Published on June 17th, 2013 | by Giles Parkinson9
NZ Network Offers Solar Storage Lease Trial
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.”