Economics of photovoltaic solar power and uptake in New Zealand

Responding to the global challenges of maintaining energy security while combatting climate change, the New Zealand government has issued a target of generating 90% of the country’s electricity needs from renewable sources by 2025. With much of New Zealand’s generation already provided by hydro, geothermal and wind, questions remain as to whether this target should be achieved by more widely adopting solar photovoltaics (PV) into the energy mix. Following from previous GREEN Grid research into the uptake of solar PV in New Zealand, this paper considers the economics of PV generation at a variety of scales: residential rooftop; commercial rooftop; and ground-mount utility. For each scale, discounted cash-flows were used to assess system costs and financial returns, and levelized cost of energy used to compare with other sources of generation. In the case of residential generation, there is a significant difference in the value of energy which is locally consumed versus that which is grid-exported. Consequently the value of PV to a household depends on the consumption patterns of a particular household. To understand the value across different households, typical residential load profiles were found by clustering load profiles from over 2,000 houses, and resulting representative load profiles used to estimate financial returns based on the energy consumption patterns. The paper concludes that PV is now a commercially attractive investment for some types of households, but that household load makes a major difference to the returns. In the commercial sector PV is also commercially attractive to the company making the investment in some cases, and for both residential and commercial, returns are very sensitive to discount rate, location, and type of retail tariff. However for both residential and commercial, improving energy efficiency is a lower cost option than PV, and should be considered first. At the utility scale PV is not yet commercially attractive, even excluding transmission and distribution charges and opportunity cost of land. However if the cost of PV continues to fall, 2 and electricity spot prices rise substantially, regions such as Nelson-Tasman (due to their high irradiance) and Auckland, Northland, and Taranaki (due to their higher spot prices and reasonable irradiances) are likely to be areas considered for large multi megawatt schemes. The paper has examined the commercial attractiveness of PV from the point of view of PV investors in the residential, commercial and utility sectors. It has not examined whether PV is economic in the sense that it will produce a saving to the nation. It should be recognised that much of the individual benefit reported here arises because of the use of variable charges to recover fixed costs of the distribution network, in the residential sector and, to a lesser extent, the commercial sector. Thus the “savings” made by consumers who avoid that component of the variable charges, do not necessarily reflect an actual reduction in the costs of transmission, or retailing. This is reflected in the contrast between net present values in the residential and commercial sectors compared to the utility sector. Further research should consider the economic benefit of PV to New Zealand as a whole, based on an assessment of the true marginal cost savings from distributed PV in transmission, distribution, and retailing