Significant Heating Cost Savings Through PV+Heat Pumps

• A new SPE report shows the benefits of co-locating solar PV and heat pumps in Europe to steer through high energy prices for homes
• All 3 markets of Spain, Germany and Italy showed significant savings for these markets in their 2022 electricity bills, as much as 84%
• Success depends on national frameworks and financing tools available to bring down their payback time

A new report, Solar Powers Heat, on medium-sized residential solar owners in the 3 European markets of Germany, Spain and Italy shows they were able to save up to 64% on their energy bills in 2022. For those that also had a heat pump (HP) operating in combination with PV, their savings went up to 84%, and they shall continue to reap the benefits of this combo in the coming years as well across all scenarios, according to SolarPower Europe (SPE).

"Even if gas prices drop to pre-crisis levels, solar PV + heat pump installations will still save households up to 73%. In the more-probable scenario where gas prices stabilize at a higher level, European's will save up to 76%," claims Michael Schmela, Project Manager and one of the authors of the report. Schmela, Executive Advisor at SPE, stressed that residential solar PV makes a meaningful contribution to decrease demand-pressure on electricity grids, 'in all weathers'.

High energy prices in 2022 impacted households that were completely dependent on grid electricity and used gas for their heating. But those that used solar PV along with HP were much less exposed to the volatility. SPE report says a typical German household paid €5,850 in electricity bills without PV and HP, but with both these operating their bills was only €2,230.

For all 3 markets, the combination yielded the highest annual savings for households during the 2022 energy crisis, as per the report because solar energy system at home generates enough to power the heat pump as well. Installing a buffer storage tank alongside a HP is 'key for the effective combination of solar PV and heat pumps, and to truly leverage the economic potential of these technologies'.

Nonetheless, these benefits can differ depending on regulatory framework of a nation. A typical solar PV+HP household in Italy saved €3,766, followed by Germany with €3,614 and finally Spain with €2,832. Reduced savings in Spain reflect the measures taken by the Iberian market to lower wholesale electricity prices, point out the authors.

Challenges and recommendations

According to the report writers, to bring down payback times for new solar PV and heat pumps from around 20 years to around 10 years, the following 5 policy measures are a must:

1. Immediately ending all financing support for residential gas use including both capex and opex. Countries with high heating demand should look at introducing a carbon price floor. As per the report 'increasing costs from gas heating lower the payback times of solar and heat pump installations'.
2. Offering low-interest loans for 'deflationary technologies' as solar PV and heat pumps. Calling high initial investment in these technologies as a barrier for low-income households that can really do with energy savings, the report bats for loans with 2% or less interest rates. Initial investment made by households can be repaid within 5 years, and the savings such homes make on their energy bills are higher than the reimbursement of the loans.

2. Increase capex support for joint investment in the 2 respective technologies as it is a crucial tool to lower payback times. According to the report, a 30% increase in capex support can help lower payback times by 6 years to 8 years for all the markets studied. Italy, for instance, allows homeowners to claim 110% tax reduction for solar PV and heat pump installation costs under its superbonus scheme. The measure has been 'successfully implemented'. Such measures need continuity.
3. Starting from the upcoming revision of European Electricity Market Design, promote collective self-consumption (CSC). For this, a clear legal framework is required including conditions for its implementation. Portugal and France have already implemented such a framework with success, existing EU legislation for renewables self-consumption, peer-to-peer trading and energy communities has no guidance for CSC. Solar can deliver 38% to 62% of the heat pump's electricity demand in a year with average weather conditions for the modelled households in Germany, Spain, and Italy, it further states.
4. Create training and upskilling programs to ensure availability of skilled labor since SPE believes these shortages are slowing down PV and heat pump deployment. Member states should also establish frameworks, both at the individual and company level, for financial incentives for instance through tax reductions.

The complete report titled Solar Powers Heat 2023—How Solar PV empowers households to turn down fossil gas and save on energy bills, is available for free download on SPE's website.

"The best time to install solar PV + heat pumps was yesterday. The next best time is now. European policymakers need to bring the benefits of gas-free homes to the wider population," added SPE's Policy Director and report author, Dries Acke.