Harnessing solar energy to reduce utility bills

Solar energy in sunny Singapore

Just that day, I happened to be on the topic of utility bills in Singapore. I stay in a HDB flat and my utility bills are around $150 every month. I was curious, and wanted to use an investment philosophy to deal with utility bills.

Buying an asset and receiving dividends

I went online to research, and solar energy came up as a viable solution. Basically, you will harness free energy from the sun, and then power your own electrical appliances. This way, the money saved becomes like a dividend that keeps paying forever.


Two ways of harnessing solar energy

There are two ways of harnessing solar energy. The first way is to directly connect the solar panel to the electrical appliance you want to power. The second way is to use a grid-tie inverter. I recommend the second way, but will explain both ways. This is the website that helped me a lot when I did my research: link.

Method 1: connecting the solar panel directly

The general idea of this is to harness the solar energy, then store the electricity into a battery, which is used to power your electrical appliance. The four components needed are: solar panels, charge controller, battery, and voltage converter or inverter.

We want the electricity to flow from the solar panel to the battery, but we don't want too much electricity flowing at any time that can damage our battery. To protect it, we need to connect the solar panel to a charge controller, which is then connected to the battery. It regulates the voltage supplied to the battery and also prevents the battery from overcharging.

The most common type of battery used is the Sealed Lead Acid battery, and is a DC battery. The power an electrical appliance, we then connect this battery to the electrical appliance. As the voltage of the battery might not be the same as the electrical appliance, we need to use either a voltage converter or inverter.

SLA battery, photo from: link

A converter is used to change a DC voltage to another DC voltage, while an inverter is used to change a DC voltage to an AC voltage. In other words, use a converter for small appliances, but inverter for bigger items like a light.

Method 2: using a grid-tie inverter

This method is much simpler, and cost less. You only need two things: solar panels, and a grid-tie inverter. In this method, the electricity generated by your solar panels is pumped back into the Singapore electricity grid through the mains (power socket).

We are lucky as Singapore uses smart metering. This means that we can generate our own electricity, pump back into the grid, and get paid for supplying electricity.

In most cases, the electricity generated offsets the electricity bills, but it is also possible to generate more than what you use, and make enough money to offset other water and gas utility bills. This is also part of Singapore's effort to encourage citizens to use renewable energy sources.

Grid-tie inverter, photo from: link

To do so, simply connect your solar panel to the grid-tie inverter, and connect your grid-tie inverter to any power socket. It converts the DC power generated from the solar panels to AC power to the Singapore grid.

Is it possible? How much money can I save?

I used this blogger as a real-life case study. He has solar panels of 320W. A 30W panel costs around $50, so I would estimate the solar panels to cost around $550. For the grid-tie inverter, it can be bought for less than $200. Total cost would be around $750.

He estimates he can harvest 2kW of electricity a day, giving $0.60 a day (2kW x $0.28/kWh). This translates to $220 in savings a year, which means that it would take slightly less than 3.5 years to break even.

It sounds quite good, since after the 4 year, the money will be costless. Assuming that my money can earn 8% a year, the Net Present Value of this investment will be $2,000 ($220/0.08 - $750). The Internal Rate of Return is 29.3%, much higher than the 8% opportunity cost.

Should everyone do it?

If I were to evaluate it on a financial basis, it would be a no-brainer as the rate of return is almost 30%. Even the world's best investor, Warren Buffett, earns a rate of return of 22%. However, it is a practical issue as to where to place the solar panels since we are mostly staying in HDB flats. If I have a balcony, I would definitely set up the solar panels.
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14 comments

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Azrael
AUTHOR
24 July 2016 at 18:20 delete

Hi there,

Interesting post!

Just a curious question, do you have real life data?

Also, any models to recommend to do it?

I would like to try it but it seems too good to be true.

Warmest regards
Azrael :)

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24 July 2016 at 20:55 delete

Hi Azrael,

Thanks for popping by, and glad you find the post interesting!

The real life data I have is taken from another blogger and from the threads of HWZ. The breakeven time is usually around 5 years, so 3.5 years is not far from it. I myself have not tried it as I do not have space in my house to set it up.

If you are referring to how to set up, I would recommend using the grid-tie inverter in Method 2. All you need is just the inverter and you can start off with smaller panels. I would recommend you looking at this post, as I found it very informative. Link: http://singdiysolar.blogspot.de/2015/06/grid-tie-inverter.html

Cheers!
LS

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24 July 2016 at 23:11 delete

Glad you find it interesting!

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Cory
AUTHOR
25 July 2016 at 12:04 delete

How about the maintenance, process and replacement costs.
Opportunity cost of the investment and the space.

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25 July 2016 at 13:58 delete

Hi Cory,

For the solar panels, they do not require maintenance. Even if you leave it in the weather, it is made to be able to withstand it. But, like other electrical appliances, it might spoil, and the lifespan of a solar panel is at least 20 years.

I agree with you, only cost is the opportunity cost of the space. That's why it might be a disadvantage of it. My opportunity cost of investment is around 8%, which compared to the IRR of solar power of 30%, is very little.

Even if given a margin of safety of 30%, I would still say that the solar panels give a higher ROI.

:)

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Cory
AUTHOR
25 July 2016 at 15:31 delete

Yes I am interested too. How about the battery lifespan and support needed. Also need to tap the able from balcony to the mains. Maybe unsightly.

Anotherconcern is laundry space ...used.

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Azrael
AUTHOR
25 July 2016 at 17:20 delete

Hi LS,

Will check out the link.

Thanks :D

Warmest regards
Azrael

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26 July 2016 at 04:45 delete

Hi Cory,

I see you are thinking about the batteries. I would recommend you use method 2 instead as it is simpler, and lower capital as you don't have to buy batteries.

I had looked in the HWZ forums and people used car batteries. These batteries can last up to ten years. But, I think they won't take up space, and as you said, unsightly too.

If you use Method 2, then all you need is to connect the solar panels to a grid-tie inverter, which can be placed beside a pocket socket.

:)

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keith neo
AUTHOR
26 July 2016 at 15:46 delete

Thanks for the post.
Would you be able to find a picture of the whole setup for grid-tie inverter for a home?
For the grid tie inverter setup, we still need to do some wiring and have long cables to connect to the smart meter right? Please correct me if i am wrong.

Thanks

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27 July 2016 at 04:45 delete

Hi Keith,

You can check out this link: http://singdiysolar.blogspot.de/2015/06/grid-tie-inverter.html. Scroll down to the end and you can find a video which shows how the setup is.

For the smart meter, are you referring to "smart metering"? If yes, then you can just connect the grid-tie inverter to any wall socket. If your wall socket is far from the solar panels and grid-tie inverter, then yes you would need long cables.

Hope I managed to answer your question!

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Vincent Wee
AUTHOR
10 January 2017 at 14:16 delete

Nice investment philosophy, but unfortunately, your cost analysis is full of errors, not to mention the implementation feasibility for HDB units.

A typical solar panel rated at 30Wp in AM1.5G lab conditions, would suffer a 30% average loss in efficiency for outdoor temperature in Singapore.

A well exposed fixed mounted solar panel that does not track the Sun, would suffer another 30% irradiance lost because of sunlight angulation.

The average annual solar irradiance is 1,580 kWh/m2/year in Singapore, not 4,380 kWh/m2/year as per your assumption, which is another 64% lesser solar energy. And this is provided your have no power trip at all or any failure of related equipment.

If the solar panel is installed vertically for a HDB unit, even at the best exposed position facing the Sun for half a day, there is another 50% loss for the solar irradiance when the Sun is behind the HDB unit in the day. And this is not including of the effect by the axial tilt of the Earth, which cyclically changes the irradiance angle to a fixed mounted solar panel, therefore significantly reduces its solar irradiance.

All the above are hard cold facts.

And last but not lease, there is a life span for such solar cells. And a solar panel that has a lifespan of 20 years in cold and dry outdoor environment that degrades by ~1% effectiveness every year, as some installed solar panels had now shown, might effectively last only 10 years in Singapore's hot and humid outdoor environment.

Your investment philosophy seriously needs reassessment.

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10 January 2017 at 23:08 delete

Hi Vincent,

You seem like an expert. Do you mind sharing how you can calculate the figures? I would like to learn and understand more about this concept. Thank you!

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