Once you install a solar panel you can enjoy free electricity – at least while the sun is shining – and maybe one day in the not-too-distant-future you’ll be able to cost-effectively store that power in battery banks. But what if you don’t want to use that power? Surely you can sell your solar energy back to the grid? Sadly solar panel owners have been finding that their energy is not fetching the same price as it used to.
Last year Meridian Energy cut their buyback rates from 25 cents per Kilowatt hour (KWh – for the first five each day) and 10 cents thereafter to flat rates of 10 c/KWh in winter and 7 in summer. Contact’s price has gone from 18c to 8c, and now Genesis sometimes offers as low as 4c per KWh. Such changes sound shocking – especially since they reserve the right to change prices again with 30 days notice. Owners of solar panels are left in the dark over the return they will get on their investment.
Sorry solar-philes, welcome to the market reality of power generation in New Zealand in 2015. At the moment solar isn’t competitive with other renewable electricity generation, nor is there much reason to think that solar panel owners are being underpaid, or to think that Gareth Hughes’ bill will make any difference to the price they receive. The situation faced by power generators is the same as that faced by consumers – if you don’t like the price, you can always shop around.
Climate change is a serious and pressing issue. All the more reason to focus on the important changes we need to make and not get tied up in distractions.
Hughes’ Crusade
People all around the country have spent money installing solar panels on their houses. They get free power when the sun is shining, which is great if you are home to use it. Increasingly people are also installing batteries that can store the power for them to use later. In the right circumstances, solar power can save people money on their electricity bill.
If people can’t use all the power they generate, for example if they aren’t home during the day, or they just make more than they need, then they generally sell it back to the grid. That means that those electrons could end up boiling any of our kettles.
Mr Hughes’ beef is that the price received by the solar panel owners from the five power companies that purchase solar power has fluctuated wildly – as we saw above – and with less than a month’s notice. Cuts such as Contact’s drop from 18c to 8c per KWh were indeed big movements – if you are planning to sell power back to the grid it that makes it pretty hard to invest in a solar panel with any certainty that it will pay its own way.
To fix this Mr Hughes is calling for an independent body to set a fixed price received, so the little guy doesn’t get screwed over. It sounds like a good idea on the surface but who says they are getting screwed over? No other generator in the electricity market receives a fixed price as he is proposing, so why should solar?
The Price of Power
We totally agree that solar power generators should receive the same price as any other generator on the market – which is the value of the energy they generate and offer at that moment. The trouble with Gareth Hughes’ crusade is that at the moment it isn’t clear that solar generators are getting screwed over.
The fixed price that would end up getting set by an ‘independent authority’ as Gareth Hughes is suggesting probably wouldn’t be far from the 4-10c range currently offered by different power companies. How can this be? How could solar power help a private home save money yet that is not reflected in the price received when the power is sold back to the grid?
There is a big difference between the retail electricity price – the price you pay for power delivered to your home – and the wholesale electricity price – the price generators receive. This difference is mostly due to the cost of transmission – the cost of zapping power from a hydro dam in the South Island, across the Cook Strait cable and all the way to an Auckland kitchen.
Lets do the math; according to the Electricity Authority the cost of solar power is 20c/KWh, although the Sustainable Energy Association retorts that the cost of creating solar depends on circumstances (e.g. how much sun you get), and that estimate is at the top of the range. Regardless, if you are home to use the power during the day when it is generated (or have a battery to store the power), then the cost of solar energy could well be equal to or less than what you are paying for your power (power charges vary but on average they are above 20c/KWh).
Meanwhile the wholesale cost of power is much lower – the Electricity Authority puts the average price that electricity gets bought from the big generators at 7.5c/KWh. So when solar tries to compete with current electricity suppliers in the wholesale market such as hydro, wind and geothermal at the moment it comes off second best. Compared to the average wholesale price of 7.5c/KWh paid to generators the 8c/KWh offered by Contact and Mercury and the 8-10c/KWh offered by Meridian to solar generators look pretty good. While solar can hold its own at the retail level, at the wholesale level it isn’t yet competitive.
But wait, there’s more. Most solar power is generated during the time when there is less than peak demand – in the summer and during the day. Peak demand is in the early evening 4-7pm, especially in winter. So if we had to set a fair fixed price for solar (supplied directly, not from storage batteries), it is possible that price would be lower than the average of 7.5c/KWh.
The prices received by electricity generators bounce around all the time – it is a market. If you can generate power in the peak time, you are in the money, but if you are generating power when nobody wants it, you don’t get paid much. Solar power users could get around this with a battery, but that will depend on the cost of storage when it eventually becomes economic.
Gareth Hughes wants to gloss over the current reality of solar panel generation – that it makes electricity during the day when the market value is low. Normally getting a guaranteed price would cost the vendor for that certainty. Logically anyone wanting to sell unlimited amounts of power at any time at a set price would normally have to accept a lower than average price.
So overall, given that the average wholesale price is 7.5c/KWh, solar generates most power on summer days and generators want a fixed price, the prices offered by energy companies at the moment don’t look too bad. In other words, it is hard to imagine that the independently set fixed price Gareth Hughes is calling for would end up higher than the current prices he is complaining about. This sort of outcome would hardly be the win for solar that Hughes is seeking.
Rules and Regulations
Gareth Hughes has also pointed out the myriad of rules and regulations pertaining to solar panel installations around the country. This sort of red tape is certainly an issue, but could equally be applied to any building issue. Does it require a whole new law in response?
Focus on what is important
As the Electricity Authority points out, the real problem here isn’t that solar users are getting a raw deal, it is that retail electricity prices give the wrong signal. Most electricity sellers end up including the costs of running the national grid in their per unit electricity price. This makes the electricity price higher, making solar look more competitive. That is why the Electricity Authority is suggesting that power bills separate the fixed costs of running the grid from the costs based on the actual power used, which are actually quite low. That might slow the growth of solar power use.
Given current pricing structures which include the costs of running the grid, solar might make sense in an individual’s home, and that will become more so with the development of battery and smart grid technologies. However, at a wholesale level solar can’t yet compete with new large-scale wind-farms and our existing stock of hydro dams. Thankfully the people buying solar panels aren’t doing it as an investment – they are just looking for freedom and independence from the power companies. So what is Gareth Hughes worried about again?
Climate change is a real and serious problem, all the more reason why we need to get acting and not mess around with trivia. Gareth and the Green Party should really focus their efforts on things that will make a difference – like getting our public sector car fleet electrified – all those cars powered by renewable electricity would be a real win for reducing emissions.
Summary:
- It doesn’t look like solar users are getting ripped off by electricity companies.
- Solar technology may be competitive on a retail basis but needs further development to be competetive with wholesale generators.
- It isn’t clear that Gareth Hughes’ bill will achieve much.
- The real problem is that we need to change the way electricity is charged for to tease out the cost of power from the cost of being connected to the national grid.
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