Aug 11, 2024
Rewiring Aotearoa
How solar can help bring down high electricity prices - and why customers need to be seen as part of the solution

There will be benefits for everyone in New Zealand if more people own their power, rather than continuing to rent it. But we need to start thinking about customers with solar and batteries as part of the infrastructure, something that the market has not been set up to handle. Roll on that world, says Mike Casey.

We’ve probably all been there: when the landlord puts up the rent, there’s very little we can do about it. And it’s the same when it comes to an increase in the price of electricity, which has been in the news again recently

But there is a way for some Kiwis to reduce the price they pay - and even benefit from these increasing prices: step up to the plate and become a generator.

Free markets are all about price signals and right now the extremely high wholesale price of electricity seems to be shouting at everyone to put solar on the roof. At current prices, anyone who has the money or has access to finance should consider it because the return on investment is so impressive. 

While some believe the market is ‘cooked’, there are reasons why the wholesale price is so high. We are in a dry year so the lakes are low, we are short on gas and the situation looks a bit grim for the next year. New Zealand has one of these dry patches every 4-5 years (we had them in 2001, 2003, 2006, 2008, 2012, 2018....you get the picture) and each time prices rose to way above the 'normal' level for a few weeks or months. This is because the hydro stations pull back and we burn coal - which is more expensive, bought on an international market, and emits a lot of carbon. Occasionally, we even have to fire up a diesel generator, which is even more expensive again. 

No big generator is able to build something inside three years in response to the high price signals of a dry year and any new gas field that's discovered could take more than ten years to kick into gear. But a household can probably get solar and batteries installed in a few weeks. And when the lakes are low, the sun is normally out so, chances are, solar panels will produce more output in a dry winter than they do in a wet one. 

On my all-electric cherry orchard, for example, the rates I’m currently being paid when selling electricity back to the grid mean I could pay off my new $100,000 solar system in less than a year if the price stays high. I am something of an anomaly because I’m prepared to take on the risk to buy and sell at the wholesale rate, but that kind of return is absolutely bonkers. My only regret is not going bigger.  

A kWh is basically a unit of electricity and right now, the price of power in the middle of the day is around 80c per kWh. It has been more than twice that at times of peak demand and I can generate it for around 4c kWh with my solar. It’s about 12 cents for households to generate but that’s still a lot lower than paying for grid electricity, even if you finance it on your mortgage. 

The price won’t always be that high and we could have a particularly wet and windy year in 2025 that will bring the price back down, but these signals show that the system is crying out for more electricity - and those who can provide it are benefitting (residential customers with solar can now access the wholesale market with a new plan from Flick, without taking any risk on purchasing, Octopus offers a plan to export power back at peak, and some retailers offer export rates that are more reflective of the average wholesale price).  

New Zealand is one of the few Western countries that hasn’t subsidised solar and that means we have incredibly low uptake. Only around 3% of our approximately 2.2 million homes have embraced it, compared to around 40% in Australia. 

For most homes and businesses, it will still make more economic sense to use the electricity you generate rather than sell it back to the market (given the current settings). Our Electric Homes report showed that homes with electric hot water, heating, cooking and cars are, on average, much cheaper than fossil fuelled equivalents, even with upfront costs and finance included. You can still save money if you electrify your home and rely on the national grid, but the savings are much greater when you include solar as it is by far the cheapest form of delivered energy available to New Zealanders right now. 

Solar is by no means a silver bullet for our energy issues, but more of it on our homes, farms and businesses means we can potentially have our cake and eat it too. 

If we can keep electricity prices low by providing enough electricity through hydro, new large-scale renewables and more customer generation that’s great for the rapid electrification of our economy, it will help keep the costs down for other New Zealanders and it will reduce emissions from coal (that last point is worth focusing on: according to our calculations, in August a 9kW solar array - the average residential install in Australia - will generate about 23kWh per day, which is the equivalent of burning a 20kg sack of Indonesian coal at Huntly every 1.5 days. That house would stop about one metric tonne of coal from being burned in June, July and August). 

If the wholesale price goes up and there is a level playing field in the energy market it simply means that more people will decide to invest in solar panels and batteries because there are strong economic incentives and price signals to do that. 

Unfortunately, the playing field isn’t particularly level at present and we believe the current system is rigged against customers and, in our eyes, this whole situation points to making sure customers have all the tools they need to compete with the big guys. 

Associate energy minister Shane Jones has said that if the gentailers can’t fix the high prices, the government will have to step in. Successive governments have failed to innovate to create forward-looking policy solutions that may have avoided this current situation and we believe a review of the energy sector legislation is long overdue. We also believe reform is required so the true value of solar and batteries is reflected in the price customers can get for peak export (you can read more about that here in a just-released paper that lays out the argument for what we’re calling symmetrical export tariffs). This could unleash a whole new group of generation investors: ordinary Kiwis and their homes, businesses and farms. 

Another way the government could step in to fix things is to enable more New Zealanders to access finance so they can handle the upfront cost of solar and batteries and lock in their electricity price for their lifetime. This is by far the biggest barrier to uptake and if the Government did this right (possibly in conjunction with the private sector) it could save New Zealanders money on their electricity from day one. 

At present, the electricity market is not working in the best interests of New Zealanders. The Emissions Reduction Plan, as proposed, misses the boat on the opportunity to deliver energy security and price stability to New Zealanders. And our energy strategy is overly reliant on a dwindling and increasingly expensive gas supply. 

We need to do better, and we can do better. The Government has the levers to pull but, from what we can see, they are just not pulling them. 

Gunning for more solar is not tech optimism; it is tech reality. This technology has been around for over 50 years and it was invented before the compact disc. Through economies of scale and supply and demand, the price has dropped rapidly and it is now considered to be the cheapest form of energy humans have ever developed. 

There will be benefits for everyone in New Zealand if more people own their power, rather than continuing to rent it. But we need to start thinking about customers as part of the infrastructure, something that the market has not been set up to handle. Roll on that world, we say.

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