In a past article I talked about how the main environmental benefit of installing solar power systems in New Zealand is that it reduces demand on the grid during periods of peak consumption. This time I’m going to look at the flip side of that equation – if you want to receive the maximum economic benefit from your solar power installation, you need to begin with a clear understanding of your own home or business actually uses power.
Why Circumstances Matter
The reason why circumstances matter when planning for a solar installation is that your own habits around energy consumption, particularly daytime energy consumption, will affect the number of panels you should buy, the inverters you use, whether or not you choose to include a battery, and whether or not you choose to connect with an energy retailer who enables you to sell surplus power generation back to the grid. (This last point alone will have implications on your actual energy bill and your calculations around pricing to begin with.)
The specific setup you require (based on the points above) will in turn determine the cost of your package, the cost of maintenance (if any), and your return on investment for the project.
In other words, your own personal and private circumstances around power use will utterly dictate every aspect of your solar project.
How This Works in Practice
The interesting thing about running a motel is that it is basically like running a very large household. As a result, we have a markedly different power consumption from many homes. This entails relatively little daytime energy use, with a pretty substantial drain on the grid during evening- and night-time as each of the guests checks in. We nonetheless have certain peak periods during the day when we do things like run the washing or use the vacuum cleaner to clean units.
If we were to blindly install solar panels without first having measured our actual daytime energy use, it is quite probable that we would get our numbers wrong. The most likely consequence of this might be to buy too many panels to suit our purposes, resulting in wasted cost and disappointment later on, and not necessarily an environmental benefit either.
This can be particularly tricky when dealing with a solar power installation company. Unless you first have the information up your sleeve about your own individual household power use, you really have no idea whether the ‘estimates’ put forward by the company are likely to be meaningful or not.
Because regardless of how many kilowatt-hours the solar power system ‘could’ generate, much of that energy generation potential could be entirely useless to you if it doesn’t match how you currently spend power on your own household.
Surplus Power May Need to Be Sold Back to the Grid
While the idea of selling solar generated renewable energy back to the grid may be appeal to many, the reality of the situation is often that the amount of money you realise from selling solar power is likely to be negligible in comparison to the amount of savings you realise by using that energy on your own consumption requirements.
When you sell energy back to the grid, you are a price-taker. You take whatever the wholesale market and ultimately the retailer you deal with directly is prepared to offer you. While the ‘spot price’ for electricity may be 7.7c per kWh, retail rates often range as high as 30c per kWh. (This is not just because of price-gouging from retailers – often these prices reflect the actual cost of maintaining the lines and distributing energy, as well as many other overhead costs.)
You also should not believe people who tell you that power sold back to the grid can be sold back at over 7c per kWh over the long run. For many of the last 12 months, we have had ridiculously low spot prices in New Zealand, often falling as low as 4c per kWh. The future price of wholesale energy is not foreseeable, and this should affect any financial forecast you make.
While we have seen huge swings in wholesale energy prices over the last 12 months, retail rates have remained relatively flat. This is because energy retailers are generally dealing with sticky customers in an oligopolistic market. They have no incentive to pass on savings to their retail customers unless they are actively trying to capture more market share. As a result, retail rates can remain relatively stable over time in comparison with wholesale prices. I would argue therefore that any calculation of return on investment from solar should be based solely off of the savings that you make from reducing your own energy consumption. Not to mention the fact that many retailers are now simply refusing to buy back power from solar in order to stop the market from taking hold.
This will in turn affect the return on investment and perhaps even the viability of your project to begin with. In all cases, the opportunity to sell power back to the grid should be looked on as a bonus, not as a core revenue stream.
As many businesses have found, selling power back to the grid is a terrible business model.
One should remove the optimism bias when looking at a solar power installation. Just because a project has green benefits, does not mean that one should look at it as anything other than a business proposal.
It’s therefore very easy to be tricked if you don’t begin with a firm understanding of your own power consumption. (And, just as much as that, it’s easy to miss out on a genuine opportunity because you haven’t done your homework.)
Do You Need a Battery? (Really?)
A working knowledge of your own power consumption habits will also put you in a much better position when it comes to determining whether you need to install a battery to accompany your solar power system.
The main purported benefit of solar power batteries is that they allow you to collect and store solar energy overnight, thus returning (in theory, anyway) better returns on the sunlight you capture.
The reality is that batteries are often surplus to requirements. Not only that, but they add significantly to the cost of your solar power project for very little if any benefit. What’s more, they put you in a position where you need to replace the battery each six or seven years, meaning that the long term return on investment is often far lower rather than higher.
The only situation where you would ever conceivably need a solar power battery is only if you are already collecting surplus solar power to your daytime requirements. It’s a lot easier to decide whether this is actually justifiable if you already know how much energy you are consuming during daytime hours compared with nighttime hours.
In short, a knowledge of your own actual power consumption can help you to avoid unnecessary ‘upsells’ that will take away from your return on investment. (Or, alternatively, qualify whether you are one of the actual few who will benefit financially from a solar power battery.)
I may have given the impression above that one of the reasons to equip yourself with this knowledge is to ward off salespeople. This is not the impression I want to convey – I myself have worked as a salesperson in the past, and there are many salespeople out there who will actually provide you with very good advice even if it doesn’t always get them the sale. But having a better level of knowledge can enable you to fact-check their claims and apply them more accurately against your own personal circumstances.
More Reliable Math
The deeper and richer your data, the better your solar investment decision making process will be. One of the key benefits to collecting your own personal power consumption data is that it will enable you to do the math much more reliably.
If you know based on 12 months of data collection that your average daytime power consumption sits at around 7.6 kWh during winter and 3.9 kWh during summer, then great. If you know the specifics of what it amounts to on each particular day, then so much the better. You can fairly reconstruct how much power you might save by introducing solar, and nobody can argue with you. Furthermore, if you can break this data down to an hourly basis, you can identify time periods where there are spikes and surges in power use (due to appliances such as vacuums etc) that need to be excluded from your calculations. You can then reliably choose a system that will more or less approximate that level of power consumption on an hourly basis, and get a reliable return on investment figure.
You can also factor in a ‘margin of safety’ to ensure that your investment matches your minimum acceptable return on investment, even under the worst circumstances. What we are moving towards is a fairly accurate figure for return on investment calculations from solar based on the actual circumstances (including energy use) of your household or business.
It isn’t easy though. The amount of research and record-keeping that needs to go into preparing a solar power proposal for even a standard household is massive. Because power consumption (and for that matter, other extraneous factors such as the tilt of the roof of the house, or whether it faces north) varies so greatly from home to home, there’s no shorthand calculation you can really apply. There really are no shortcuts.
