It’s cheap, it’s reliable and it’s not running out anytime soon. So the burning question remains – why isn’t commercial solar as hot as… well, the sun?
Today, the business case for solar is becoming more and more compelling when it comes to commercial use. It’s not only good for the environment – it’s also good for your bottom line.
With electricity prices going through the roof, solar represents a cheap alternative to cut ongoing power costs and hedge against future electricity price increases.
Indeed, solar gets more viable by the day when you consider the gains you receive in terms of ensuring budget stability with predictable, self-generated solar costs. Then there’s the add-on benefit of being able to more accurately forecast operating power expenses.
So, what’s holding businesses back?
Total Utilities Director, Chris Hargreaves, believes it could be down to the perception that the return on investment is too long.
But Chris explains Total Utilities can provide various funding options which make the transition cost neutral, so it doesn’t have to add to overall business debt. And over time of course, you have the ongoing benefit of cheap and sustainable solar.
More viable and better value for money
“Return on investment is now under seven years for a commercial solar array, so it’s becoming much more viable and better value for money for business use,” he says. “Even in the last 12 months, conditions have changed with electricity prices going up and the cost of solar coming down.”
“Reducing your reliance on the grid and generating your own electricity onsite, gives you a strategic advantage and means you can become master of your own destiny, mitigating against energy price volatility.”
Smart with solar
Chris explains that solar users can also get smart with how they use their self-generated power. For example, they can discharge their solar battery at peak times to avoid peak grid rates, as well as generate revenue by selling excess solar energy back to the grid.
Other major benefits include solar being an easily maintainable, consistent power source – providing uninterrupted supply during power cuts. It’s conveniently scalable too, so you can further reduce up front costs by growing your system with your business over time.
Goodwill of going green
And you can’t underestimate the goodwill generated by being perceived as a ‘green’ business as more and more customers turn to companies putting sustainability at the heart of their operations.
Indeed, when it comes to bidding for contracts, sustainability is becoming central to doing business in many sectors, with clients giving considerable weight to sustainability credentials when it comes to awarding contracts.
So, it seems the jury is no longer out when it comes to solar. It’s time to bask in its uninterrupted glory.
With the list of benefits including cost saving, controlling utility costs, reducing your carbon footprint, providing uninterrupted power and being easily maintained and scalable – all at the same time as showcasing your eco-friendly creds – only one question remains…
When are you going to join the new power generation?
Download this guide for the benefits and how we can have solar plan for you!
All businesses need electricity. All people in a modern society like ours need electricity. The trouble lies in finding balance between combatting climate change and generating enough electricity to sustain our population.
We all know and understand the importance of decarbonizing given the ominous challenge posed to us by climate change globally. But, New Zealand is a small, remote country which only accounts for 1/15th of 1% of the world’s population of 7.5 billion.
New Zealand’s electricity and natural gas markets are inextricably inter-linked. Electricity and gas compete as alternative energy sources, but rely on each other for production. Electricity generation is the second biggest user of natural gas after methanol production by Methanex. Gas is the second biggest source of electricity generation after hydroelectricity.
With this intricate dependence on one another, the effective management of our national energy strategy (including electricity and gas etc) is critically important to our continuing economic health and hence to the well-being of all 5 million kiwis.
What impact does prohibiting natural gas exploration have on New Zealand’s energy supply?
The outright prohibition three years ago of all new offshore oil and gas exploration, is having a profoundly negative impact on the natural gas sector and hence on the health of the electricity sector.
No matter how well intentioned this original decision was, it was not thought through properly at the time. The recent apparent softening of the Government’s stance on the role of natural gas as a transition energy source on the road to 100% renewability is, however, to be commended.
Coal-based electricity generation in 2020 was the highest for a decade.
It’s unfortunate that, as a result of these policies, coal-based electricity generation in 2020 was the highest for a decade. This coincided with the lowest gas-based electricity generation for nine years.
Given that coal emits +/- 1.9 times more CO2, on a gigajoule-for-gigajoule basis than natural gas, this is an environmental step backwards. In this regard, coal imports of +/- 1 million tonnes from Indonesia in 2020 are currently on course to triple in 2021 as we understand it.
What other factors impact New Zealand’s energy mix?
The negative impacts of the above prohibition have unfortunately been compounded by various other negative electricity supply and demand factors since then.
These factors have included:
Rebounding electricity demand following the Global Financial Crisis in 2008.
Back-to-back very dry summers in 2019/20 and 2020/21.
The retirement of thermal powers stations like Otahuhu B and Southdown.
The inability of new renewable power stations to meet the combined challenge posed by growing electricity demand and reduced thermal generation.
Gas and geothermal energy supply in New Zealand is struggling
Pohokura has been our biggest natural gas field for some years. During the past two years however, production has fallen sharply for unspecified technical reasons. This decline in gas production has reduced gas supplies available both for gas users and for electricity generation.
The prohibition of all new offshore oil and gas exploration, has also meant that there will be no offshore oil rigs available in NZ waters until 2022, at the earliest, to identify let alone resolve the ongoing production problems at Pohokura.
Other gas supply options have been constrained in the longer term by the non-renewal by the Government of existing offshore field permits for undeveloped fields, once their initial term had expired. Previously, successive Government’s lead by both major parties renewed these permits unless there was a compelling specific reason not to.
Power companies are passing costs on to businesses
Seriously damaged gas industry morale has also resulted in a combination of reduced/delayed/cancelled capex in existing gas fields.
Competition has essentially collapsed at the big end of the gas market.
The profound uncertainty surrounding the shorter term, let alone longer term, future of the natural gas industry has already resulted in Contact Energy vacating the time of use (TOU) part of the gas market as TOU agreements covering supply to larger customers expire. Two other gas retailers have also declined to quote for supply to various existing TOU customers.
We are also well aware of other very large TOU gas users (not our clients) who have to use natural gas and have been forced onto punitive spot market-related gas pricing. Major electricity-users like Whakatane Board Mills have also had a huge question-mark over their future due to huge gas-related electricity price hikes.
There is still some limited competition in the non-TOU part of the market (impacting smaller customers), albeit at much higher prices. To all intents and purposes, competition has essentially collapsed at the big end of the gas market.
What would Total Utilities recommend?
Looking to the future, New Zealand must formulate an integrated supply/demand energy strategy covering the transition period until 100% renewable energy is achieved in practice. Much like the cross-party Superannuation Accord in the 1990’s, we need a similar cross-party accord now in this vitally important area.
As such, the Government should:
Reverse its previous ill-advised decision not to extend existing gas field permits on undeveloped fields.
Greatly extend the scope of the existing EECA GIDI Fund/ETA initiatives.
Extend the separate Genesis Energy decarbonisation funding initiative to include Mercury and Meridian too.
To conclude, the appetite for future investment in the gas infrastructure is key to improving certainty in the market. Not only does it send signals to the sellers of natural gas but also to major users who are often multinational organisations. If it becomes more apparent that investment will be very limited, these organisations could very well leave NZ prematurely, obviously impacting employment, business activity and tax revenue.
Business and media enquiries can be made to Total Utilities.
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New Zealand Aluminium Smelters has struck a new deal with Meridian Energy which means the smelter will remain open until at least Decemeber 2024. We don’t yet know the prices that Rio Tinto has agreed with Meridian, but Forsyth Barr estimates that Rio will be paying a contract price of 3.5c/kWh. Compare that with large energy users across the country, who are paying over 11c/kWh.
Last week, the news pushed already elevated ASX energy futures higher. Customers leaving contracts on or around a raw energy price of 8.5c/kWh struck 3 years ago are now facing, on average, raw contract pricing of 13-14c/kWh — an increase of 65% or more.
Is pricing sustainable for large users?
ASX Energy Futures climb higher and higher
In July 2020, when the market was expecting a full exit from Tiwai by the end of 2021, pricing fell significantly. South Island consumers were especially fortunate — Total Utilities helped customers negotiate raw energy pricing around 6c/kWh. North Island pricing also fell from around 12c/kWh to 9c/kWh.
New Zealand’s large commercial businesses are paying a premium for the smelters continued electricity supply in the current electricity market. And it’s not just electricity pricing that has increased, but gas too, with prices moving from around $5.50/GJ to over $9/GJ in the last three years.
Transmission pricing hasn’t changed. Yet. But it is almost certain that Tiwai will see transmission costs reduce, while the rest of the country is left to pick up the upgrade bill when Manapouri gets connected to the Clutha Upper Waitaki network.
Additional energy and gas costs cannot just be absorbed by consumers, particularly in the primary and food production/storage sectors where energy-intensive operations exist. The cost of living will continue to inflate, while income increases will struggle to keep up.
Overcapacity of generation must be built between now and 2030, while an increase in gas-fired peaking plants is needed to ensure a secure supply.
Future path requires significant investment in new wind and solar generation
In the current market, there is no incentive for an oversupply of energy production. Instead, due to basic supply and demand principles, constrained generation allows producers to make tremendous profits.
In large part, the Government has ignored the 2019 report and instead focused on the proposed pumped hydro scheme at Lake Onslow. This multi-billion-dollar project won’t be commissioned in the short-term and is located well away from high energy demand areas. The government would gain faster traction if they subsidised microgeneration and battery storage.
Gas production is still a major and immediate concern, with New Zealand’s largest gas more or less 35% down on expected volumes. Remedial work and new drilling projects are unlikely to start until early 2022, so it’ll be some time before gas supplies return to “normal” levels.
Generators have various projects to increase renewables-based generation. These will not likely come into service until after 2024, though. A lack of clear market strategy means timing and development have been poorly managed. The “just” transition to renewables is underway, but who exactly is it “just” for?
A window into the future
On 31st January, 2021 He Pou a Rangi/Climate Change Commission released a 2021 draft advice for consultation report. This report delivers more focused advice that the government would be wise to follow to stand a chance of reaching our country’s zero emissions target.
The energy prices that businesses are paying now is a result of uncertainty and not having enough renewables-based generation to meet dry year demand when gas supplies are constrained. This is not sustainable.
From page 81 of the report: “Future electricity prices are uncertain due to a range of factors, such as the weather, gas availability, future infrastructure requirements and pricing structures.”
The report clearly shows that we need more energy generation, that we should accelerate and incentivise the move to electric vehicles, that we need to make the transition affordable and attractive to businesses and families, and that natural gas plays a role in helping us get there. And it asks if we should do what we can to retain and retrain the incredible talent that exists in the natural gas sector instead of losing them to offshore contracts.
Building more wind and solar generators is money and time well spent, as this will increase energy supply, and translate to lower energy prices. That’s why new renewables-based generation needs to be built and fast, otherwise energy pricing will only remain high and increase further as we decarbonise the economy.
As page 112 of the report so clearly puts it, “For consumers and industry to invest and convert to electrification, they need to have confidence that electricity will be available, affordable and reliable.”
What can you do?
The harsh reality is that the cost of energy is going up. Without significant new generation being commissioned and the ongoing gas supply issues, costs are unlikely to fall again in the next four years.
That’s why we recommend you review your pricing and go to market early, as prices are front end loaded. You could potentially get a better price well in advance of your contract end date and lock it in. Alternatively, having a second round is always an option closer to contract-end.
We’ve given a considered view of where pricing is heading in this blog, but it could be conservative. In any case, budget for a serious increase in costs.
If you want to mitigate rising costs, the best thing you can do is reduce the amount of energy you consume from the grid. You can achieve this by understanding what you consume and optimising your consumption and generating your energy onsite (through solar panels or similar renewable sources).
With increased energy pricing on the cards, now’s the time that you get significantly more bang for your buck when you invest in energy and carbon reduction projects. That’s why the team at Total Utilities are here to help you achieve energy efficiencies and, when you’re ready, guide you through the switch to solar and other renewable sources.
