Home solar systems or grid-connected solar farms, which make most sense?

Wednesday, 27 November 2024

Up to now, solar energy has often proved a good investment for home-owners, but that doesn’t necessarily mean it’s best way to harness the power of the sun.

This article was originally published in October 2023 and has been republished and updated for readers in the wake of the liquidation on Tuesday of NZ’s largest solar installer, SolarZero.

ANALYSIS: Solar power is relatively cheap, but there is only so much that the electricity market can absorb during brighter daylight hours when demand for electricity tends to be low.

So does it make sense to generate that off-peak power by putting solar power panels on people’s homes, or by building giant solar farms that are connected to the grid?

That question took on a political dimension ahead of the last election.

New Zealand hasn’t tended to subsidise renewable generation in recent times. But Labour proposed to make an exception by offering a rebate of up $4000 for households to install home solar systems, at an expected cost of $218 million over five years, had it won the election.

Neither national grid operator Transpower, SolarZero, nor solar farm pioneer Lodestone Energy knew then of anyone who had attempted to crunch the numbers in New Zealand.

But overseas research has pointed towards grid-connected solar being the most efficient option.

A study produced by United States consultants The Brattle Group in 2015 for solar panel manufacturer First Solar estimated that solar farms offered about twice the bang for the buck as home solar systems.

That was even taking into account that home solar mostly produces power at the point where it will be used, resulting in lower transmission losses through the power grid.

Solar farms have arrived suddenly on the NZ power scene (video first published in October).

Solar farms have some economic advantages given their economies of scale, particularly in construction, and that they can be designed from the outset to be more efficient.

Lodestone managing director Gary Holden doesn’t want to put the boot into home solar, said that “all solar is good solar”.

But he calculated that solar farms were cumulatively 33% more efficient from the straightforward perspective of the power generated from each dollar of solar panelling.

That is due to the fact they can be optimally located to catch the sun (a 10% gain on average), their panels can rotate during the day to track the sun as it moves across the horizon (a 15% gain) and that they can incorporate panels on both sides to also make use of light reflected from the ground (a 5%) gain.

What about the land cost?

The most obvious advantage of home solar is that there is no charge for the land on which it is installed, but that benefit probably needs to be kept in perspective.

Genesis Energy expects to produce 80 gigawatt-hours of electricity a year from a solar farm it is planning on a 90 hectare site in Lauriston in Canterbury, which appears to be about the industry norm.

Based on that estimate, the country’s entire electricity demand of about 44 terawatt-hours could notionally be met by a solar farm occupying 50,000ha, or less than 0.2% of the country’s land mass.

Assuming a price for rural land of $30,000 a hectare, the “free land” value of a typical home solar system should amount to only about $320 per install.

That calculation is based on how much land would need to be bought to provide the same amount of power that it would produce – about 10 megawatt-hours per year – and the (on average) 10% better location of solar farms.

It doesn’t account for the fact that the land on which solar farms are located might still have some value other than for power generation, for example if sheep can still graze below the panels.

Lost in transmission

Having electricity available closer to the point at which it is used should mean less investment is needed in national transmission and local electricity distribution infrastructure.

The benefit of that is going to vary from location to location, but the overall costs of transmission aren’t small.

Consultant BCG has estimated that $22 billion will need to be invested in the electricity distribution networks in the remainder of this decade to keep pace with demand and about the same again in both the 2030s and the 2040s.

So does this tilt the argument back towards rooftop solar?

SolarZero chief executive Matt Ward argued the potential to reduce that massive investment meant home solar “will always win hands down”.

The snag is that distribution capacity is determined by how much electricity needs to be carried across the network when demand peaks during cold winter mornings and evenings, when solar panels won’t be producing power.

Because of that, Severin Borenstein, an economic professor at the University of California, argued in 2020 that as a general rule in the US at least, the savings from avoided investment in transmission won’t come close to making up for the higher cost of rooftop electricity.

Do batteries change the equation?

Yeah, nah.

Attaching a battery to a home solar system does mean rooftop solar power can be stored for use in those cold winter evenings.

That battery could potentially be the battery sitting in an EV, if it was parked at home during daylight hours.

That would reduce the peak load on transmission lines but, importantly, that is thanks to the fact that power is being stored locally, rather than because it is being produced on the roof.

If those home or EV batteries could instead be topped up with cheaper off-peak power from more efficient solar farms during the day, it would seem to make sense to take that option.

The case for rooftop solar hinges on potentially having to spend less on power lines.

Yes, the average load on transmission lines through the day would be higher than topping them up using rooftop solar, but the peak load – which is what counts when it comes to investments in lines networks – would be no different.

The wild card

That’s the risk that home-owners may be storing up potential maintenance issues by retrospectively fitting solar panels to their roofs.

Roofing Association chief executive Graham Moor said solar panels on roofs could act like an 'aeroplane wing', increasing the pressures that might cause a roof to lift.

Properly installed solar systems shouldn't create problems or maintenance worries.

But Moor said he had seen some where debris had accumulated on roofs because panels have been installed with insufficient clearance.

Home-owners may also need to wash or have their roofs professionally washed more frequently to prevent the build up of lichen in shaded areas underneath the panels that can eventually damage the paint on metal roofs, he said.

Using home solar systems to directly heat hot water is far more efficient than using it to generate electricity either in the home or in solar farms.

But because of the much greater weights involved in piped-water solar systems, the installation issues are far greater.

Not all about the dollars

There are likely to be some potential non-financial benefits to home solar.

It could provide added resilience to communities in the wake of a natural disaster, especially if home solar systems are backed up by batteries and their owners don’t mind their neighbours popping round to charge up their cellphones in an emergency.

Ward noted the role home solar played for some people who were cut off from the grid during Cyclone Gabrielle, for example.

And because of the structure of the power market and its high profits, many may find it cheaper to generate their own solar power than to buy it off the grid, even if the latter is actually more efficient from an NZ Inc perspective.

The bottom line?

It may be in individual home-owners’ financial interest to install solar systems if they are happy about any house-maintenance implications.

But it seems tough to make a strong economic or environmental case for subsidies, given rooftop solar could be expected to displace investments in more efficient solar farms that are already proceeding apace without such a leg-up.

Transpower said: “Large power generators can achieve economies of scale and therefore lower prices and even with the cost of transporting large-scale renewable electricity long distances, it will still generally be cheaper than building and operating power generation assets such as rooftop solar on site, especially when the wider implications are considered and costed”.

There might be a separate case for subsidising home battery systems or the cost of hooking-up EV batteries so they could power devices in the home.

That’s if there was a view that home-owners weren’t sufficiently incentivised to reduce their peak-time draw on the grid at present.

Essentially, Labour was proposing to subsidise solar systems with or without batteries whereas, if anything, there might have been a case for considering subsidising batteries with or without solar systems.

When it comes to solar panels themselves, through a purely economic lens, grid-connected farms are probably the way to go.

Even assuming SolarZero’s collapse on Tuesday does slow down the take-up of rooftop solar – which appears likely – that may not be a disaster for the uptake of solar power, as commercial investments by generators in grid-connected farms is clearly still stacking up.