Solar Hot Water vs Solar Panels. Which should you buy?

Poor old Solar Hot Water.

The concept of heating water directly from the Aussie sun with a solar hot water system like this…

The humble solar hot water heater

…really seems to have gone from hero to zero over the past 3 years.

Both homeowners and solar companies have been seduced by the siren call of these:

Solar PV panels like these are now a much more common sight than solar hot water panels

Solar PV panels are sold on the promise of cheap electricity, quick installation and low maintenance. And most companies that specialise in solar PV will claim that PV has afaster payback compared to solar hot water.

In fact, over the last 3 years the solar hot water market has shrunk by two thirds.


Well, the unexpected scrapping of the $1,000 solar hot water rebate in 2012 didn’t help. But the bigger nail in the coffin has been the reduction in cost of solar PV systems .

How so?

To illustrate the shifting economics, let’s take a typical Aussie home with a standard electric water heater.

To heat enough hot water to keep a 3-4 person household happy will need about 3,000kWh of electricity per year. Or about 8kWh per day. Here are the homeowners’ 2 options if they want to join the 21st century and heat their water with the sun instead of dead dinosaurs:

Option 1: Use a solar hot water system to heat the water directly

A solar hot water system will typically cut your water-heating energy bills by 70-80%.

The price of a suitable solar hot water system is about $4,000 installed.

[That’s for a flat-plate thermosiphon (tank on roof) style system like the one in the first pic above. I struggle to recommend that people shell out $7,000 or so for a fancy evacuated tube system with remote tank and pumps. Flat plate tank-on-roof systems really are good enough in most of Australia (with the possible exception of chilly Melbourne and Tassie) and damn reliable to boot]

Solar Hot Water vs Solar Panels. Which should you buy?

Payback for this option:

The payback for this option depends on what you are replacing with the solar hot water heater.

a) Replacing an electric heater on a regular tariff

If you are replacing a conventional electric hot water system, expect savings of about $700 per year if your heater is on the same tariff as the rest of your appliances . Payback will beabout 5 years (assuming 7% electricity price inflation).

b) Replacing an electric heater on an off peak tariff

If you are lucky enough to have access to off peak electricity for water heating, then this drops to about $250 per year in savings. And therefore payback stretches out to 10 years (assuming 7% electricity price inflation).

c) Replacing a gas water heater.

A typical Aussie home with a gas water heater uses about 14,000MJ of gas per year to heat their water. This is about $420 worth of gas. Saving 80% of this is worth $336 per year. But… gas prices will to go through the roof over the next couple of years for these reasons. I expect residential gas prices to double. So you could well be looking at savings closer to $700 per year with if replacing a gas heater with solar hot water. This would give a 5-6 year payback.

So that’s the costs and paybacks associated with a conventional solar hot water heater. How does that compare to a 100% PV based system? Let’s see…

Option 2: Use solar PV to generate the electricity to heat the water.

To reduce your water heating energy using only solar PV, you are obviously going to need to install solar PV panels instead of a solar hot water system. Combine those PV panels with a timer that only allows water heating during the day and you can make the same savings with a 2kW solar PV system.

The going rate for a good 2kW solar system is about $4,000 installed. Same as the hot water heater. So the paybacks are exactly the same as the ones I went through for Option 1 above. Interesting…

But now let’s consider a house that (very sensibly) is already buying a solar PV system to cover its other electricity needs and instead of buying a solar hot water system, is considering simply getting a bigger PV system:

Option 3: Increase the size of the solar system you were going to buy anyway

As mentioned, a good 2kW solar system will cost around $4,000. But if you have already decided to buy solar for your home, then increasing the size of the system by an extra 2kW (to offset the water heater’s energy needs) will only cost about $2,500 extra. Almost half the cost (and almost double the payback) of buying a solar hot water system.

In this case you can see that, if you are already buying a solar PV system for your home, adding 2kW to that PV system is potentially a much cheaper way to heat your water than buying solar PV plus solar hot water.

So why does anyone buy solar hot water these days?

Good Question. I am actually still a firm believer in the humble solar hot water system. I have one on my roof next to a 6kW PV system. Here’s why I bought a separate solar hot water heater (thermosiphon with instant gas boost) instead of getting an 8kW solar system.

Reason 1 – I crave a simple life. A good solar hot water heater is set and forget. Once it is on you can rest easy, knowing that if there is sun shining – it will heat as much of your water as possible – and the booster will only fire up when necessary. I like that. I don’t want to worry about timers or other fancy controllers that try and sync my PV production with my water heating. I want to live in a dumb home that just works and is comfortable and efficient.

Reason 2 – I like elegant solutions. A solar hot water system is a much more elegant (and thermodynamically efficient) way to heat water than the rather convoluted process of turning sun to electricity and then turning that electricity back to heat. Hey – I’m an engineer and I appreciate the simplicity of putting the sun’s heat straight into the water. Also despite environmental reasons for buying solar being rather out of fashion in these days of brutal economic rationalism –I still give a shit about these things. The embodied energy of the solar water heater is much less than that of 8 solar panels. And it’s made in Australia. Yes – I care about Australian manufacturing too.

Reason 3: Roof space is valuable. My solar hot water system takes up a quarter of the space of 8 more PV panels. North facing roof space is going to become a very valuable asset in the years to come as solar continues to reduce in price. I want to have some roof left so I can add more panels in the future to power batteries, or that Yorkshire Bitter microbrewery I dream of starting in my garage or whatever else I might need extra solar electricity for in an uncertain future.

So yes – if you want to be totally economically rational about the thing and you are buying a solar PV system at the same time and you have an existing electric water heater which is too good to replace. then you can certainly save a couple of thousand dollars by adding 2kW to your PV to cover your water heater’s usage instead of a solar hot water heater. (Just be sure your installer knows how to set up your hot water system to draw 70-80% of its electricity from the solar panels, by installing the requisite control electronics or timers.)

But if you are building a new home, or replacing your whole hot water system, a good old fashioned flat plate thermosiphon solar hot water system is definitely worth considering. Especially if you are an old fashioned, greenie engineer with romantic notions about thermodynamic efficiency and Australian manufacturing like yours truly.

A footnote about a wildcard fourth option: A Heat Pump hot water heater. If you are keen to use PV to power your hot water heater then you don’t have to use a conventional style electric hot water heater (which has all the technological sophistication of a bloody big kettle). In fact most states won’t actually let you install a conventional electric water heater any more because they are so damn inefficient. A Heat Pump electric hot water system uses a little built in air conditioner on its heating cycle to heat the water. For thermodynamic reasons that I won’t go into here, they are 3-4 times more efficient than a standard electric water heater. So why doesn’t everyone have one?Mainly because they are expensive. Fully installed expect to pay $3-4k for a good one. And they are high maintenance and noisy. This means that in the “Solar Hot Water vs Solar Panels” debate in Australia they have really struggled to get a mention, becauseyou can get a silent, low maintenance, more efficient solar hot water system for about the same money.

Note: July 2016, I’ve written a new article on choosing solar hot water with more up to date info here.