Tuesday, 11 June 2013

What is the value of solar electricity?

In the UK we have Feed in Tariffs (FiTs) which pay us for every unit of electricity we generate from our solar panels whether we use them ourselves or not. This has been a great way to unlock private investment in solar PV installations. However, it also perversely encourages people to use more electricity at home than they would otherwise have done - for example using it to heat their hot water tank even though they would normally do this with gas. There are other ways to incentivise solar PV which are arguably more fair, such as the scheme introduced recently in Minnesota called 'value of solar' [1].

Under the UK FiT scheme we get paid a large generator tariff for everything we generate and a small export tarif for whatever we export to the grid. Also, we don't usually measure the exported energy - it is just deemed we use half and if we use more then we get the export tariff anyway. This means for most of us with PV panels it is financially preferable to use as much of our own as we can. With suitable equipment we can use it to heat a hot water tank (Should I use electricity from my PV panels to heat my hot water tank?) . The only restriction is that we need to avoid using more power than we are generating at any one time. On the other hand from the point of view of saving carbon this scheme is perverse because if we normally use a gas boiler to heat our water then using our free PV generates more carbon emissions than would be saved by exporting it to the grid. Exported power displaces that from power stations that emit more carbon than our gas boiler would.

In the USA it is usual to benefit from solar PV through a net metering system. This means that you pay for the electricity you use minus that which you generate. If you generate 5 kWh during the day and use nothing, and in the evening you use 5 kWh and generate nothing, your net use is nothing and you pay - you guessed it - nothing. If you generate more than you use then you typcally get paid for it at the wholesale rate which is perhaps a third of the retail rate, or under some schemes you can store up the credits for later. If you are in an area where PV yield is very seasonal (like the UK) then it is much better for your bills to store up credits if you can from summer to winter [2].

Under these net metering schemes there is no incentive to avoid using less electricity than the annual yield of your PV panels regardless of when the power is generated or used, even though it is extremely expensive to store electrical energy from one day to the next, never mind one season to the next (see Large Scale Storage Options)

Under the new Minnesota value of solar scheme (which inherits from an earlier one in Austin, Texas), you pay for all the electricity you use and you get paid for all the electricity you generate. This is the main difference and it means it is never to your advantage to use more than you need because you pay the full price for what you use. Energy efficiency always pays.

Secondly, the value of solar is computed based on a (supposedly at least) transparent model which has 5 parts:
  • The value of the energy (avoided cost of fossil fuel in power stations).
  • The value of the reduced transmission losses, assuming your power is used by you or locally, so doesn't have to be transmitted down wires for 100s of miles.
  • The avoided cost of generating capacity (which is effectively nil in the UK because our peak demand is on winter evenings when solar PV is negligible).
  • The avoided cost of transmission and distribution capacity (ditto).
  • Avoided environmental costs - which in the UK translates to permissions under the EU emissions trading scheme and, until they are phased out, UK renewable obligation certificates (ROCs)
There is no guarantee that the value of solar is more than the retail cost, although as a sweetener this is assured for the first 3 years. However, whether it is or not you still get revenue from generation - up to a point.

In the UK larger systems get progressively smaller FiTs based on installation capacity. In the Minnesota scheme you can only qualify if your system is sized to supply no more than 120% of your normal needs and your value of solar is limited to the size of your bill. That means large users can benefit from generating more power but it also goes some way to ensuring that the PV power is used locally and genuinuely saves on transmission losses.

Also they have introduced the concept of solar community gardens. Neighbouring users (at least 5) can club together and have their total consumption count towards the 120%. That makes it possible to make large community owned arrays pay benefits providing the generated power can be counted against local use.

I haven't space to detail every aspect of the Minnesota system and it is not a perfect solution. For example, under the FiTs there is value to us as well as to the environment in running the washing machine when the sun is shining: by throwing out the perversity of incentive to use more energy they are also throwing out the incentive to shift loads to a better time. Still it does seem to be a considerable improvement on the current UK FiTs. New schemes benefit from lessons learned. The UK government was not quite in the vanguard with FiTs but now we have some catching up to do.

[1] Minnesota's new (standard offer) solar energy standard Clean Technica
[2] Net Metering (Institute for self reliance)
[3] Austin Energy’s Value of Solar Tariff: Could It Work Anywhere Else? (www.greentechmedia.com/)


  1. A couple of thoughts:
    1) Is the FIT scheme even sensible? An analogy is in the 1960's when computers came along, we didn't think 'these are great, let's subsidise the cost of vacuum tubes so that computers get cheaper and we can all have one'. No, instead money was invested in R&D to make computers cheaper, faster etc. Can you imagine if all the UK FIT had been invested in R&D (particularly in Cambridge)? How much cheaper / better would PV be, even if the ARM business model was used (i.e. license the IP from R&D, but not manufacture)?
    2) Whilst I both own and support PV, distributed power, community power etc at some point the cost of maintaining the grid may become even more of a problem than it is now if the utilities don't have the revenue from electricity sales. I've not yet come across any sensible discussions of how such maintenance will be supported if (when?) it becomes a problem.

    1. The FiT scheme may be unethical but it has certainly achieved the objective of building a market for solar panels and bringing down the price. Your analogy with computer valves is a bit off, because valves were already a consumer item before computers came along. But in any case, there was no particular reason for the government to encourage computer rollout whereas there is for solar PV panels. They help reduce carbon emissions and we really need to do that now - not in 20 years time when the technology may or may not be better. If you were to argue that other low carbon technologies are better value for money right now, then I would agree with you.

      2) This point is interesting and I have touched on it before in http://energy-surprises.blogspot.co.uk/2012/11/energy-storage-smooths-out-peaks-but.html. There is a risk that the wealthy invest in energy generation and storage so as to use their own electricity and pay a smaller share of the grid infrastructure. This is getting to be a problem now in Australia but in the UK electricity storage is still not economic as an alternative to the grid. The Minnesota solar scheme avoids this problem because under it you pay for all the electricity you use whether you generate it yourself or not. This makes it more fair than our FiTs, though still not perfect.