Information for businesses considering investing in solar energy published by EECA October 2024

Commercial-scale solar in New Zealand

Commercial solar investment can help New Zealand businesses reduce energy costs, lower their carbon footprint, and build long-term sustainability. And it has never been more affordable.

There are various ways your business can access solar energy, including purchasing solar panels outright, or entering a power purchase agreement (PPA) with an energy supplier.

Read on to learn more about whether solar would suit your business, and what you should consider to help you make the best decision. 

Solar considerations for businesses

Many businesses are considering solar as a way of simultaneously reducing their carbon footprint and their energy bills. There are many considerations to work through, including:

Does your business have a large, unshaded roof space?

A large, unshaded roof is best for solar. If your roof is smaller, then your options are more limited, but many businesses are still making this work. Shading needs careful analysis, as this will reduce electricity generation. If it’s only occurring in the early morning and late afternoon, the impact may be relatively small.

Structural engineering considerations should be investigated early, as solar panels do add to the roof weight, which can be a significant issue in locations with high seismic loads. 

Solar panels can be attached to most roof types. You should discuss with installers what fixing type and installation method they propose to use, and how this will affect the warranty of your roof. Also consider the expected life of your roofing material and any maintenance requirements on your roof.

Alternatives to installing on an existing roof are to establish a new roof over a car parking area, or to have the panels ground mounted if there is land space available around your business. Both of these options will add costs. 

How much electricity does your business use and when does it use it?

Solar will provide the best financial returns for businesses with high daytime electricity use. This is because you will maximise the value of your system by directly using the majority of the power generated on site.  

For businesses who use most of their electricity during the day, when the solar panels are generating the most power, savings can be significant.

Understanding your business’s electrical energy profile is a great way to start. Ask your retailer if they can provide this information for each half hour of the last year. Also consider whether you could shift more of your existing electricity consumption to the daytime if you installed solar. 

How much does your business pay for electricity?

A business that has higher electricity prices will see the best returns from an investment in solar. You’ll need to consider how much your business pays for electricity at different times of the day and year, as this affects overall savings.

For businesses with higher energy consumption, it’s also likely that there will be more specific charges itemised on your bill. This will include lines charges for electricity transmission and distribution. The magnitude of these costs, and whether or not they are fixed, can have a significant influence on the financial payback of commercial-scale solar. 

How much will you get paid for electricity you export to the grid?

It’s likely that you’ll be exporting electricity to the grid at least some of the time, so you should look into how much you’ll get paid for this.

There will also be constraints on how much you can export. This will depend on the details of your individual connection to the network, and the design of the network in your wider area. This may be more of an issue if your on-site electricity consumption is highly variable, which will mean you’ll be exporting more often. A solar installer or consultant will liaise with your lines company to understand these constraints, which may influence the optimum system size. 

How much will solar cost to install and maintain?

As a rough guide, the cost of a commercial-scale solar system is likely to be in the range of $1500-2000 per kW of installed capacity. The cost per kW tends to be cheaper for larger scale systems. For a smaller 10 kW system, this could mean a price of around $20,000, while for a larger 100 kW system, this could mean a price of around $150,000. Actual prices will depend on the specifics of a given installation, and if your grid connection requires an upgrade this will add additional cost. 

Routine maintenance to maximise output requires: 

• monitoring performance 
• cleaning 
• maintenance of possible shading 
• visual inspection (e.g. detecting cracks).

How frequently this needs to be carried out depends on the specific environment your business is located in. For example, annual cleaning of panels is generally sufficient, but sites in drier areas with more dust will need more regular cleaning to maximise output from the panels. 

What's the expected lifetime of a system?

Solar panels are likely to last for 30 years or more. There will be a small decrease in output over time, and a common assumption that you should apply to your business case is that this will be a 0.8% decrease in output per year.

Inverters have a shorter lifetime. This is commonly assumed to be around 15 years, and your business case should include this. 

What is the best system size?

The best system size is one that will give you the greatest return on investment. What this size is will depend on many of the factors discussed above, such as the proportion of electricity you use on-site, your electricity prices, how much you’ll get paid for exporting electricity to the grid, and what constraints there are on exporting. Part of the optimisation will also include the fact that larger systems are generally cheaper on a per-unit basis.

A solar installer or consultant can help you determine the best system size by analysing your energy use. A best practice analysis would include looking at a year’s worth of electricity consumption and potential generation at half-hourly resolution to determine the financial benefits. 

What's the payback period?

Payback periods will vary depending on many of the factors discussed above, such as the proportion of electricity you use on-site, your electricity prices, and how much you’ll get paid for exporting electricity to the grid. Your cost of capital will also play a significant role.

Research published by EECA in 2021 (see below) used internal rate of return (IRR) as a metric for financial performance, and found that this varied between 0.4% and 8.6%. If the IRR is higher than your cost of capital (e.g. the interest rate on debt finance) then it will be a profitable investment.

The absolute numbers will have changed since the report has been published, but the range is likely to remain indicative. 

Is it worth considering batteries?

The financial case for batteries depends heavily on how you use them, with the two most important functions being:  

1. Storing energy generated on-site from solar for later use on-site. This means that you would export less ‘excess’ solar during the day, instead storing it for later use on-site. If the price you pay for electricity is higher than what you’ll get paid for exporting, then having a battery will save you money.
2. Actively importing and exporting energy from and to the grid depending on the electricity price at different times of day. Batteries can perform this function without having solar, and so this is also an option to consider.

Batteries can be controlled to perform both of these functions. For example, a typical mode of operation may be to charge overnight from the grid, use power from the batteries during the morning peak, charge during the day from on-site solar, and then use power from the batteries again during the evening. Depending on the size of your battery system and your energy needs, the battery discharge during peak times could be used on-site, or exported to the grid.

Another consideration with batteries is that they could allow your business to reduce some specific types of cost with are charged by your lines company. This is because correct operation of batteries should allow you to reduce the maximum power you draw from the network. This will be more applicable to larger businesses, that have a ‘kVA capacity’ charge on their bill.

Given the above considerations, we would highly recommend discussing this with a specialist supplier, who can advise on both hardware requirements and the ongoing management of the system. 

Will you need consent?

Most councils do not require building consents for installing solar panels, but there are exceptions to this – check with your local council.

Your local lines company will also have criteria you need to meet before you can connect your solar system to the network. These connection rules exist to prevent power lines from being overloaded. This process is best managed by a solar installer or consultant, who will understand the detailed technical requirements. 

What about the carbon footprint of solar panels, and what happens at the end of life?

The carbon footprint of solar panels has decreased significantly over time as manufacturing processes have improved. Panels have also become more efficient, and warranted lifetimes have increased. All of this has increased the ‘Energy Return on Investment’ or EROI, which is another measure of sustainability.

When your solar panels reach the end of their life, they can be recycled. 

What hardware would you recommend?

We’d suggest looking at warranty periods, and the fine print of what’s included. For solar panels, warranty periods of 25 years and above are available, and for inverters it’s around 10 years and above.

What's the difference between AC and DC?

Solar panels produce DC (direct current) electricity that must be converted to AC (alternating current) electricity by an inverter.

It’s becoming increasingly common for the total installed capacity of solar panels (expressed in kW-DC), to be larger than the total capacity of the inverter (expressed in kW-AC) by between 10% and 30%. This is because inverters are a relatively expensive item, and the value of the inverter is maximised by having it operating at full capacity for more of the time. While this does mean that the output of the panels will be limited in the middle of the day and in the middle of summer, this is a small trade-off.

Be sure to carefully compare different quotes, to see how both DC and AC capacity differs, and what the expected annual generation is. 

Power purchase agreements (PPA) 

Depending on your business’s long-term energy strategy, financial goals and risk tolerance, you may prefer to enter a power purchase agreement (PPA) with a solar energy supplier, rather than purchasing a solar system outright.  

A PPA is effectively a long-term contract to purchase electricity. The solar energy supplier will cover the costs of installation on your roof, then sell you the solar electricity generated at an agreed price.  

Another option to note is that some suppliers are offering PPAs for electricity produced from off-site solar farms. This works very similarly to using grid electricity, but with the guarantee that your electricity is coming from a renewable energy source. Solar farms generally have a capacity of 1-100 MW and are considered utility-scale solar rather than commercial scale. 

Research on the cost-effectiveness of commercial-scale solar 

Key findings from EECA's 2021 report

EECA published a detailed analysis of the financial performance of commercial-scale solar in July 2021. The intention of the analysis was to give the business sector information on whether investing in on-site solar generation (outright) would be cost-effective. Installation costs and electricity prices have changed since the report was published, but the key conclusions of the report remain valid. This includes the finding that internal rates of return (investment profitability) vary significantly: from a high of 8.6% for a manufacturing site in Auckland, to a low of 0.4% for a big box retail site in Dunedin.  

Some of this variation comes from simple factors like how sunny it is in different parts of the country, and how big the optimum system size is (bigger businesses need bigger systems, which are cheaper per kW of installed capacity). But much of the variation results from the timing of electricity demand, solar generation, and electricity pricing, which can only be determined from detailed analysis. 

Businesses can therefore continue to refer to this report as a key source of information, but should calculate internal rates of return based on updated costs and prices relevant to their business today. For example, when testing sensitivity to the capital costs assumed in the report, we found that a 20% reduction in capital cost led to the IRR increasing by 35%.

EECA’s 2021 report is a useful source of information for New Zealand businesses considering investing in on-site solar – bearing in mind that the cost of both solar installations and electricity has changed since the report was published in 2021.

It provides a detailed analysis of the cost-effectiveness of solar energy generation for a sample of businesses across the country, taking into account regional variations. 

Take the next step

After working through our solar consideration guidance, we’d highly recommend talking to solar industry specialists.

Talk to your electricity retailer 

• Get hold of your existing electricity consumption data. It’s best to have one whole year of half hourly data to fully understand your usage, and how solar could benefit you.

Contact us today

Hubands Energy can help you:

• • assess the suitability of your building for solar
  • analyse your energy use and determine the best sized system to maximise your return
  • determine any requirements and limitations around your grid connection with your lines company.

Consider your finance options

• • If you need finance, talk to your bank early in the process. Many New Zealand banks now offer ‘green loans’ that provide discounted finance for projects with environmental benefits, such as installing solar panels.  
     

Hubands Energy has flexible, interest free terms available through Q Card on purchases over $1000. View finance details