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Culture shock: Network offers solar storage leases to customers

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Sadly, this is not a story you will likely read about an Australian electricity network provider – given the pushback from their mostly state-government owners on the proliferation of rooftop solar PV. But, hopefully, it won’t be too far away.

A New Zealand electricity network operator, Vector, is offering a trial run of leases to its customers to install rooftop solar and battery storage for around the same cost as relying entirely on the grid. Given that New Zealand’s retail electricity prices are around the same as Australia’s – 25c/kWh in the local currency – it is a striking offer.

There are two remarkable aspects to this story – one is the fact that a network operator is looking so actively for alternative solutions to dealing with the demands of the grid, and the second is the pricing of the offer – given that “grid competitive” battery storage solutions were considered by most to be several years away.

First of all to the network strategy. Vector CEO Simon McKenzie says the home solar offering – as the company describes it – is part of plans to optimise its businesses for what McKenzie describes as the “new economic reality” –  reduced demand from households and a growing push by customers to take advantage of more energy efficient and environmentally-friendly solutions.

“Solar panels, combined with highly-efficient batteries and smart control technology will allow our customers to manage demand and the cost of energy in the home,” McKenzie said earlier this year when announcing his company’s results, explaining why Vector has invested nearly half of its capital expenditure in new technologies such as solar.

“They represent the application of an exciting new technology for Vector,” he said. “Over the long term (the residential installations) will lead to greater use of renewable resources, but also help us optimise our network investment.”

In other words, says Vector, solar and storage is good for the network, and for its business. This view is reflected overseas, where other network operators can see the writing on the wall with the arrival of cheap, distributed generation. As Jim Rogers, the head of the largest US utility Duke Energy said earlier this year, people might not need the grid anymore, unless the grid finds some way to adapt.

Some utilities have made the decision to go with the flow and embrace the new technology rather than relying on barriers to protect an investment that is fast becoming uneconomic. Pity that in Australia that it is only the consumers who can see this.

Vector, by the way, is the monopoly electricity distributor in New Zealand’s largest city Auckland and much of the North Island.

Now, to the details of the offer. It comprises a 3kw PV panel array (Trina), inverter (Schneider) and most interestingly a 10.7KWhr Li-ion (Kokam). The array should produce around 12kwhr on an average day which is about ½ of the consumption of an average all electric home in Auckland. The intent appears to be to reduce the evening peak hence the sizeable battery capacity.

As Vector says in its promotion of the offer: “The system is designed so that your home uses all the energy stored in the battery at peak times, rather than using conventional energy sources from the grid.”

You can find the offering here. There are a couple of leasing options, but it seems the most attractive option offers the system for a NZ$1,999 down payment followed by 150 payments of NZ$70 per month over the course of the 12.5 year lease.

I owe a debt of gratitude to a New Zealand reader (and energy industry expert) for the calculations: Assuming NZ inflation runs at around 3 per cent p.a., the associated LCOE of the package is around $0.21/kWh (US $ 0.17) in 2013 $NZ. This compares with the current average tariff of around NZ$ 0.254/ KWh.

“I was very surprised to see a small residential system incorporating a large Li-ion battery  producing power at such a competitive rate so soon,” our reader says.

“I had thought it would be several years before solar with storage would deliver at these low cost levels. The breakeven point for the system is probably 6-9 years depending on the position you take on the trajectory of future grid power prices.”

Our reader suggested that the system must be subsidised in some way considering even if the most competitive metrics are used (German supply and installation rates for PV panels and inverter – $2,300/KW , rock bottom rates of $250KWh for Li-ion batteries) it barely leaves $1000 for the supply and installation of the controller and O&M costs out of the nominal $NZ 12,500 (US$ 10,124) cost of the package.

We put that question to Vector, but sadly they were not able to give us information about that by our deadline.

One acquaintance of our New Zealand reader has signed up for this deal and is also installing a heat pump water heater  – something that is popular in New Zealand (but less widely used in Australia) and promises to slash his electric hot water heating bills by a factor of three. This unit costs about NZ $4000 and the payback time is around 5-6 years.

In fact, the addition of the solar system ( 12KWh capacity) and his new heat pump for water heating ( estimated 8KWh/ day saving) will reduce his consumption off the grid from 30KWh/day down to 10KWh/day ( -67 per cent). Our reader suggests that it would not be difficult to mop up the remaining 10KWh with the addition of another 2.5KW of PV capacity ( without storage) if he so desired.

Technology wonk alert 

I know that many of our readers are always wondering how it is that we arrived at certain calculations. And I know the huge interest in solar and battery storage technology costs. So here is the calculation sheet from our reader, as he sent it to me. He’d be delighted in hearing your opinions on this.

“Vector themselves state that customers can expect to generate 12KWh from their 3KWh array so effectively implying an isolation value of 4 KWH/KW.

I’ve looked at some other websites and they suggest a figure of around 3.72KWh/KW. Check this one for instance. 

However I would be more tempted to use the figure that Vector are issuing as after all they will have to stand-by their claim. It is possible that in actual practice their solar panel array might be a little larger than 3.0 KW , say 3.2KW to get them up to the 11.9-12.0 KWh /day figure.

How I worked out the LCOE.

Step 1. Calculate how many KWHrs the system shall produce.

In year 1 it shall produce;

  • 12KWh/day x 365 days = 4380 KWh/year

In year 2 it shall (if good quality panels are utilised) produce approximately 0.5% less;

  • 4380KWh/year x99.5% = 4358 KWh/yr

And so and so forth or the remaining years of the 12.5 year term.

Summing all the years production gives 51,712KWh total production

Step 2. Calculate the nominal cost of the system 

This is very simple as the only cost you have is the setup cost ($1,999) + 150 (12.5 years) monthly payments of $70 so:

  • $1,999 +150 x $70 = $12,499 (NZ)

Step 3. Calculate the nominal cost of each KWh the system produces so:

  • $12,499/ 51,712 KWh = $0.2417/ KWh (NZ)

Step 4. Calculate the REAL cost ( in $ 2013) of each KWh the system produces.

However, the simplistic approach in step 3 tends to exaggerate the cost of the electricity. Most of the payments you are going to make are in the future.

After all the $70/ month you spend in year two represents a slightly lower impost on you than the $70/month in year one since inflation has effectively reduced its value. I’ve assumed inflation (ie the discount rate) is 3% p.a. So in effect the $70/month in year two represents the same  impact as a payment of $70 x 97% = $67.90 in year one. In year three the impact is $70x 97% x 97% = $65.86p/m so and so forth.

It’s the same approach people take when they load themselves up with a big mortgage, it’s a painful burden at first but as the years pass assuming ones wages increase at least at the inflation rate the burden comes less. It’s also the approach the US is taking to try to inflate away their federal debt by raising their inflation rate!

A more academically correct way of thinking about the problem  is to calculate how much money one would have to set aside in year 2013 to service the repayment schedule ( $1,999 + 150monthly payments x $70) if one was getting interest of 3%p.a on your capital.?

The answer as shown on the spread-sheet is $ 10,863 (NZ). This is the REAL cost of the lease in 2013 $ NZ. So calculating the REAL cost of each KWh;

  • $10,863/51,712 KWh =$0.2100/KWh (NZ 2013) .

Step 5.  Calculate the real cost of each KWh in a currency everyone recognises.ie $USD

  • 1.00 $NZ buys 0.81 USD as of 31st May 2013  so NZ $0.21/kWh = US $0.17/Kwh

I trust the foregoing explanation sheds some light on my calculation methodology. I believe it is the correct approach, but obviously it would be best to get it checked by others.

As to why Vector  has introduced such an attractively priced offer I am a little unsure. I don’t believe that they have any bigger problem of meeting electricity peak loads than any other big city (ie Sydney) which is experiencing reasonable population growth, more electrical gadgets in the home, bigger homes etc etc.

Vector make no mention of any subsidies in their documentation, but it is important to realise this is just an initial pilot program. They haven’t given any guarantees that this offer will be rolled out on a  large scale and at the same attractive pricing after the pilot installation is complete. That would ultimately be the litmus test of the true system costs. Auckland does have plans to try to slash their CO2 emissions by 40% over the next couple of decades but there doesn’t appear to be any official linkage mentioned by Vector.

In any case hopefully it is a sneak peek into a future that perhaps might arrive a little sooner than we were anticipating. I would be interested to get others thoughts.”

 

 

 

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  • Truthful Jones

    Please send a copy to the Qld Minister for Energy and Disinformation! .. brilliant stuff.

  • Jim

    Would Australian rooftops be better situation in terms of solar hours and quality etc than NZ….that is, would be get more sunlight for longer and better quality, thus making this deal even better here potentially?

  • Malcolm Scott

    For a largely hydro sourced power supply, worst draught in 30 years might be the justification for a trial that mitigates the risk of not being able to buy reasonably priced wholesale power – just not enough assured water

    http://www.3news.co.nz/Drought-drives-power-prices-up/tabid/421/articleID/289974/Default.aspx

  • suthnsun

    Heartening news, a good chance of this eventually playing out positively in Oz.

  • kwassie

    great to see innovation occuring but i believe the deal is a turkey…firstly, there is no ownership – the consumer is locked into a lease for 12.5 years, and has to return the system at the conclusion – which means they are locked into 12 years while competing and lower priced alternatives come to market. Secondly, the talk in NZ is about reduced consumption thanks to the aforementioned energy efficiency measures, which means there may be energy price decreases, and finally, a consumer could probably do a far better deal themsleves by financing a system onto their mortgage using the kiwisaver green loan product – and at least then they get 20-25 years of energy gains from as system they actually own…

    • RobS

      People aren’t stupid though, they will realise that if its in the financial interests of a company to offer these leases clearly there’s a profit to be had in them and will seek to simply buy the equipment themselves.

  • Matthew O’Regan

    I can’t help but think this is a bit off.

    Using the insolation map found on the link in the article, we can see that a “best case scenario” for insolation is around 14MJ/m^2. 14MJ/m^2 converts to ~3.9 PSH (peak sunlight hours). Assuming a performance ratio for the systems of 0.75 – a standard ballpark value accounting for the inverter losses, cable losses etc. – the system output would be:

    3kWp x 3.9 PSH x 0.75 = ~8.8 kWh

    That is for a purely grid connected system – throw energy storage into the mix and the useable output will be lower again.

    • Peter Grant

      The link referenced estimates an annual energy production of 4340kWh from a 3.2kW system in Auckland. The figure is referenced from the SMA system sizing calculator so it will be close to verifiable values of the SMA system output inclusive of losses. Yes there will be losses for energy cycled through the battery – but its effect on payback will depend on the individual load profile. On the other hand there is no also accounting for future tariff increases any future increase would make the fixed solar investment more attractive.

  • Louise

    The present retail price model does not reflect the cost structure.

    Horse drawn carriage manufacturers had the same problem.

    They were not able to produce carriages at a price consumers were willing to pay when they had cost effective alternatives.

    Since horse drawn carriage manufacturers could not afford to sell their products below actual cost of providing their products, they stop producing.

    Now, is that a bad thing?

    Depends on who you ask.

    Consumers did not think it was bad, in stark contrast to HDCM.

    Professor Donald Sadoway is working on a liquid metal battery, with prototype testing scheduled for 2014.

    He stated that the battery can be produced for $100 dollars per kw/h with the long term goal of $50 dollars per kw/h.

    60 companies have announced that they either have or will be introducing off-grid and / or hybrid storage systems.

    Expect the grid the get less and less usage in future because the grid will go the way of the dodo. No need to gold plate the grid, no need to create white elephants, that are expensive to maintain and almost impossible to off load to investors.

    In 50 years from now, every structure will be build to energy self sufficient.

    Of course I could be completely wrong and it could all happen a lot faster.

    • Louise

      I am a customs broker and have processed CEC listed equipment coming into Australia at US$0.45 per watt for solar panels and CEC listed inverters for US$100 per kW inverter rated performance.

      In less than 5 years the cost of solar might decrease to $0.1 dollar per watt for printed solar strips.

      That would mean 10 kW cost $1000 dollars.
      The University of Newcastle is working on this technology and they say they can produce PV at $7 dollars per square meter and have set up a company with a business partner to start production at the end of this year.
      There are at least halve a dozen companies world wide that are working on inkjet printable solar PV.

      How is $0.1 dollar per watt for printed solar PV possible?
      – You use plastic sheets as substrate, print with an inkjet printer and laminate the resulting strip of PV plastic.
      – You do not use a glass cover.
      – You do not use an aluminum frame.
      – Install large posts at the front of a residential property placed 20 meters apart, the width of a stand residential block.
      – Height of post, what ever you want. I had in the past processed communication towers, 50 meter high, made of stainless steel (ss 316) which last 100 years as it is more corrosion resistant than food grade (kitchen) stainless steel which is ss 304.

      – Intall a hoist system or a pulley system on both posts, string cables between the posts on which to suspend the plastic solar cells/vertical blinds like shape, which is only attached on the top of the PV vertical blind, and flows with the wind.
      – Length of the PV solar vertical blind 1 meter or any other size that makes sense.
      – Leave sufficient space and place another string and attach another row of PV vertical blinds. Keep repeating the process until the desire capacity of PV has been installed.

      – The system requires a hoist or pulley system for easy future maintenance/replacement/additions, so that the array can be serviced standing on the ground. Either a hoist lowering the whole array or a pulley system with two wheels at the top and two at the bottom in order to rotate / cycle the whole array so that the PV vertical blinds can be replaced while standing on the ground.

  • Concerned

    Insolation and weather on the east coast of Australia make that pretty useless. We have just been through two weeks of rain and heavy cloud. Not unusual. You will still needed to be connected to the grid.
    The capital is still needed for distribution and generation.
    Makes no economic sense at all.

    • Louise

      Solar still works in pouring rain and when it is cloudy.
      Germany has proven that.
      PV will produce less but it will still be producing electricity.

      Fossil fuel advocates have always maintained that renewable energy generation will never work, and even if it were possible to make RE generation to work, it would be the beginning of the end of the world.

      An incorrect assumptions.
      It is only the beginning of the end of the current electricity system and the doomsday scenario applies to their current non-sustainable business model.

      Please keep in mind that sound financial management was never been the strength of these regional monopolists and their empire has started to crumble.

    • Louise

      Concerned, I just tried to post my response to your other post, when I noticed that the web site would not accept my response, and when I refreshed the page, I noticed that your post is no longer there. It might have had something to do with the word that followed the partially quoted sentence below.

      “Have you ever actually lived in Germany,you are talking “…

      I grew up in Switzerland and speak, read and write German fluently. Switzerland forces you to study four languages at school.

      Switzerland and Germany have the same climatic conditions.

      I do read about renewable energies in the German press. The information available in German, far exceeds the information available, that German news organisations publish in English.

      The next push is towards energy self-sufficient buildings or energy plus buildings, off-grid/hybrid buildings.

      You might want to Google “Passiv Haus” or “Energie Plus Haus” and see what happens.

      In English “Passive House” or “Energy Plus House”.

      A house that is build to the Passive House standard and equipped with state of the art appliances only needs a 2 kW solar PV system to make the house energy self-sufficient and if you add more than 2 kW of PV panels, then you end up with an Energy Plus House.

      Depending on how much storage you add you can make the house fully or partially grid independent.

      That would also mean that you have to double your PV array as you do need to have a system large enough to cover a week with the least power generated in the year.

      If people start doing that, that can only mean one thing.

      The grid will be serving less and less kW/h.

      In the medium a hybrid system on-grid/off-grid makes a lot of sense, long term, 50 years form now the grid will run out of customers.

      The grid’s only chance of survival is to electrify Australia’s National Highway with technology similar to that developed by Canada head quartered company called Bombadier.

      They mainly build trains and air-plains.

      They developed a system and have demonstrated it in Augsburg/ Germany that can charge electric vehicles while they are driving on the road via magnetic inductive charging.

      All other markets will disappear.

      The reason why I am certain about this is costs.

      The grid operators and electricity companies can not reduce their costs in the way renewable energy companies can.

      Traditional energies can only become more expensive, temporary minor fluctuations aside.

      Renewable energies can only become better value for money also known as cheaper in cost, not in quality. You get more for your invested dollars than you would if investing in conventional energies.

      The traditional power providers can not compete on price today and they will become less viable in future.

      It is a dead end road for the traditional power monopolies they just have not understood the implications of the emerging technologies coming onto the market in the next 3 – 5 years.

      • Concerned

        I must have been bumped.

      • simpliphile

        I believe the future lies between predictions that solar + batteries “makes no sense at all” and “50 years from now the grid will run out of customers”.
        Louise, while I appreciate your familiarity with developments in Germany, developments there (and for that matter in NZ and Australia) do not tell the whole story:
        • As much as Germany has added solar (through unsustainably-high subsidizies), it’s added (and continues to add) dirty, CO2-intensive lignite- (“brown” coal-) fueled generation.
        • Retail power costs (at ~25¢/kWh) in Australia & NZ are double to triple typical rates in the U.S. & Canada; my point being, economics for solar are not the same everywhere.
        • Then there’s power density: solar might provide a good portion of a typical household electric load (depending on heating & cooling requirements), but not for most industrial customers, or even for many commercial enterprises (e.g. grocery stores with large refrigeration loads).
        • Then there’s reliability: urban power grid distribution has multiple redundancies from substations to branch circuits; most urban customers (at least here in Canada) might see 2 or 3 outages of less than 2 minutes per year or less, regardless of weather (ranging from above +30°C to below -30°C). If your household power inverter dies, how many hours (or days!) will you be without power? …and what are the associated costs (spoiled groceries, inconvenience, even possibly hotel expenses or structural damage to your house in case of a sustained outage during extreme heat or cold)?

        So, I think it’s far too early to write obituaries for electric utilities in the countries I’m most familiar with (Canada, U.S., U.K., Ireland). However, emerging lower-cost solar does present opportunities for both consumers and power utilities. Full credit to N.Z’s Vector for commercializing an offerring that is likely to be sufficiently compelling to attract a serious look from its more progressive customers.

        • JonathanMaddox

          http://energytransition.de/2013/02/the-german-coal-myth/

          In the last 12 years Germany has shut down numerous older coal-fired, oil-fired and nuclear power stations and *replaced* most of that retired capacity with more efficient modern gas- and coal-fired generation capacity. However just because the capacity has been maintained, does not mean that coal consumption is increasing: higher efficiency and lower capacity factors mean that both old and new coal-fired power stations burn less fuel year by year than they used to.

          Germany’s gross consumption of coal has been steadily decreasing over the 22 years since reunification. Initially this was largely substitution of gas for coal (including for home heating, where coal was still in common domestic use in the East until 1991), but soaring European gas prices since 2003 and especially in 2007-2008 have made further substitution uneconomical. Gas consumption has fallen considerably since 2008 due to sustained high prices and competition from both renewables and coal.

          It was expected by many analysts that with a large component of energy usage coming from intermittent renewables, increasing amounts of quick-adjusting dispatchable gas capacity would be required to smooth out unanticipated changes in renewable supply. However in practice renewables have proven more predictable and less variable than expected, and even to coincide quite well with peak demand. This, and high gas prices, have meant that additional renewables (and a little coal) have been substituting for gas rather than gas-plus-renewables substituting for coal as intended.

          Even so, the steady annual decline in absolute coal consumption continued, excepting brief regressions in 2007-2008 (due to all time high gas prices) and 2011-2012 (corresponding to the retirement of eight large nuclear power stations post-Fukushima followed by an exceptionally cold and prolonged winter, and coinciding with a 15% reduction in imports of expensive gas).

          In perspective, the increased coal consumption of 243000 tonnes in 2012 (up from 224000 in 2009) is still substantially lower than the 254000 tonne figure from 2007.

          At least 12 more new coal-fired power stations were at some stage since 2000 proposed and planned to have been built by now, than have actually been built. Between community protest and market conditions created by the GFC and competition from renewable energy, many of those power stations once on the drawing board have been indefinitely postponed or cancelled altogether.

  • RobS

    This sounds like they intend to use the battery to remove a homes load from the grid, no doubt that is a very useful role, however there is the potential to go further and not just power the home during times of peak demand but do that AND feed excess energy back into the grid reducing demand even further, of course this fed power would be used by adjacent homes incurring nearly no transmission losses so every kwh fed back this way would actually displace 1.2 kwh of generation. Does anyone know if greed feedback of stored power is part of the plan or only islanding?

  • Ronald Brakels

    Hello Giles, this is Ronald from over a year in the future. I’m here to tell you that if the US is inflating its debt away it’s got to be the most incompetent inflation in history. They can’t even sustain 2.5%. That’s all. I hope you can use this information to your financial advantage just like I am going to use these winning lottery numbers I put in a time capsule 20 years ago.