Household energy consumption and the financial feasibility of self-consumption through photovoltaic panels in Spain

Energy is one of the fundamental elements of human activity, with consumption increasing as a country or region develops (Zhang et al, 2021). Today, many activities cannot be carried out without an adequate supply of energy, which justifies Sustainable Development Goal 7 (ensure access to affordable, reliable, sustainable and modern energy for all). Households use energy for cooking, washing clothes, lighting and other activities, so an adequate source of energy is essential. This aspect is of great importance, as such a supply represents a significant financial cost to them, as well as an environmental cost due to the use of non-renewable energy sources and the associated pollution. Of course, households are not the only energy consumers to take into account, as others, such as water services, are also large consumers, which is why their energy supply has been analysed and efforts have been made to reduce their consumption (Langarita et al, 2016; Melgarejo & Montano, 2011; Yusta Loyo, 2016). As with water services, reducing household energy costs would lead to financial and environmental savings, either through the application of energy efficiency measures or via the use of alternative energy sources (Pardo et al., 2020). In this sense, the generation of energy through photovoltaic solar panels is one of the main alternatives due to its constant technological improvement, which has enjoyed cost reductions and production increases (UNEF, 2020c), and its flexibility (Simões et al, 2022). In addition, investments in self-consumption of energy through solar panels are usually eligible for public sector subsidies.

The photovoltaic sector has developed intensively in recent years and the average cost of this energy source has decreased significantly (IRENA, 2019; Jäger-Waldau, 2019; UNEF, 2020c). This is of great importance for the financial viability of photovoltaic projects, as the cost of energy supply can be one of the most important costs (Yusta Loyo, 2016; Zarzo & Prats, 2018). This is initially the case, but in the long term there are economic and environmental benefits that provide a return on investment (Arazola-Martínez, 2019). In Spain, electricity generation using these panels has grown in recent years and generation capacity is expected to continue to increase (IRENA, 2019; UNEF, 2020c). Spain is also one of the countries in Europe with the most hours of sunshine (Prieto, 2017), so the potential for solar energy is very high. However, there are many aspects that affect the energy production of solar panels and therefore their average cost (Deb & Brahmbhatt, 2018). Therefore, proper project design and maintenance are essential factors that promote the generation and consumption of this type of energy (Hanes, Gopalakrishnan & Bakshi, 2018; Tovar Ospino, 2010).

The potential financial and environmental benefits of self-consumption with photovoltaic solar panels are not sector specific. As discussed above, water utilities are often considering the incorporation of photovoltaic panels with the aim of reducing their environmental impact and operating costs (JCU, 2020; Setiawan et al, 2014). Increased business competitiveness can also be achieved by reducing the financial costs of energy supply (González & Alonso, 2021; Moreno et al, 2014) and households could also enjoy savings on their electricity bills and other savings from public subsidies. Furthermore, the development of the sector would be associated with an increase in economic activity and employment, which is very useful in a situation such as that caused by the COVID-19 crisis (UNEF, 2020b). Despite the positive effects, there are some negative aspects that hinder the development of solar panels as an energy alternative. The most important are the high initial financial costs (Urmee et al, 2018) and the lack of support from the public sector, which manifests itself in a lack of financial support and excessive bureaucratic requirements (Solarplaza, 2020; SolarPower, 2020). In response to these problems, subsidies to cover part of the financial costs have been recently published in Spain (Ministry for Ecological Transition and the Demographic Challenge, 2021), and the Valencia Region has reduced the necessary formalities to encourage this type of project (Generalitat Valenciana, 2020). Finally, since solar panels have a lifespan of 25–30 years (Malandrino et al, 2017; Xu et al, 2018), the design of photovoltaic panels should include this issue and facilitate future recycling and reuse of panel materials (UNEF, 2020a, 2020d).

However, the presence of negative aspects limits the development of solar electricity generation through solar panels. High initial financial costs and a lack of public sector support reduce the number of projects of this type, despite the benefits they bring in the long term. Household self-consumption of energy through solar panels is one of the main strategies to reduce their electricity bills and greenhouse gas emissions (Hesselink & Chappin, 2019; Zhang et al, 2017). Moreover, solar panels are not necessarily a stand-alone alternative, but can be part of a suite of energy-saving measures based on smart homes (Ghazvini et al, 2017). However, households are often unable to afford the investment required to install panels, nor are they able to calculate the long-term benefits as energy prices change over time (Damette et al., 2018). In any case, family income and energy prices are key considerations for all households when considering the installation of solar panels, so that financial support from the public sector could be useful. Such support would also help to reduce income inequalities, as it is more important for low-income households than for high-income households (Schleich, 2019). In summary, existing barriers to PV self-consumption have limited its growth, so that its potential has not been realised and there is significant room for improvement (Rosenow et al, 2018). Therefore, information campaigns on the benefits of solar panels, reduction of bureaucratic processes and capital support may be helpful (Hesselink & Chappin, 2019). Reducing the uncertainty of solar panel projects by using power generation and cost simulation software to estimate panel performance before the installation is also valuable (Kassem et al., 2019).

For this reason, a number of economic instruments have been put in place to provide incentives for photovoltaic self-consumption. For large-scale production, the main incentives are: (1) feed-in tariffs (FIT), (2) green certificates with a quota system, (3) fiscal and investment incentives, and (4) tenders for the quota system (Sarasa-Maestro et al., 2013). However, many of the incentives cannot be applied at the household level, where the main instruments are financial support, tax rebates and the establishment of compensation for unused electricity fed into the grid (Luthander et al, 2015). Among these incentives, subsidies that cover part of the investment to be made at the time of installation are the most effective (Dusonchet & Telaretti, 2010). The design of any policy must be precise, as the same incentive can lead to different results in different countries or household types (Bertsch et al., 2017; Dusonchet & Telaretti, 2010). Given the potential benefits of PV self-consumption, economic incentives have become increasingly common in different countries (Luthander et al, 2015), as they not only contribute to energy substitution, but incentives can also guide PV installations to the optimal size (Mateo et al, 2018) and promote the use of batteries, thus making self-consumption more reliable (Zakeri et al, 2021).

Focusing on the Spanish incentives, the Spanish government has recently published subsidies for the installation of solar panels with an initial budget of 660 million euros, which could rise to 1.32 billion euros when the above is completed (Ministry for Ecological Transition and the Demographic Challenge, 2021). These subsidies are available to companies, public institutions and individuals, although households without a single-family home are excluded. For the latter, the government expects 40,000 households to benefit, with the aim of installing solar panels and reducing their consumption of energy from the grid (Ministerio para la Transición Ecológica y el Reto Demográfico, 2021). In the Valencia Region, for example, aware of the bureaucratic barrier, the necessary procedures for the installation of solar panels have been simplified in 2020 (Generalitat Valenciana, 2020). These policies are added to the already existing subsidies with the aim of developing a form of energy production that has so much potential in the Mediterranean area and in Spain in particular (Prieto, 2017). Since this paper the focuses on Spanish households due to the available data, it is worth commenting on the other types of subsidies that exist in Spain. These subsidies consist of deductions in different taxes, such as the personal income tax (IRPF by its Spanish acronym), the property tax (IBI by its Spanish acronym) and the tax on construction, installations and works (ICIO by its Spanish acronym) (Otovo, 2020). There is also a subsidy that covers part of the investment cost, but this subsidy is not available to households that are part of a community of neighbours. In other words, whether it is a national or regional subsidy, households that do not own a single-family house do not have access to financial support for self-consumption through solar panels. Despite these subsidies, the bureaucracy involved in installing solar panels is costly in terms of time and money and limits the development of solar panels even when the subsidies are available. These procedures are divided into the permits required for the installation of solar panels (five procedures) and the procedures required after installation (eight procedures) (Hilcu, 2021). In total, there are 13 steps to be taken, which explains why the Valencian government is trying to reduce this bureaucracy.

The recent evolution of the price of electricity represents a significant increase in the cost of living, as it is not only one of the main household expenses, but also a key determinant of the price of the rest of the products consumed. Therefore, given the benefits of self-consumption of solar energy and the available subsidies, it is interesting to analyse the current financial viability of installing solar panels in households. With this aim, the current situation regarding household energy consumption and the financial results derived from the self-consumption of energy through solar panels are analysed. In this way, this work defines the financial situation regarding energy the self-consumption of energy through solar panels in households. This is very useful for the implementation of information campaigns aimed at communicating to citizens the financial benefits they can obtain from self-consuming energy, which would contribute to the reduction of greenhouse gas emissions. It is also very useful information for the design of new subsidies to stimulate the development of photovoltaic panels. This article presents, for the Spanish case, a broad picture of the situation of household energy consumption, of the possibility for households to proceed with self-consumption and of the current design of public subsidies for the installation of photovoltaic panels. This analysis, in a country with a high electricity price and many hours of sunshine, such as Spain, is an interesting case study, as a greater effort in the development of photovoltaic self-consumption would be expected. In order to achieve the proposed objective, after this introduction, the first step is to explain the data used and the methodology applied are explained. Then, the energy consumption of Spanish households is analysed. This is followed by the cost of installing solar panels in homes and the financial viability of these projects, which will be developed in the discussion and conclusions sections.

The data on household energy consumption and on the financial costs of installing solar panels in homes have provided valuable information on the development of self-consumption through solar panels. On the whole, solar panels are clearly profitable, as they produce energy at a lower cost than the price paid for traditional supply. This is a situation that has already been observed in other countries, such as Germany (Fett et al, 2019), the United Kingdom (Dong et al, 2020), Ireland (Bertsch et al., 2017) and Sweden (Nyholm et al, 2016), where there are fewer hours of sunshine than in Spain. However, a complete replacement of energy consumption is more difficult to achieve due to the high cost of batteries and the environmental impact they have at the end of their useful life (Johann & Madlener, 2014; Vieira et al., 2017). In any case, the potential savings are high and self-consumption with solar panels is justified.

However, there are two key aspects to consider when determining which households are potential solar panels purchasers. In this regard, it is necessary to distinguish between the characteristics of the dwelling and the financial situation of the household (Roth et al, 2020). In Spain, most households live in dwellings that are part of a community of neighbours, which severely limits their ability to use solar panels for their own consumption. This is because the panels would be connected for the whole community of neighbours, so that an individual would never make the investment to only get a small part of the savings. Recently, the possibility of solving this problem through technological changes, such as the use of energy storage sharing on a neighbourhood community scale has been considered (Roberts et al., 2019). D'Agostino et al. (2022) showed the potential in terms of self-consumption in a neighbourhood community, which is a clear indication of the importance of paying attention to this type of consumer. However, the distribution of the energy produced is still a major barrier to self-consumption in the communities of neighbours. In the hypothetical case that one of these communities would agree to install solar panels and they could share the electricity through technical changes, they do not form a valid legal entity to apply for aid for the installation of solar panels. Therefore, the type of dwelling in which one lives is a direct determinant of self-consumption through solar panels, since being part of a community of neighbours requires the agreement of the different neighbours and financial aid cannot be applied for. According to data from the Spanish National Statistics Institute's Continuous Household Survey (ECH for its Spanish acronym), there are approximately 18.75 million households in Spain, of which only around 5.95 million are single-family households, i.e. slightly less than 32% of Spanish households are single-family households. Clearly, this is a significant number and the potential savings are high, but the subsidies are currently exclude 68% of the country's households. Furthermore, the government estimates that only 40,000 single-family homes will benefit from the newly announced subsidies, which is a small fraction of the approximately 5.95 million existing single-family homes. This case is a good example of the importance of the design of public incentives for self-consumption. Each case must be carefully analysed, as the economic performance of the panels is not the same in all countries and households and incentives must be adapted, as the case of France shows (Roth et al, 2020). For example, the use of an electric car is associated with higher electricity consumption. In a country with a higher use of these vehicles, higher household consumption would be expected, so that a factor independent of self-consumption would be relevant in its development and would affect the effectiveness of incentives for the installation of solar panels. Without a complete analysis of potential users, the current Spanish case, which has been in place since 2019 when bureaucracy was reduced and self-consumption incentives were introduced (Prol & Steininger, 2020), could occur, where technical difficulties and the lack of incentives beyond tax incentives for neighbourhood communities mean that support for self-consumption in households is concentrated on relatively high incomes.

From a financial point of view, self-consumption by means of photovoltaic solar panels has proved to be feasible, as it is able to reduce the unit cost of energy consumed by households from the 0.28–0.29€/kWh of traditional supply to the 0.15–0.21€/kWh of self-consumption. The data from this study have also showed large differences in income between the different types of households. The electricity bill of Spanish households represents between 3.27% and 5.01% of household income, which indicates a certain capacity for savings. This issue has a direct impact on the capacity of households to make the necessary investments for installation and the bureaucracy involved in self-consumption. The question is which households will need financial support from public authorities to cover the high initial investment. Low-income households are less likely to own a single-family house than high-income households, preventing the installation of solar panels. For households that do not own their own home, it would not make sense to call for subsidies, as they would not be effective, but in any case the current subsidies exclude a very large number of households. These subsidies are available for single-family homes, which are likely to have a higher average income than homes that are part of a community of neighbours. Therefore, while current subsidies can help pollution from energy production, they are targeted at a segment of households that are likely to have the means to use solar panels on their own and are leaving other households out. In a community of neighbours, the energy may be relatively easy to use due to the presence of several consumers, although this would need to be checked on a case-by-case basis, as users may not be at home, e.g. going to work, to consume the electricity produced during sunny hours. In other words, all of the energy produced could be used, but no support would be available.

The final major determinant of photovoltaic self-consumption is the price of electricity on the grid. In recent years, the price of electricity has fluctuated, making it difficult to calculate the savings on the bill resulting from self-consumption. A large development of this type of project would change the energy mix, with a corresponding effect on the average cost and price of electricity, thus affecting savings. In other words, both public incentives and the decision to invest in self-consumption must take into account that savings are variable and that the performance of the panels will be affected if the use of electricity sources varies. The constant search for new, reliable, cheap and clean sources of energy may lead to major changes in the future that will affect projects implemented nowadays.

In summary, the characteristics of the dwelling, the household and the price are the factors that influence the likelihood that consumers will decide to install solar panels. Current subsidies aim to encourage households to install solar panels, although direct subsidies currently only benefit a very specific segment. It has already been proved that technical solutions and self-consumption potential exist in neighbourhood communities, but the current design of incentives in Spain prevents their exploitation (D'Agostino et al, 2022; Roberts et al., 2019). Therefore, although subsidies can be useful to stimulate the development of solar panels in this segment, the rest of Spanish households need a different type of stimulus to proceed with self-consumption. The main problem lies in the large number of non-single-family households in Spain, where self-consumption cannot be subsidised because they are part of a community of neighbours, not to mention households that do not own their own house. Some newly constructed residential buildings have solar panels built into the roof during construction. Installing solar panels on new buildings, especially on the roof to save space and to reduce land costs and visual impact (Al-Quraan et al, 2022; Hołuj et al, 2021), is useful but leaves out all existing structures. In short, there are solutions for single-family homes and new buildings, but there are currently no incentives to encourage the rest of the families, which make up the majority of Spanish households and have a lower average income, to move towards self-consumption through solar panels, despite the high cost of traditional energy supply. As has been shown in previous cases in different countries, incentives are not equally effective depending on the characteristics of the country and the household (Bertsch et al., 2017; Roth et al, 2020). In this sense, and considering the number of low-income households, it is worth mentioning that reducing energy consumption is another great alternative, but it shows other conditioning factors such as building, region, house, housing equipment, season and climate characteristics (Oota et al., 2021). Finally, it should be noted that, although this analysis is focused on Spain, specifically its regulations, sunshine hours and household characteristics, the methodology and logic behind the results can be extrapolated to other countries with the only particularity being the adaptation of these specific issues. Some of the references cited such as Damette et al. (2018), Schleich (2019) and Debs and Metzinger (2022) show a similar logic, so this article joins an international literature that provides a better understanding of the energy situation of households, what are the main problems are and what solutions are available.

This work has provided useful information for analysing the energy supply situation of Spanish households. The energy consumption of these households and the possibility of self-consumption through solar panels have been analysed. This was possible thanks to data from the Spanish National Statistics Institute and information provided by the company Enerficaz.

In terms of household energy consumption, the price naturally provides an incentive to save. Households with fewer members have lower total energy consumption, but consumption per person decreases as household size increases. The consumption of single-person households amounts to 2126.02kWh, which is the lowest consumption per household but the highest per person, in contrast with households with two adults and 3 or more children, whose total consumption is 3315.18kWh but whose consumption per person drops to 628.59kWh. This is a good example of the importance of the household structure in analysing not only the energy consumption of Spanish households, but also the potential of self-consumption through solar panels. Variables related to the size of the municipality, population density and region of residence do not show a clear pattern, although they have been shown to be relevant.

The second part of the analysis focuses on the current situation regarding the capacity of households to engage in self-consumption through solar panels. This has proven to be financially viable, as the unit cost of energy produced by solar panels is €0.15–0.21/kWh, which is lower than the cost of traditional supply, which is €0.28–0.29kWh. However, the current public subsidies in Spain, which are designed to encourage self-consumption, exclude the 68% of households in the country that do not own a single-family house. Households with a single-family home are also likely to have a higher income, so the households left out of the subsidy are likely to be the ones that need the most help, but they are part of a community of neighbours, which greatly limits the possibility of installing solar panels. This is without taking into account how many households live in rented accommodation. The analysis has therefore shown that the current subsidies, while having a positive effect, are insufficient and do not address the whole problem. New buildings and single-family homes can benefit from self-consumption through solar panels, but the rest of the houses, which are a large part of them, are completely left out of the picture. It is importance for the Spanish public sector to take a broader view of the development of solar panels in order to minimise pollution from energy generation. This information from the Spanish case can also be very useful for other countries seeking to develop solar energy generation by their households, as they will be able to see what aspects they need to take into account when designing the procedures and public subsidies linked to the installation of solar panels. The analysis has shown the enormous importance of the appropriate design of public subsidies, in which the characteristics of the households and the dwellings in which they reside play an essential role. In conclusion, this analysis has shown the crucial importance of offering new alternatives to families who do not own a single-family home, and how subsidies designed to promote self-consumption must include the characteristics of the households and their dwellings.

An accessible, reliable, sustainable and modern energy supply is part of the Sustainable Development Goals. However, not only is the current supply unsustainable, but Spanish subsidies also have an inequality component. Only single-family households, i.e. those with the highest incomes, can apply for subsidies for photovoltaic self-consumption. The high incomes are receiving subsidies while the low incomes cannot even consider the possibility of self-consumption. With current electricity prices, much more attention should be paid to the supply of low-income households, as their electricity bill represents a higher proportion of the total household budget and they have fewer alternatives.

Finally, it should be noted that this work has some limitations. Firstly, it is not possible to analyse the evolution during the year or during the day of energy consumption, nor the production of solar panels during the year, since the data are annual. Secondly, differentiate between households according to the type of dwelling and to look more closely at the issue of single-family dwellings and neighbourhood communities is also impossible. This lack of household-specific information makes it difficult to calculate exactly how much energy would be generated by the panels. The analysis has shown how the public sector needs to think about new solutions for users who are not eligible for public subsidies. This question contributes to a very interesting line of research, as developing new solutions for all households that are excluded from public subsidies and from the benefits of solar panels could be of great benefit to these households.