Policy briefing on Solar Homes

Updated

Green Co-Leader Russel Norman has announced a Green Government would offer low interest loans to home owners to install solar panels. Here's a briefing on the details, the pros and the cons and the political positioning.

Executive Summary

The Green policy aims to encourage the installation of solar power into 30,000 homes over three years, using low interest government loans of up to NZ$15,000 per home and total lending of NZ$300 million. The policy aims to create 1,000 jobs and act as a base for a bigger push in later years to develop distributed power generation that reduces consumers' reliance on the big 'gentailers.'

The National-led Government has criticised it as a "magic money" policy that subsidises an uneconomic source of renewable power generation. Gentailer Meridian Energy has also said solar power systems are uneconomic for consumers. The Energy Efficiency and Conservation Authority (EECA), which would have to administer the policy, was advised last year that solar power was not viable from a consumer or national point of view.

The Green policy aims to convince voters they could be NZ$100 a year better off with solar panels on their houses, on top of NZ$300 in electricity savings that the Green/Labour NZ Power policy has promised. However, the policy faces attacks from the National-led Government arguing that taxpayers more broadly would be subsidising a few solar power pioneers and that the technology is far from economic, even with continued big drops in the price of panels. Renewable energy proponents could also argue any subsidies would be better spent on more conventional wind, geothermal or hydro schemes, or on reducing carbon emissions from transport.

Event

Green Co-Leader Russel Norman detailed the party's Solar Homes policy in a speech to a party conference in Auckland.

Details and factoids

'Solar Homes' would lend up to NZ$15,000 per household to install a solar array. A typical 3 kilowatt (kw) system would produce NZ$1,000 a year worth of electricity at current prices, while a loan from government interest rates of 4.1% would cost NZ$900 a year to repay over 15 years, thus producing the NZ$100 per household per year in savings.

Alternatively, a 3 kw system would produce NZ$28,000 of power over 25 years of operation, given an initial drop in power prices due to NZ Power than prices rising in line with Consumer Price Inflation over the following years. It would eliminate 5 tonnes of greenhouse emissions over those 25 years.

Norman said the policy would be "cost neutral" to the Government because households would pay the interest costs on the extra government debt raised. It would be administered by EECA and local councils, who would collect interest payments through rates and be reimbursed for any administration costs with a "small surcharge" on the loans. The loans would be capped at NZ$300 million and target 30,000 installations within 3 years. The installations would be done by private installers.

The debt would be attached to the house, rather than the home owner, which would allow owners to invest without worrying that they might lose their investment if they moved house.

Solar Homes works with a Green policy announced last year by Green Spokesman Gareth Hughes to instruct the Electricity Authority to create a default long term contract allowing households to sell their surplus solar panel back into the grid to retailers at a "reasonable minimum price between the retail and wholesale electricity price." Currently, households selling power into the grid are on one-month contracts and can receive significantly lower than retail prices.

Both 'grid-tied' and battery 'off the grid' systems would be eligible for Solar Homes loans.

Political Positioning

Norman has positioned Solar Homes as an affordable and low-risk way for households to reduce their power bills and do something positive for the environment. Solar Homes is also positioned as a taster for a deeper push over the long run into distributed generation that reduces households' reliance on generators and lines companies in way that also makes the grid more robust.

"Many New Zealand homes are exposed annually to 20-30 times more energy from the sun than they actually use in electricity or gas. Solar power helps reduce household living costs, while also reducing the cost to the planet," Norman said in his speech.

"With solar power on your roof, you know you are helping to do something good for the climate," he said.

Prime Minister John Key described the proposal as "magic money" in this interview on TVNZ's Breakfast programme.

The proposal would "spend a lot of money subsidising something that's a lot more expensive than current renewables."

"There's no free money. When someone tells you something is free, and yet in the same breath says they're subsidising something, it may be free to you but it's not free to everyone."

Key, who expanded a Green plan for home insulation, said spending more money on home insulation was a more efficient way of reducing power costs.

Labour Leader David Cunliffe was quoted as saying he thought the idea was sensible and Labour would consider supporting it.

What other interested parties think

Meridian Energy Chief Executive Mark Binns was asked by Hughes about solar power in his appearance before last week's Commerce Select Committee.

Binns said solar power cost three to four times as much as renewable power from wind farms and hydro that was distributed via the grid.

He said the returns on investment did not stack up for consumers, apart from those who valued it as a form of energy independence. "In our analysis, it is still probably not viable if you went to an accountant. It's not currently viable if you are hard-nosed about it."

EECA's board was also advised in an internal paper obtained by Hive News that the economics of grid-tied solar panels may be viable in future, but were currently a net cost from a national and consumer viewpoint.

"Further, there are many better energy related investments and behaviours that consumers and businesses can undertake to achieve cost savings or greenhouse gas reductions," the paper said.

Local Government New Zealand said the plan to involve councils to collect loan payments via rates was workable as some councils already offered solar programmes .

"Current demand is largely for solar water heating, however extending offerings to support full solar energy usage is workable and in many cases installation is more straightforward," an LGNZ spokeswoman said.

Pros

Creating a 'beachhead' of 30,000 home-based solar panel generators could nudge New Zealand towards the distributed generation model much-loved by Green power advocates. If such generation reached a large enough tipping point it could help create some economies of scale that prevented the need for heavy new investment in more electricity lines and more big renewable (or non-renewable plants). It may also provide consumers an option to avoid the big gentailers, if power costs kept escalating much faster than CPI inflation.

It does remove the big up-front cost that may be discouraging some.

Norman told Hive News the 35,000 target was a small step to test the waters somewhat before a bigger move, if it stacked up.

"This is part of the vision for where the smart grid is going to go. I think distributed renewable generation is going to be part of it, as is distributed storage. This is reaching towards giving us those options. We're only talking about 30,000, which in a scale of 1.5 million housing units is relative small," he said.

"I don't want to scale up the industry too fast or you get quality issues or price issues. You want to scale it in a sustainable way," he said, referring to the safety and quality problems seen in Australia when it ramped up its housing insulation programme too fast.

Currently such solar panel generators aren't economic, but a further slump in the costs of panels could make it less uneconomic. The EECA board paper estimated the cost of such Solar Power at around 30 cents/kwh. Consumers would only generate savings if electricity costs were over 35 cents/kwh.

University of Canterbury Electrical Engineering researcher Dr Alan Wood said last year a model he had developed with funding from MBIE had found the economics remained questionable.

Cons

The EECA board paper said from a national viewpoint solar panels were three to four times more expensive than the grid-scale renewable generation it offset.

It also pointed out that on a national basis solar power only avoided the base generation and losses component of the delivered electricity cost, which was about 8-9 cents/kwh of the 26-28 cents/kwh full cost. It also only appeared to be close to viable for consumers because of the wealth transfers between electricity users.

Those still connected to the grid effectively aren't paying for the lines charges element of the grid, meaning the burden is shouldered by those without solar.