13 oct 2024

Complete home electrification is better than the sum of its parts and has reduced my energy costs by 2/3rds. The capital costs are substantial, but the sums do add up.

A key component of my middle class approach to decarbonisation is the electrification of home heating and car transport. I’ve written elsewhere about installation of a heat pump, which, despite the bumps along the way, I’m now very happy with. And I installed solar panels ten years ago before I even took my carbon reduction pledge. My two recent electrification initiatives have been purchase of an electric vehicle (EV) and installation of a home battery to go with my existing solar panels, meaning I’ve almost completely cut out direct domestic burning of fossil fuels. In addition I’ve adopted of an off-peak tariff. I’ll cover each separately here and then consider how they work together, the overall economics, and the carbon savings. This is what I now have:

• 3kW solar array

• 12kW heat pump

• 13.5kWh battery

• Small EV with economy of c. 5 miles per kWh

• EV off-peak tariff charging 8.00p per kWh for five hours at night and otherwise 30.78p

Electric vehicle

With my youngest child now having passed his driving test it seemed a good time to exchange our small, petrol powered second car with an EV. We somehow drive around 15,000 miles a year which at fuel consumption of 50mpg across our two cars equates to around 2.8 Tonnes of CO2 plus of course a lot of other nasty pollutants. I’ve estimated that around 80% of those miles are journeys of under 100 miles or so, meaning that a small secondhand EV will be just fine for most of them and will save about 2.25 Tonnes of CO2 per year.

Why small and secondhand? One reason is cost. A smaller EV costs less and is more efficient (the one we’ve chosen averages around 5 miles per kWh). A small car uses less resource in manufacture, and, being lighter, is less of a stress to roads. Given that most of our miles are relatively short distance and local, a small car suffices. I’ve chosen secondhand (nearly new) as there are some incredible deals available, and I’ve chosen to buy now as given the dip in EV sales growth it seems a good time to help in a very small way to restore momentum into the market.

The cost savings for an EV compared with a petrol vehicle are substantial. At 50 mpg our fuel costs are currently around 12p per mile. At 5 miles per kWh, charged at overnight peak rate of 8.00p, they fall to 1.60p with an EV. Aggregated over 12,000 miles that amounts to an annual saving of £1,248. That is before any savings on servicing costs (insurance costs are a few pounds lower than the car it’s replacing).

It’s not clear how long the saving will persist at this level. As EV penetration increases, the Government will have to do something to replace declining revenues from petrol taxation and it seems only fair that motorists should continue to be taxed to pay for maintenance of the road network. But substantial savings seem likely for a number of years.

Battery

Because of the EV we are switching to a tariff that gives us cheap off-peak electricity overnight at 8p per kWh. We can use this rate for whatever we like and so we have also acquired a 13.5kWh battery. This in essence enables us to buy 13.5kWh at 8p every night and use it when it would have cost 30.78p during the day, a saving of around £3 per day or £1,116 per year.

What about carbon savings? A battery is mainly a cost saving rather than carbon saving device. But in the short term, the carbon content of the grid is highly variable according to the pressure it is under. In general, electricity is lower carbon in the middle of the night, as well as cheaper. At this time demand is lower and there may even be surplus renewable generation. This explains why cheap rate tariffs tend to focus on the 00:00 to 05:00 time slot. Domestic batteries facilitate use of this lower carbon energy, rather than higher carbon energy at peak times. In the short term this can easily cut the carbon content of electricity by half although the carbon saving is highly variable. As a finger in the air estimate, the electricity each that charges the battery at night could easily have an average footprint that is 100g CO2 per kWh lower than peak rate electricity. Given that the battery will shift around 5,000kWh of electricity from peak to overnight across the year, this results in a saving of 0.5T of CO2 per annum. In the longer term, as the grid decarbonises, the direct carbon saving from batteries will decline to zero. However, the ability to shift demand on the grid across the day will by vital for managing a grid with high renewables penetration, and domestic batteries therefore have the potential to play an important role in enabling a low carbon grid overall.

A 2/3rds saving in energy costs

The different components of electrification work very well together. Having a battery enables us to capture all of the solar we generate so none is wasted. It also enables us to shift a significant amount of our energy consumption into a cheap-rate night-time tarrif. The heat pump makes great use of both excess solar and the battery-stored energy and can also be configured to take advantage of cheap night time rates, for example by heating hot water in that window. The heat pump also makes a larger battery worthwhile. Having an electric vehicle reaps further benefits from the cheap night time tariff. So each component complements the others creating an aggregate benefit that is greater than the sum of the parts. We can run the entire energy needs of our house at an average rate of just over 11p per kWh.

The table below shows how the costs break down. The first column headed “New” shows our new estimated annual energy bills on our Ecotricity EV tariff, which costs 8.00p per kWh for five hours at night and 30.78p for the rest of the time. There are possibly cheaper off-peak or smart tariffs but for the moment I’ve gone with the simple off-peak option provided by my existing supplier while I monitor and learn about our usage. The second column headed “Old” shows the costs based on our previous standard dual fuel tariff which charged 28.00p per kWh for electricity and 6.73p for gas. For this column I’ve looked at the costs for our old gas boiler, petrol cars, and before installation of battery and solar. Even though I installed solar ten years ago, I am wanting to assess the aggregate costs and benefits of electrification. We have a feed-in tariff for our solar which yields over £500 per year, but I have excluded that from the analysis below as such generous tariffs are no longer available. I am assuming we will still be doing 3,000 miles in our larger petrol car for the next few years (mainly university ferrying but also a few longer trips or trips where we need to transport our family of five). So there is a small continuing petrol cost in the new scenario.

The staggering net result is that, in aggregate, electrification has reduced our total annual energy and fuel bills by nearly two-thirds. Let’s analyse each component.

Starting with the “New” column, the costs for the heat pump and other electricity usage are based on our new tariff and exclude any benefits from the battery and solar. They are based on our typical usage over the cheap and peak rates. Given the ability to heat hot water at night the average unit rate for the heat pump works out at about 23.50p. Interestingly, for the heat pump, the off-peak tariff gives a handy reduction compared with our previous flat rate tariff of 28.00p. As the rest of our energy usage is more skewed towards daytime, the rate for other electricity usage turns out to cost 28.63p per kWh on average.

It’s interesting at this stage to compare the costs for these first two rows with the “old” scenario. There is a 16% saving on space and water heating. The average cost per kWh of electricity for the heat pump is 3.5x the cost per kWh of gas. However, my heat pump delivers 3.4 units of heat into the house for each unit of electricity used whereas my boiler only delivered 0.8 units of heat for each unit of gas, This fantastic efficiency of the heat pump is enough to outweigh the higher cost of electricity to deliver a net saving. It is interesting that the use of the off-peak EV tarrif reduces the average electricity cost enough to push the operating costs of the heat pump into clearly lower territory than the gas boiler. The costs for our other standard electricity use are broadly unchanged, which is to be expected given that the new and old average tariff rates are almost identical.

The big savings start to appear when we introduce the EV, battery, and solar. I’ve already described the saving from the EV (arising from far lower fuel costs) and from the battery (arising from shifting from peak to cheap rate electricity). Our solar panels then typically generate around 2,750kWh per year. The battery and heat pump work particularly effectively with solar, ensuring that nearly every kWh is preserved for use in the house, even if there is not sufficient demand from the house to use it. However, in a small number of cases on sunny summer days, the solar generated may exceed what can be used in the house and stored in the battery, so to be conservative I’ve assumed 2,500kWh of the solar is useable, giving £770 worth of free electricity and saving around 0.4 Tonnes CO2e. I haven’t considered solar export here because my feed-in tariff is not compatible with smart export tariffs.

The result is a system with total operating costs of energy nearly two-thirds lower than they would otherwise have been, a saving of just over £3,400 a year. However, this comes at a capital cost, as described next.

Finances of electrification

The operating cost savings of electrification are impressive, but they come at a capital cost. Excluding any subsidies, my heat pump cost £25,000 to install, solar plus battery around £15,000 (my solar was installed ten years ago but this remains a representative combined price such are the cost reductions for solar over the last decade). Upgrading to an EV and installing a charger cost £11,000 (net of the cost of selling my old car). This gives total costs of £51,000.

However, at least £5,000 of my heat pump installation arose from my planning problems and changing my mind. Moreover, my boiler is already ten years old and so would probably need replacing within the next decade. A big chunk of the heat pump installation costs are one-off changes that enable a heat pump to be used in perpetuity (a bit like putting in central heating for the first time). Similarly I would’ve likely changed cars anyway in the next few years as my previous car was seven years old and the EV was no more expensive than a petrol version of the same car of the same age. So allowing for the fact that much of this is acceleration of expenditure by a few years rather than purely additional expenditure, plus adjusting for my incompetence, a realistic assessment of the additional capital investment, over and above costs I would’ve incurred anyway, is around £40,000.

In addition, government subsidies are available. There is £7,500 available for a heat pump installation, reducing the costs to £32,500. At this point the economics are not looking so bad. If I’d added 32,500 to my mortgage with a 15 year repayment, reflecting the minimum likely life of the system, the repayment would have been around £3,250 a year, compared with £3,400 of savings. So broadly cost neutral.

This is, of course, still a big chunk of change and not viable for many people. Moreover, there are uncertainties about the extent and durability of the savings, which depend on many factors including electricity prices, government policy on carbon taxes and subsidies, policies on car taxes and so on. On the other hand, some of the changes - for example the move to EVs - simply replaces capital expenditure that is happening anyway in due course. And some savings may increase, for example if government policy reduces the gap between electricity and gas unit rates, for example by moving grid levies into general taxation.

But my main point is that for combined system changes, the economics are getting close to break even on a net present value basis. Indeed battery plus solar installation or EVs clearly stand on their own merits as financial investments. Heat pumps become more financially viable as part of a cluster of low carbon technologies. We may not be far from the point where companies can use their balance sheets and economies of scale to enable bundled clean energy and heating installations at reasonable costs, something we are just beginning to see emerge. When combined with heat as a service offerings there is the potential to make home electrification affordable and attractive, with much of the capital expenditure happening behind the scenes. But most consumers, other than keen early adopters, will need an integrated offering to simplify life and to provide sufficient cost certainty and affordability for them to go ahead.

Carbonomics of electrification

The carbon benefits of electrification are clearer. I’ve previously analysed the carbon benefit of our heat pump, showing that installation saves around 4.6 Tonnes of CO2e a year based on the current carbon intensity of the grid, rising to over 5 Tonnes by 2030. Adding 0.5 Tonnes short-term saving from our battery, 2.4 Tonnes from our EV and 0.4 Tonnes from our solar panels and the total CO2e savings come to 8 Tonnes per annum. In truth the saving is probably much bigger given that leakage of methane through the gas supply chain is likely severely underestimated in Government figures.

In my previous article I developed a methodology for valuing the carbon savings based on a carbon price increasing at 4% a year in real terms from £100 today to just under £300 by 2050 and a real discount rate of 2% a year. On this basis the value of total savings of 8 Tonnes a year over a (conservative)15 year life of the system amount to £14,000. Added to cost savings with a present value of £34,000 gives a total societal system value of nearly £50,000, well above the costs of implementation. And this is a significant underestimate as the cost and carbon savings persist in perpetuity (and become much more valuable over time) whereas some of the capital costs, especially for the heat pump, were one-offs.

The carbon sums clearly add up. And the financial sums nearly do to. From my perspective it has been worth every penny. Not only have we made a meaningful reduction to our carbon footprint at reasonable cost, but we have drastically cut our contribution to the other pollutants that have such a negative impact on health in our towns and cities. We also have a system that will be able to support demand flexibility as grid management develops to deal with electrification and renewables. To help develop the systems approach to this I’ve signed up to the Energy Systems Catapult Living Lab, which is running pilots and research into how electrification works in a domestic setting.

More work is needed to put the pieces together in a simple, manageable, and affordable way for the typical consumer, but I’m now convinced: electrification works.