh per year; and for 150l per day up to about 4,200kWh per year.
I think it is fair to point out ... that [this] is the kind of problem that seems to start with a ‘how long is a piece of string’ element to it
What actually is a reasonable estimate for hot water offtake? A fair guesstimate might be that hot water for a sink full of dishes would be 10l-15l, a warm shower for one person might be 30l-40l and indulging in a bath could entail the use of about 70l. It therefore doesn’t seem like a big stretch to assume the average middle-class house would use 100l-150l of hot water per day.
The cost price of 1kWh varies roughly between R2.50 and R3.50. If you accept my volume and price ranges above as reasonable, this means that your geyser ranges above will cost you anything between R7,700 and R14,500 a year.
Now, in my book, a penny saved is a penny earned; but you also have to make allowance for estimation errors. Therefore you shouldn’t assume that a solar geyser installation will eliminate 100% of your water heating costs, because your pattern of usage will mean that there is a mains backup that needs to be tapped into when solar input isn’t available (because, unsurprisingly, the sun doesn’t shine at night).
The reasonable approach might be to set an assumption that a solar heating solution would pick up 70% of your water heating needs. This would mean that, in my financial example above, the saving from a solar geyser would be between R5,400 and R10,300 a year.
Turning it into financial terms then, the coupon from your solar geyser investment is between R5,400 and R10,300 a year. In addition, electricity has had one of the highest CPI increases of the inflation basket in the past 15 years — 10%, which is twice the average. In addition, we could assume a borrowing cost (or discount rate) of 12%.
I mangle this all together into a calculation (mostly at the lower end, for conservatism), using R2.50 per kilowatt-hour, a 10% annual escalation (heaven forbid Eskom gets its 40% increase), a piffling 100l per day offtake, borrowing costs of 12%, 70% effectiveness and a R25,000 capital cost for your system and implementation. My output is an IRR of 19% and if you’re using 150l per day the IRR goes to 26%.
For a homeowner it’s a no-brainer, and perhaps a cunning tenant could persuade a landlord to consider a “rental” model.
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