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An optimist writes: here comes the sun

Should power companies be worried about the advent of solar PV?

Something very exciting has just happened to the cost of generating electricity off-grid, using the sun. In the past few months, PV installations have been tracking at a cost of around 22 cents per kilowatt hour. So what, you might say.

pattrick smellie on solar pvWholesale electricity prices struggle to hit 8 cents per kilowatt hours most days in New Zealand, even with southern hydro lakes drier than usual. The global financial crisis and the retreat of industrial manufacturing from our shores means electricity demand is barely growing. At 22 cents per kWh, surely solar is still out of the money.

Not so. The generation cost for grid- connected electricity is the wrong comparison for PV. The average delivered cost of energy to households is between 23-29 cents per kWh, according to February data from the MED Energy Data File.

Solar power is starting to make sense as an economic choice – the missing factor which, to date, has prevented mass uptake of no-carbon, off-grid electricity generation. But there are caveats. Solar generation needs the sun to be out, although new second generation technologies can work in overcast conditions. They don’t generate energy at night – you might need to light the house using juice from the battery of your electric car in the garage.

Some parts of New Zealand are better than others. Nelson is a sitter in the south, but sunnier, northern climes tend to get more sunlight hours than, say, Stewart Island, where solar PV makes sense because it will be replacing diesel generators that not only produce electricity at well above retail electricity charges, but are also noisy devils belching carbon. Indeed, solar PV is starting to roll out fast as a diesel replacement in the Pacific, with the three main atolls of the Tokelaus getting solar PV systems and Meridian working in Tonga to instal a substantial PV array there.

Solar PV also requires two-way electricity meters allowing a household to sell excess generation to the grid – a problem largely fixed as the country-wide roll-out of smart meters gathers pace.

There’s still no fortune to be made in selling solar electricity. Contact Energy and Meridian Energy offer so-called ‘feed-in’ tariffs for solar PV, but at 17.45 cents per kWh for Contact, the sale is at a loss to cost of production, while Meridian’s 22 cents per kWh looks no better than break-even. Still, it will hasten payback and offer a small return once the kit is paid off.

The other big caveat is that current prices are partly a result of global over-supply of PV equipment. The chairman of the Sustainable Energy Association of New Zealand, Brendan Winitana, is candid about that, but points out the prices were plummeting for PV anyway. Indeed, some of the highly publicised commercial failures in the industry have occurred because of technological leaps bringing the price of PV arrays down.

A February 2011 paper for the Electricity Authority’s Retail Advisory Group cited PowersmartSolar, a major New Zealand installer, saying the price of a three-kilowatt system, suitable for a domestic home, falling from $39,195 in 2009 to $13,745 in 2011.

“Currently, and perhaps for the first time, the cost of generating a unit of electricity from residential scale solar PV (approximately 20 cents per kWh) is lower than the bundled cost of retail tariffs (average approximately 26.12 cents per kWh),” said the report, which attracted no media coverage at the time.

But you can be sure the chief executive officer of every traditional electricity generator-retailer is well aware of this development – and its capacity to disrupt the relationship with currently captive customers, so long yoked to an industry they distrust at best and commonly dislike.

Still, it will take time for transformation to emerge. For one thing, a 2009 report for the MED identified the lack of a qualified workforce to install solar PV systems. That will change over time, but it’s a skilled trade and will take time to build critical mass.

However, that level of complexity doesn’t apply so much to the user anymore. Anyone who’s tangled with primitive solar PV arrays at a remote holiday bach on Great Barrier Island – I speak from experience – will be relieved to hear the necessity to ferret about in a dark cupboard switching the inverter on and off is a thing of the past.

Where does this lead in the end? Hopefully, to the massive uptake of solar PV technology by householders everywhere globally at a very fast rate. If solar PV became competitive everywhere on a micro-scale for uptake by households, businesses, and government agencies, wouldn’t that mean a whole lot of carbon suddenly wouldn’t be emitted, by the globally widespread choice of a non-fossil fuel electricity source that is non-polluting and limitless?

How big a hole might that cut in carbon emissions projections?

There’s a last caveat. We’ve been here before.

Under-investment in the national grid during the 1990s and early 2000s was justified on the expectation of an explosion of off-grid and distributed generation no longer requiring more than localised electricity networks.

That was a false dawn. Catch-up investment to secure national electricity supply is only now coming to fruition. In the meantime, the wind industry has become large enough to require strong national grid connections.

Policymakers are likely to remain wary of claims the national grid can be allowed to deteriorate simply because people can start tacking solar PV arrays on their roofs for the same cost they’d pay for delivered energy from a power company. It should take decades for solar PV to replace so much sunk investment in the current electricity system, which is already well-served by other renewable resources. PV may prove to be no more than competitively priced versus the existing option.

Installing solar PV will also require one-off capital outlay to make the switch, and most households may want to retain a grid connection for when the sun doesn’t shine. Not every household be able to bear the costs. Solar PV may, though, become a common choice for new home builds. For proof of that, look no further than the Christchurch rebuild. In that city, a PV provider has just signed to install 2,200 solar PV arrays in new homes replacing those damaged or destroyed in the earthquakes.

Evidence, perhaps, that amidst all the angst about the master plan for Christchurch, rational, green choices are already being made?

Pattrick Smellie is a Wellington journalist and founder of the BusinessDesk news service.