FEEL THE HEAT: Solar panels are not cost-effective for every property.
Kiwis bask in about 2000 hours of bright sunshine every year, but despite seeing the sun nearly 25 per cent of the time, the economics of powering a home with solar panels is cloudy.
Every month, the equivalent of 50 to 60 home solar power systems pop up on roofs nationwide, creating a $44.5-million-a-year industry.
Installations have nearly quadrupled since 2011. At the same time, the average price has dropped by about 36 per cent – such that a typical system now costs about $10,000. The industry argues that falling prices and improved technology mean it has never been cheaper to install solar systems that can save hundreds of dollars on your power bill.
But for many people, the economics of household photovoltaic (PV) panels simply do not add up.
The issue was relit recently when the Green Party announced it would provide cheap government loans to households that installed solar panels. The Greens said this would see typical savings of $100 a year on power costs, and its policy would see loans of up to $15,000, to be repaid over 15 years through rates.
But Canterbury University engineering lecturer Alan Wood said that unless a household was at home using electricity during the day, the proposal would end up costing consumers.
“I think that owning a PV system under their scheme will cost $250 a year.”
Wood was part of a team that investigated the financial cost and benefit of solar electricity in a $6.3m Green Grid project funded by the Ministry of Business, Innovation, and Employment.
The key question when assessing the economics of a solar power system was how much of the power a home would use and how much would be exported back to the power grid, for which electricity retailers pay a rate.
“Their [Green Party] calculation of financial savings appears to be based on avoided electricity usage, not electricity buy-back prices. It is unlikely that for the target system size – 3 kilowatts (kW) – that all the power generated will be locally used.”
The Green Party scheme suggested a 3kW system would save $1000 on electricity, while costing $900 a year over 15 years for the capital cost of the system. But for a typical household, Wood calculated only $650 would be saved, meaning the Greens’ scheme would actually cost users $250 a year.
“However, spreading the capital cost over 15 years should encourage more installations, especially in households with a high occupancy rate during the day.”
But no electricity company buys power back for the same rate it sells it to households.
For Wood, the economics are not as “black and white” as the industry portrays them to be, and at the moment it was really just a “cheap hobby”.
Other than panels, costs include installation, building consents, distribution company applications, electrical wiring and inverter technology. Furthermore, inverters, which cost about $3000 for a 3kW system, generally need to be replaced at least once during a system’s lifetime.
“If you’re doing it for just the financial returns, then [solar power including a] grid connection, I think for the average household, probably doesn’t quite cut it. The value of your PV installation is hugely dependent on how much of the power you use yourself.”
Wood said solar panels would reduce greenhouse emissions – but 100 megawatts (MW) is just 1 per cent of New Zealand’s generating capacity, so it will not make a big change.
Sustainable Electricity Association of New Zealand chairman Brendan Winitana thinks the Greens’ proposal is “fantastic”. “We don’t see any other political party bringing a solution to the table with the ever-increasing power prices.”
The industry was equipping itself to deal with an upsurge in demand irrespective of the Greens’ initiative, running training programmes to bring electrical contractors and electricians up to standard. A 30,000 target by 2018 would equate to about 833 installations a month, a 1300 per cent increase on current levels.
“It is realistic,” Winitana said. “We’re gearing up for it anyway because of the increase that has occurred in the previous year.”
Winitana said a 3kW system would provide a family of four with about 60 to 70 per cent of its power usage.
“Without feeding anything back into the grid, the pay-back period is around six-and-a-half years.”
A fair pay-back price still needs to be defined and would require the Electricity Authority to regulate how much retailers should charge for buy-back electricity.
“That has still yet to be defined but it makes logical sense because, as we’re well aware, in the middle of summer, in the middle of the day, you’re generating a whole bunch of power from your solar system. But there’s no demand, typically no one home, so it makes really great sense to generate and feedback into the grid as long as a fair price is paid for it, then the economics become even better.”
Others, however, have written off the Green Party’s policy as a subsidy in disguise.
Two electricity company chief executives recently dismissed the economics of home-based solar energy and Contact Energy chief executive Dennis Barnes went so far as to say the plan was “clearly a subsidy” and effectively a tax rebate.
“The inherent costs of solar are more expensive than grid-supplied electricity at the moment.”
Also, there would be “free-riding” on the electricity network.
“So the people who can afford the capital cost of solar will pay lower network charges, but still enjoy the full benefit of the [national] grid when it is not sunny,” Barnes said, adding he had no problem with solar, when it is economically right and competitive with centralised renewable generation”.
But Winitana said the Green Party’s policy did not require a hand-out or feed-in tariff as seen overseas. In Germany, Italy and Spain, subsidies meant consumers essentially paid for others’ solar power use, he said. And high subsidies and hand-out rates could lead to cowboys who installed shoddy and dangerous systems.
Meridian chief executive Mark Binns also recently dismissed the economic value of solar power, ahead of the Green Party’s announcement.
“I can’t follow the economics that are put forward by proponents of household solar in terms of returns as an investment,” he told Parliament’s commerce select committee. “On our numbers, in our analysis, it is still probably not viable if you went to an accountant.”
He said people failed to understand they would get nothing back at the end of 25 years.
“Our view is that the answer is no, it’s not currently viable.”
The Energy Efficiency and Conservation Authority warns consumers to do their sums carefully before investing in PV, as there are many variables.
A Consumer NZ study published in November also found the economics wanting and suggested people would be better off putting their money in the bank.
– © Fairfax NZ News