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Going solar

March 18th, 2010

The Rudd government’s ventures in subsidising energy-saving measures such as home insulation haven’t exactly covered it in glory. It’s not alone in this respect. The Howard government had similar problems, and Spain had a huge boom and bust in solar photovoltaics. The common feature in all of these cases was that the schemes got into difficulty because take-up was much more enthusiastic than was expected. This in turn reflects the fact that the economics of these measures, particularly solar PV, are improving fast.

I recently got solar PV installed on my roof, and the deal (available from Origin here), though not the cheapest on the market, was very attractive. A modest upfront payment, and monthly payments that are substantially offset by the cost savings, especially when the system is exporting back to the grid and attracting the feed-in tariff. And it is just so cool to open the meter box and watch the wheel turning backwards and the numbers going down.

The deal is attractive because it is subsidised in two ways: the capital cost is offset by Renewable Energy Certificates, and the cost savings are amplified by the feed-in tariff. Looking ahead, it is clear that governments will want to reduce the subsidy element of the feed-in tariff, as is already happening in Germany. And recent changes to the REC scheme have been designed to ensure that household installations don’t have such an edge over large-scale renewable generation.

The impact of lower subsidies will be offset by declining costs. Globally the cost of solar panels has declined by about 20 per cent and is likely to decline further, now that size economies are starting to kick in at all stages of production, and particularly in the supply of silicon. Until about 2005, the industry relied on offcuts from the semi-conductor industry. When demand outgrew that supply, prices rose for some time, and it’s only recently that a declining trend has resumed. With the decline in panel costs, and the growth in demand, it is now become worthwhile to look hard for cost savings in the more prosaic elements of the process, such as installation costs, and there are some interesting innovations here. Within a few years, the subsidy-free capital cost could fall to a level comparable to the current subsidised price.

Looking at feed-in tariffs, I’m getting 55c/Kwh compared to a daytime retail price of 22 c/Kwh (quoting these from memory, I’ll check later). That’s a pretty big subsidy, but the gap would be smaller if the grid supply were priced properly. A carbon tax of $50/tonne would add at least 5 c/Kwh, maybe 7 c/Kwh with retail margins and GST, and peak-load pricing would raise the price on sunny summer days, when the system is producing peak output for long periods, maybe by as much as 10 c/Kwh. With those changes, no feed If the average cost saving were 30 c/Kwh and the output averaged 6 Kwh/day, the annual return would be $650/year which would make a $5000 investment look very good.

In policy terms, I’m ambivalent about all this. I’d prefer a straightforward pricing system that reflects all the costs of energy, including carbon costs, either through a carbon tax or an emissions trading scheme. But we don’t have anything at present, and even it gets through, the government’s ETS is full of exemptions and special deals. In effect, the REC scheme works roughly like an emissions trading scheme, since non-renewable generators have to trade to get credits. Similarly the feed-in tariff is embedded in the pricing system. The big defect is that these schemes don’t distinguish between non-renewables like gas and coal which differ greatly in their emissions intensity. So, they are somewhere halfway between a proper carbon price and the kind of winner-picking scheme proposed by Tony Abbott.

Sooner or later, the need for real action will become so pressing as to be irresistible. In the meantime, efforts like the REC scheme will help to drive continuing innovation. The economic cost of responding to climate change will be much higher than it would have been had there not been so much delay and delusion on the subject, and the damage to the global environment much greater. But that’s true of so many areas of policy, it’s perhaps not surprising in this case.

You can do your own calculations using this spreadsheet worked out by my colleague Tim Coelli.

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  1. TerjeP (say tay-a)
    March 20th, 2010 at 05:44 | #1

    5. I can’t find anything unclear.

    EG – having your own statements understood by you is necessary but not sufficient for clear communication. As best I can tell this is your comment that you would like me me to agree or disagree with:-

    the insurance premium of $50m for nuclear operators, mentioned by Fran at a post some time ago, is laughable. (To Fran’s credit, she said the rest of the risk is to be carried by the public.) The sum of the personal liability insurance of all the houses in my street (not Parramatta Road but a relatively small suburban street in the leafy North Shore) is about that amount.

    I have no context at all for what Fran said “some time ago”. I don’t know if she was talking about nuclear processing plants, nuclear power plants, uranium mines or what. I don’t know what the insurance is intended to cover and if it is a one off cost or a monthly cost. I don’t know if it relates to construction or operation. Basically you have given no information to show what Frans earlier claim was really saying let alone evidence or argument as to whether it was right or wrong. How am I supposed to agree or disagree with something so vague?

  2. Hermit
    March 20th, 2010 at 08:17 | #2

    George Monbiot calls feed-in tariffs ‘the German disease’
    http://www.monbiot.com/archives/2010/03/12/the-german-disease/
    and in passing has a swipe at offsets, in this case provided by RECs. The single best instrument to force an early shift away from carbon is to make carbon more expensive. Other instruments like MRET, FiT and REC dance around the problem but often with perverse results. I’ve mentioned wind power negative prices upthread. Monbiot suggests that helping well-to-do households with PV is a transfer from the poor to the rich. In Australian terms battlers are not in a position to take advantage of the subsidies. He has also argued that PV doesn’t suit either the UK or Germany I presume referring to cloud cover and northerly latitude.

    I’ve had PV for 5 years (sounds like a disease) and I would describe it as a ‘helper’. We are kidding ourselves if we think a single coal fired power station will be retired as a result of PV.

  3. BilB
    March 20th, 2010 at 12:56 | #3

    Hermit,

    Your end conclusion there is perhaps the most significant of this discussion. In a world of unprecedented technological change your confidence in the permanence of the present in indeed impressive. This is significant because it paraphrases the last 40 years of energy development and transportation technology improvement. “nothing significant will happen because up till now that is how it has been”. The oil era was so successful that it dominated all. The nuclear era came to a grinding halt with the development of the fast breeder reactor when people realised what the hazards were, and several higfh profile failures cemented that thinking in place.

    40 years on and 4 billion more people that oil security which was to last for hundreds of years has become totally doubful, and the mess that the earth might have absorbed if it did infact take hundreds of years to consume the same amount of oil has begun to threaten the stability of our civilisation i nthe most indirect of ways. Meanwhile the marketing of everything has advance to a science and with a simple anme change the untinkable nuclear spectre has arisen again as GenIV.

    We face a world of change. However the only constant, the only essential and unchanging part of our being is that the sun keeps shining. There is something poetic about all of this in that, all that we believe will not change is in fact changing at an unmanageable pace while we completely ignore the fundamental truly unchanging element that underpins our very existence.

  4. TerjeP (say tay-a)
    March 20th, 2010 at 13:46 | #4

    The single best instrument to force an early shift away from carbon is to make carbon more expensive.

    The best thing you can do is remove obstacles that make carbon free energy cheaper. We should end nuclear prohibition.

  5. jquiggin
    March 20th, 2010 at 13:55 | #5

    Terje, you’ve made this bogus claim about 100 times already. Read the Switkowski report, for heavens sake. It shows, absolutely clearly, that nuclear can’t be economic in Australia without a substantial carbon price.

    Until you can come up with a coherent response to this point, please don’t post further along the lines above.

  6. Fran Barlow
    March 20th, 2010 at 14:24 | #6

    And despite my general suspicion that nuclear power is key to any serious industrial scale energy policy aiming at low carbon emissions, Terje makes no sense when he claims that nuclear prohibition is an obstacle that makes carbon free energy more expensive.

    The prohibition is irrelevant to the cost of near zero emissions energy. They cost what the cost and so does nuclear. The chief obstacle is the capacity within a competitive market for fossil thermal to externalise its dumping, transport and harvest environmental footprint costs.

  7. BilB
    March 20th, 2010 at 15:25 | #7

    Fran,
    Your comment there has absolutely nothing whatsoever to do with the topic and discussion.

  8. BilB
    March 20th, 2010 at 16:16 | #8

    Thinking of solar energy in the broader sense I had a little look to see what the world really believes and I came up with some interesting trivia

    From

    http://www.cus.net/news/news4.html

    comes this item

    ““In the 17th century, we had 90,000 windmills in Britain. They were a part of life. What we’re looking to do now is install perhaps 4,000 turbines, making 5,000 in total.”

    And from

    http://cleantechnica.com/2009/07/30/renewable-energy-on-the-rise-fossil-fuels-declining/
    comes this

    In April of this year (2009), renewable resources accounted for approximately 11.1% of total U.S. energy production. At this level, renewable resources have now passed up nuclear power in energy production. Nuclear power accounted for approximately 10.4% of total energy production during that month.

    I know that this is waving a red flag at a bull but I thought that the trends were worth looking at.

    One thing about solar energy, and this has been talked about in various ways is that it enfranchises every one. We can all use it, we can all get involved. And as many commenters have indicated, going energy independent even to a small degree builds awareness about consumption. This in itself is a a CO2 emission mitigation force. It is not just the power produced by ones solar panels, but if awareness leads to energy conservation then the solar is doubly effective.

  9. Fran Barlow
    March 20th, 2010 at 16:47 | #9

    @BilB

    Your comment there has absolutely nothing whatsoever to do with the topic and discussion.

    You obviously read selectively. How embarrassing for you.

  10. jquiggin
    March 20th, 2010 at 16:50 | #10

    Cool it down, please

  11. BilB
    March 20th, 2010 at 18:48 | #11

    I do that sometimes. However, I accidentally hit the wrong button and found this page

    http://cleantechnica.com/

    It is a really good read.

  12. russ
    March 22nd, 2010 at 02:18 | #12

    The cleantechnica blurb a good read? ?t says nothing new or different – just rehashed verbage.

    Storage is the big problem – to make CSP baseline power you need several days worth of storage and today we are maybe up to 6 hours – if the present concept works out.

    The great green google is working on the mirrors as well – hope that effort pays off better than most of their green investments!

    The solar panels on peoples roofs are an absolute drop in the bucket and a very expensive drop! The present model is not sustainable.

  13. BilB
    March 22nd, 2010 at 03:23 | #13

    Russ, Same old blurb? I think not. It depends entirely upon what you are able to extract from the information. For starters for Alcoa, a major aluminium producer and electricity consumer, to be experimenting with CSP technology means that they have their eye on this technology as both a customer and a supplier.

    CSP storage the present methods, concrete blocks, have been in use for many years and work fine for up to 8 hours. Newer installations using eutectic salts will extend that considerably. Storage for days is meaningless as there is no need to store beyond the collector capacity. CSP bridges the gap by using gas and/or biomass to fire the boilers during extended non solar periods. This is the Hybride system.

    Rooftop PV is a minor player at this stage, but to write it off is to not understand the process of development and growth. Distributed power will become 50 to 60 percent of the solution over the next 3 decades I believe.

    As pointed out here

    http://cleantechnica.com/2009/07/30/renewable-energy-on-the-rise-fossil-fuels-declining/

    total energy delivered by renewables is accelerating and has overtaken Nuclear as an energy supply solution. This process can only gain strength as there are far more investors with much more to gain than there are for the traditional energy producers. And as the renewable industry gains strength the market size for the other shrinks further diminishing the appeal of the investment.

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