'Big solar better' mantra misses the point

Economics is a useful tool for households in deciding between clean energy technologies, especially those with the same or better environmental outcomes.

The Alternative Technology Association recently wrote an op-ed for Climate Spectator that considered current economic payback times for investment in household solar PV (Solar payback: Smaller is better, September 24).

It highlighted that, based on an analysis of up-to-date costs of solar systems and energy sold to and from the grid, those seeking the highest return on their investment would aim to minimise the amount of energy they export, as exported energy in most parts of Australia now attracts very low feed-in rates. This means, for many homes, choosing at the lower end of available system sizes.

This was subsequently misinterpreted as an ATA position advocating that every home in Australia install small solar systems in a piece in Climate Spectator by Matthew Wright, (Six reasons why smaller solar is not better, October 2). Wright expressed his disappointment with what he perceived to be the ATA’s view and argued that larger solar systems were always better.

Economics and technology choices

Wright asks if ATA are taking a “neo-liberal, take-no-prisoner approach for householder economic return on investment”. This is obviously not the case and as a question is plainly ridiculous. Naturally, people need and do consider affordability and return on investment when it comes to choices about technology, energy management and the environment.

A more productive question to ask might have been ‘Is economics a useful tool for consumers in deciding between technology choices when it comes to making energy management decisions and environmental choices?'

The answer: You betcha it is.

The ATA provides accurate, independent advice to consumers in particular, regarding the technical, economic, environmental and other aspects of energy technology choices.

People typically join the ATA, read our publications, and engage our consultants seeking information to inform technology purchase decisions – and they generally have the goal of sustainability firmly in mind.

When it comes to making these choices, people often want to know how energy technology alternatives can help to reduce emissions in their daily lives. And as we all know, solar power is but one technology that can reduce a household’s emissions associated with electricity.

Consumers and solar

After 33 years at the forefront of renewable energy for households, the question the ATA is most often asked about solar is still: “Is it a good deal”?

Often these queries come from people considering systems at the larger end of the residential scale, increasingly in the 5kW to 10kW range. Typically, they have been recommended a system by a supplier on the basis that the total daily generation offsets their household’s daily average consumption over a year. Environmentally, that’s laudable. And if a consumer is willing to part with the money for such a large system, that’s great.

However, after some initial prodding, we often find that the householder has thought only about solar – and given little or no consideration as to how the rest of the home performs when it comes to energy management.

It’s not surprising to find them running a bunch of halogen lights, a 15-year old fridge, having no insulation (that they’re aware of) or any number of other inefficient appliances or behaviours that are leading to higher than necessary energy consumption and bills.

And when we ask whether sustainability is part of the reason they want solar in the first place, the answer is almost always: Yes!

This is where economic analysis such as payback and return on investment comes in handy.

Solar for the rich

Wright suggests that most of ATA’s communications “are reaching people who will decide between purchasing 10kW of solar photovoltaic panels at $12,000 or an extension to their three-week holiday in the Swiss alps.”

So for the hordes who are indeed happy to spend a bit less time on the European slopes in order to make their home more sustainable, what should they spend their money on?

Let’s assume a household with fairly typical electricity usage consistent with a typical Australian home, one that befits the annual overseas ski trip demographic – i.e. around 15 to 30 kWh per day.

They could spend the $12,000 and get a big, shiny new solar PV system of a size that might generate enough clean, green electricity to match their average daily load, even on most winter days.

Unfortunately, with a typical residential load profile, the majority of that electricity will be exported to the grid, at a low feed-in tariff rate of about 8 c/kWh, likely resulting in somewhere in the order of a 15-20 year return on money invested.

Alternatively, they could invest less than half of that money in a smaller PV system, designed to utilise the majority of the solar generation on-site (and avoiding paying a consumption tariff three or more times higher than any potential FiT) while using the remainder of the cash to:

– convert frequently used lighting to LED;

– install the highest R-value installation in the roof (under floors or in walls where practical);

– draught seal all doors and windows;

– replace the existing fridge with a high efficiency new model;

– upgrade some other appliances or devices with high efficiency alternatives (potentially reducing water use in the process);

– swap out an old gas space or water heater to a high efficiency electric heat pump model and begin to get off the gas network;

– get an in-home display to provide immediate feedback on energy use to help identify easy ways to reduce energy use through behaviour change; and

– employ a good energy auditor to find any other cost-effective efficiency opportunities within the home.

The majority of the above items have significantly better return on investment than solar PV. Indeed the combination of these measures would in all likelihood:

– reduce the home’s energy use, probably by more than 50 per cent; and

– still offset a lot of the remaining consumption with onsite PV.

They would achieve this for the same capital outlay as the larger solar system, but with a much faster payback time on the combined use of $12,000.

But wait, there’s more. By spending some of the money on PV and some on energy efficiency, compared with the 10kW PV system, our hybrid approach means:

– better insulation, draft sealing and lighting would have improved the comfort levels of the home;

– importantly, the smaller PV system actually fits on the house. A relatively small portion of roofs actually have room for an effectively oriented, unshaded 5-10kW PV array without having to clear trees, position panels sub-optimally, rotate the house or all of the above;

– unlike Wright’s “10kW of solar with a 5kW inverter” example, all of the energy generated by the PV panels actually gets used somewhere. None is dumped and wasted; and

– peak demand is reduced, and has improved the impact on the local distribution network.

And the bottom line is that the environmental outcome would be as good as for the larger solar system – if not better – as total household energy consumption would have been drastically reduced. And a significant amount of money would be saved on energy bills ongoing.

If different technology options provide the same or better environmental outcomes for the same or better returns on investment, should consumers be informed of this? The ATA thinks they should.

Solar for all

Even putting aside the fact that the wealthiest suburbs have historically had the lowest uptake of solar PV, just how many of the consumers who would benefit from solar have the luxury of being able to choose between it and an overseas ski trip?

Just under 40 per cent of energy consumers in Victoria are supported by state government concessions for their energy purchases, a figure which reflects the level of energy affordability across Australia.

Improving affordability for disadvantaged households is a strong focus for the ATA, informing our energy policy advocacy as much as it drives our amazing volunteers who build solar lighting systems for poor communities in East Timor every year.

Solar PV could be an effective way of lowering energy bills for many Australian consumers who need it most: those on low incomes, renters, retirees and so on. However, they are often the least able to access the capital to afford solar.

ATA lobby for disadvantaged energy users to be able to access the same benefits of energy efficiency and solar as everyone else, for example through targeted loan programs and direct subsidies. While emissions reduction is a great outcome from these consumers accessing solar energy, ATA's view is that we need to advise them, accurately, on the economics.

And who are the other 60 per cent of consumers? Are they really sitting back in their ski lodge in Bern, reading this article and regretting not going with the $12,000 solar system? Unlikely.

The majority of ATA’s membership is on low or middle incomes (often through choice of lifestyle). They are keen on sustainability measures to improve their wellbeing and that of others while doing something for the planet, but they act within their means.

A classic example that we see in the real world is the retiree who wants to spend some of their super funds on measures that will pay for themselves within 10 years.

Wright suggests that the ATA should be advocating for all to plaster solar panels on every surface with a view to achieving a 30GW solar target, rather than simply advocating for people to install solar, if they want to, and at a scale that they choose based on their own motivations.

So should a retiree be advised to spend money on a 2kW or 3kW system that meets their actual requirements, or a 10kW system that never pays for itself just because someone else wants a 30GW solar target?

Wright argues for bigger solar systems in the belief that other energy users will benefit, missing the point that more big solar at the residential level will limit the uptake of PV to those who can afford it today. In the longer term, network cost impacts of very high solar penetration outweighs the temporary benefits brought about through downward wholesale price pressure.

As the amount of PV increases, we get closer to the (theoretical) limit that the grid can handle before major upgrades in some areas. This in turn will result in more restrictions to solar connection capacity (and/or higher connection charges) sooner. Like it or not, this is the reality that results from how the energy market rules and regulations work and the fact that our distribution networks have not been built to handle large penetration of demand side generation.

If more people install larger PV systems on residential roofs now, it will result in increasing restrictions on other residential PV systems later (and sooner), locking in oversized solar systems for those who can afford big systems today at the expense of others footing the bill for more network upgrades in the future.

And finally, Wright asks if ATA believes that every solar panel we install makes the next one cheaper?

PV prices have reached, or are very near, the bottom of where they are likely to be in the foreseeable future. So advising households to install 5-10kW systems on the basis that this will further reduce PV prices for future households is not only poor advice, it actually misleads consumers.

Damien Moyse is the energy projects and policy manager for the Alternative Technology AssociationCraig Memery is the ATA's energy consumer advocate.

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