Solar’s inconvenient truth – it’s all about self-consumption

Enegeni

Nobody can dispute that solar PV is positive for the environment. Here in Australia we have one of the dirtiest, most carbon intensive grids in the world; and blessed with the sunniest continent on earth, every 1kW of solar PV (roughly 4 panels) has the potential to displace up to 1.5 tonnes of CO2e annually.

Now that 1.3 million out of Australia’s 9 million households have solar PV on their roofs, solar is heading towards being a mainstream product. But unlike the early adopters, the mainstream consumer doesn’t care as much about the environmental benefits, or the coolness of the technology. The mainstream consumer only really cares about saving money. And while the environmental credentials of solar are strong, the economic benefits — from the perspective of the consumer — are less so.

It is true that solar has the ability to generate kilowatt hours at a very low cost — roughly 50% cheaper than the cost of retail electricity. But this is not the whole truth. And it is only when you look deeper into the way that solar actually works to save you money that you realise that it is an inconvenient truth that most households with solar are being short changed.

From an economic perspective, solar only works when it replaces energy that you would have purchased from the grid. This is known as “self-consumption”. Solar energy that is not used, is effectively sent back to the grid (known as “exports”) and is worth very little to the consumer. For example, 1 kilowatt hour of solar electricity used in your house during the afternoon can be worth up to 52c, but that same kilowatt hour sent back out to the grid may only be worth 6c. If you’re investing many thousands of dollars in an asset, it is fairly important to know whether that asset is going to return X or 90% less than X.

It therefore follows that you need to figure out, with a reasonable degree of accuracy, how much of your solar system’s production will go towards offsetting your grid consumption, and how much will be lost to the grid. It turns out that nobody — not the solar industry and certainly not consumers — knows enough, or could be sufficiently bothered, to “do the math”.

If you speak to a solar consultant (i.e. salesman) they will generally ask you some questions about your household and lifestyle in a clumsy, fumbling, attempt to help you quantify this split between self-consumption and exports. Even well-meaning consultants will ultimately resort to guessing in the hope that you’ll just agree to the purchase so they can make their margin and move on to the next prospect. Now guesses and instinct would be okay if they turned out to be right, but in reality these promoters vastly overestimate the level of self-consumption that will be achieved.

Solar is an incredible technology and has the potential to fundamentally transform the way energy is produced and consumed for the good of society. It should be promoted, developed and supported by all levels of government, and by the industry, to achieve this goal. But it is most concerning that consumers are being sold a product that will, in most cases, not deliver the economic benefits that were promised or alluded to.

There are many things that can be done to rectify this situation, and I look forward to sharing these thoughts with you in upcoming posts.

Darren is the CFO and Co-Founder of Enegeni, and is a former Director of Asset Finance for Sungevity Australia.