Is it the right time for Solar Homes?

The Green Party has some great transport policies, and have recently announced their support for the Congestion Free Network as one of those policies. However, I haven’t been as impressed with the Greens’ energy policies (or any of the other parties’ ones, for that matter).

Earlier this year, the Greens announced their Solar Homes policy, aimed at encouraging the uptake of solar electricity. There aren’t any (direct) subsidies involved, but instead the government would offer low-interest loans for solar panels, and the homeowner would then pay the loan off over time as an extra item on their rates bill. As National correctly point out, this is still a subsidy, to the extent that the interest rate is below market levels.

Incidentally, I see Dr Susan Krumdieck is not a fan of the policy either, based on the comments on the Youtube video…

 

There are a number of flaws in this policy, as I see it. Firstly, the desired outcomes don’t seem to be well defined. What is the goal of this policy? Is it about encouraging renewable energy generally, or reducing greenhouse gas emissions? If so, there are more direct ways of tackling the problem. Or is it about solving a perceived market inefficiency, i.e. households are underinvesting in solar because they don’t value the future benefits enough? If so, the policy might be a good idea, but there are market inefficiencies everywhere, and no government can solve them all. Solar may not be the best one to tackle: perhaps we’d get more bang for our buck by focusing on another area, e.g. encouraging active transport for its health benefits, or something different altogether.

I talked to quite a few people about this at the NERI Energy Conference this year, and views were quite mixed. Some people thought the policy was a good idea, and others thought it wasn’t the right time or place. Mike Underhill, chief executive at EECA, is in the second camp, and he spoke on this at the conference, as well as writing a column which was published in the Herald.

 

The Wider Issues

There are some general issues with solar power in New Zealand. It provides power during the daytime, and with more generation in summer. That’s not a good fit with our electricity demand profile: demand is highest in the evenings, and in the winters. This isn’t the case for some countries, incidentally – in hotter climates like Australia, the Middle East, or California, air conditioning use means that demand is higher in summer, making solar a great fit.

The other thing is that solar is relatively high-cost compared to other sources of generation, and isn’t likely to be cost-competitive for NZ. Prices continue to fall, and it probably will be competitive in the medium term, but are we better off waiting a few years until prices are lower? Besides, solar will become more attractive as we develop better ways of storing energy – e.g. electric vehicle batteries (I expect this to be a long-term factor) or pumped hydro storage – and those will also be more viable in the future.

Another important factor is that New Zealand already generates most of its electricity from renewable sources. If we’re switching out other electricity for solar, we’ll get the most benefits from making sure we displace non-renewable sources, not renewable ones.

This doesn’t mean that solar won’t have its uses in New Zealand. Ideally, we could use it in a targeted fashion, to avoid having to make expensive upgrades to the grid. For example, Auckland is growing rapidly, and is a long way away from our hydro resources in the South Island. Solar here could take the edge off that demand growth, and perhaps also reduce reliance on thermal plants like those at Huntly.

Turning to the rural areas, solar may look like an attractive option for remote rural communities, where electricity is expensive. However, it may not actually save that much money. Firstly, unless households can go “off grid” entirely, they’ll still need to pay for the fixed costs of maintaining the grid – but spread over a smaller amount of purchased electricity. And if they do go off grid, they’re shifting those costs onto other people in their communities, who are still connected – that’s a bit unfair on the people left behind. Not to mention that most of these communities have a shrinking population to begin with, and therefore are likely to have a declining demand anyway.

 

The Financials

As Mike Underhill wrote in the Herald column, “the price of solar panels has dropped but it still costs about $10,000 to install a grid-tied 3kW system without storage batteries”. The Greens would lend the money for this at the Crown’s sovereign interest rate, and at 4.1%, the interest would work out to $410 a year. Would households even be able to save more than this on their power bill? I’m sure some could, but I’m sceptical that the average household could, and certainly not if the interest rate was much higher.

As Cliff Turner, an electrical engineer, pointed out on the NERI Hub:

Rather than households investing $12K or so in a PV system, in many cases they would be better investing in a more efficient vehicle, especially for city use. As an example, a Toyota Corolla GX Hatch is priced at $34K (from Toyota’s website) with efficiency 6.6L/100k and if the household was prepared to go to a Prius C at a similar or cheaper price depending on the model they could increase efficiency to 3.9L/100km. Assuming 10,000km pa this would save about $500 pa which is getting close to what the PV system might save in electricity cost. If the premium for a pluggable option was small, then even further fuel savings are possible. This is a better strategy than PV from the perspective of carbon emissions, given that NZ has low emission electricity generation options with good EROI.

I’d agree with those points.

 

Wrapping Up

As policies go, the Solar Homes one isn’t a shocker. But it’s not particularly helpful either. Overall, I don’t think now is the best time for a blanket, nationwide policy like the one proposed. I’d be more interested in a cohesive strategy to wean us off thermal generation, to get us to 100% renewables, which I’ve written about previously. With the Greens’ policy, I’d be inclined to wonder how much solar would simply be displacing other renewables, rather than non-renewables.

The Greens are also advertising a policy called Solar Schools, which, from a quick look, seems like a good idea (and is a better match with solar’s generation profile). However, if it gives substantial cost savings as implied, I can’t see why the Ministry or schools wouldn’t do it themselves, and why it would need a political party to come up with a specific policy to make it happen.

Z Energy’s forecasts and outlook

As mentioned in a recent Herald article, and discussed by Matt in this post, Z Energy expects petrol use in New Zealand to be flat or slightly declining in the next few years. In this post, I want to go back to the source material – a Z presentation which they gave at their 2014 Investor Day. There’s quite a bit of interesting stuff in there.

Firstly, Z Energy has a number of “strategic presumptions” which it sees as “the foundations of their core business”. These presumptions are listed below, and I’ve highlighted some of the interesting ones from our perspective.

  • Oil will remain the predominant transport fuel for New Zealand and the world
  • Global oil markets will ensure continuity of supply to New Zealand and oil price volatility will increase
  • New Zealand will remain an import pricing market
  • New Zealand transport fuel demand will remain flat to declining
  • Fuel standards will not be a key differentiator
  • We expect no major or extreme new regulatory shifts impacting our industry
  • Shipping freight rates remain flat due to increased global capacity
  • NZ consumers are value seekers and respond favourably to offers and Kiwi ownership
  • NZD:USD will revert back to long term averages ─ 0.70 by 2018
  • NZR refining margins will remain flat in the short term before recovering
  • Rational competitive behaviour will continue

Looking at these in a little more detail:

Oil will remain the predominant transport fuel for New Zealand and the world

No arguments here – it’ll be at least a couple of decades before electric vehicles really start to make inroads into world vehicle fleets. LPG and other fuels could have a growing niche, as could biofuels, and electrified public transport could become more important. But oil will remain the big one.

NZD:USD will revert back to long term averages ─ 0.70 by 2018

For the last few years, the NZ dollar has been quite strong against the US dollar, compared with historical levels. This is insulating us from petrol and diesel price rises, to some extent. Z Energy are working on the assumption that the NZ dollar’s value will drop back to a more ‘normal’ level over the next few years.

NZD $1 currently gets you about USD $0.87. If that were to fall back to $0.70, with everything else staying the same, petrol prices would rise from $2.15 to about $2.36. Not a massive difference, true – around 10% more at the pump – but enough to have a small dampening effect on demand. The main impact would be to our current account deficit, but that’s a story for another day.

New Zealand transport fuel demand will remain flat to declining

In the following slide, Z point out that the fuel efficiency of cars could very well improve over time, as I’ve written here. They also note that the top selling cars today tend to be smaller than those of the mid-2000s. Of course, the future of the Commodore and Falcon seems rather in doubt anyway, given that Holden and Ford are winding down their manufacturing operations in Australia.

Slide 15

 

Z also shows what they expect to happen to fuel efficiency in the next slide, below. I’m assuming it refers to fuel efficiency for new cars entering the fleet, as the total fleet won’t improve that quickly. More interestingly, though, they expect light vehicle travel per person to remain pretty much flat over the next five years. It won’t even recover to pre-GFC levels, let alone the peaks of the mid-2000s.

Slide 16

Z assume that GDP (economic output) will increase, boosting travel demand, but on the flip side, higher prices and “broadband connections” will weaken demand. The use of broadband connections is an interesting metric. Z aren’t saying that broadband directly causes people to travel less. They’re saying that changing trends in social media, online connectivity, etc – the kind of thing we talk about on the blog quite often – are meaning people tend to travel less. They’ve found that they can represent this quite well through using broadband connections as a proxy variable.

Based on their forecasts of essentially flat vehicle travel, and a vehicle fleet which is slowly getting more fuel efficient, Z come up with the following forecasts for retail fuel demand – showing it declining over the next decade. Note that they’ve shown this forecast going a bit further out than the travel ones above.Slide 17

So, an interesting release from Z Energy. As a private company in the mature (or slowly declining) industry of fuel distribution, it’s important for them to do this kind of forecasting. The industry is capital intensive, margins are slim, and the assets are often fairly long-lived – as are the liabilities, e.g. leases over petrol stations. Ultimately, the company will make investment decisions based on forecasts like the ones shown here. Forecasts which, it must be said, are a lot less bullish than the ones the NZTA are currently using for its Roads of National Significance…

Air travel and energy use

Last February, I attended The Energy Conference 2013: Energy At The Crossroads, which was held by NERI. Over the next month or two, I’m going to talk about some of the work presented at the conference – starting today with a presentation by Robert Vale from Vic University. You can find his Powerpoint slides here, along with the slides used by most of the other speakers.

The aircraft vs. the dove pigeon

Robert’s presentation, poetically titled “Oh for the wings of a dove”: the future of flight in a resource constrained world, looked at the history of passenger aviation over the last century or so, and the likely future. He started off with an interesting analogy: how does the efficiency of modern planes compare with the efficiency of that well-known flying rat, the domestic pigeon?

Pigeon vs plane

 

It turns out that pigeons have an energy efficiency of about 7.5 kJ/kg/km – that is, it takes 7.5 kilojoules to move one kilogram of bird over a distance of one kilometre. Robert assumes that the average weight of a passenger plus baggage is 90 kg. As such, using the pigeon’s energy efficiency, 0.7 MJ (megajoules) is needed to move a single passenger plus baggage for 1 km.

So, how does that compare with modern aircraft? Modern jets average around 1.5 MJ per “available seat kilometre” – ASKs being a common measure in the aviation industry, and fairly self-explanatory. This is more than twice the energy used by the pigeon! Note that planes aren’t usually full, so actual energy use per passenger would be slightly higher again.

The latest generation aircraft, like the Airbus A380 and Boeing 787 “Dreamliner”, represent another step forward in efficiency – by my rough calculations, about 1.2 MJ per available seat kilometre. But it’ll be some years before these kinds of aircraft are dominant globally.

 

Aircraft fuel efficiency over time

Robert makes the point that “airliners now are no more efficient, in terms of fuel used per passenger-km travelled, than airliners in the 1950s”. This essentially comes down to the shift from propeller-driven aircraft to jet aircraft – and the higher speeds that have gone along with this shift. The first jet airliners used horrendous amounts of fuel, but they were much faster than propeller aircraft.

Aircraft fuel efficiency over time

Of course, passengers have benefited massively from the switch from propellers to jets. The higher speeds have made air travel much more attractive, and made long-haul international flights much more viable. So no one’s saying that today’s planes aren’t better than those of the ’50s. But it’s interesting that it’s taken jets 50 years to to match propeller aircraft for fuel efficiency. (and, beginning with the A380 and Boeing 787, to beat propeller aircraft for fuel efficiency).

Robert also compares the energy efficiency of the ill-fated Hindenburg airship: at 3.44 MJ/ passenger kilometre, it’s much worse than the other aircraft discussed here – its figure includes hydrogen gas which had to be vented during flight. He sums up with the following slide:

Comparing various aircraft

Note: despite the figure given in the slide above, the ‘average’ fuel consumption for the Boeing 747-400 is 1.4 MJ/ passenger kilometre, as given later in Robert’s presentation

This slide raises another relevant issue, which is that much of the weight carried by aircraft (or road vehicles, for that matter) is essentially dead weight – including the aircraft itself. The ultimate goal of the flight is to move passengers and baggage, and nothing else really matters. This is why airlines keep a close eye on their seat kilometres, and passenger kilometres, and of course their loadings. Vehicles can be made more efficient by upping the percentage of ‘useful’ weight, and this is an important consideration for aircraft and car engineers alike.

World Energy Outlook 2013

Each year, the International Energy Agency puts out a lengthy report called the World Energy Outlook. New Zealand is a member of the IEA, and we pay membership fees to them in exchange for policy advice and so on (although we don’t seem to listen to it). The 2013 World Energy Outlook came out this week, and doesn’t seem to have gotten a whiff of coverage in the Herald, so I guess it’s up to me.

Incidentally, when the 2012 edition came out, the soundbite that made headlines around the world was that the US was going to “become the world’s largest oil producer by around 2020, temporarily overtaking Saudi Arabia, as new exploration technologies help find more resources” – see this Herald article for example. The media tended to gloss over the most important message of the report, which is that greenhouse gas emissions continue to increase, and we actually need to reduce them to have a reasonable chance of avoiding major global warming – but current trends are not taking us in the right direction. Thanks to Dr Sea Rotmann for making this point. As for the suggestion that the US will dramatically increase its oil production, I’ve heard murmurings that the US government was leaning on the IEA quite heavily to make this prediction, and reality may fall short somewhat. We’ll have to wait and see.

I do have to give “mad propz” to Brian Fallow at the Herald for writing some great analysis on the 2012 report earlier this year. He notes:

We already have… more [fossil fuels] than we can possibly ever burn if we are to have a fighting chance of keeping global warming to 2 degrees celsius above pre-industrial levels. And that is the goal the world’s Governments, including ours, signed up to in Cancun in 2010.

[The] 2012 World Energy Outlook, released six months ago, says: “No more than a third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal, unless carbon capture and storage technology is widely deployed.”

…Carbon capture and storage being a method of “storing” emissions from coal plants, which has not yet been shown to be commercially viable, and may not ever be.

Anyway, on to 2013. Maybe the IEA are setting themselves up for the kind of media coverage they got last year; their press release this week only devotes one paragraph to climate change, stating that “Energy-related carbon-dioxide emissions are projected to rise by 20% to 2035, leaving the world on track for a long-term average temperature increase of 3.6 °C, far above the internationally-agreed 2 °C climate target.”

The report itself, though, makes the point much more strongly:

  • Under the IEA’s “New Policies Scenario” – which is a bit more optimistic than ‘business as usual’, and assumes that governments do initiate carbon taxes, trading schemes etc where they have said they will do so – the level of greenhouse gases in the atmosphere will keep rising, “from 444 parts per million (ppm) in 2010 to over 700 ppm by 2100″.
  • Global agreements call for the long term concentration to stabilise at 450 ppm. Note, though, that the current 444 ppm is a bit overstated, and comes down to 403 ppm when cooling aerosols are excluded (IEA, p79). Clearly, the path we’re on does not achieve the goal signed up to by the world’s governments.
  • “This would correspond to an increase in the long-term global average temperature of 3.6°C, compared with pre-industrial levels (an increase of 2.8°C from today, adding to the 0.8°C that has already occurred)”.
  • “As the source of two-thirds of global greenhouse-gas emissions, the energy sector will be pivotal in determining whether or not climate change goals are achieved”. And that’s the kicker. Note that the energy sector includes oil, gas, coal, and other energy sources – so transport emissions are included here.

Here’s what happens to (energy) greenhouse gas emissions over the next 20 years, based on the “New Policies Scenario”:

The world can still meet its targets, with greenhouse gas concentrations stabilising at 450 parts per million in the future, but each year of delay makes that goal harder to reach, and more expensive. This is something the IEA says every year, and maybe it’s the “stuck record” factor that means these reports don’t get the coverage they should. But just because we’re haven’t been thinking about it as much since the GFC, doesn’t mean that the processes driving climate change have gone away.

I’ll just make one more point and leave the rest for another day (it’s an 800 page report, and a bit too much info for just one blog post). A lot of the changes that need to be made can be made for no economic cost; they pay for themselves. The IEA has listed four of the big changes, which “if implemented promptly, cut 80% of the
excess emissions in 2020 relative to the 2°C target”, and make it much easier to achieve the overall target. The four policies are:

1.        Adopting specific energy efficiency measures (49% of the emissions savings).
2.        Limitng the constructon and use of the least-efficient coal-fired power plants (21%).
3.       Minimising methane (CH4) emissions from upstream oil and gas production (18%).
4.       Accelerating the (partial) phase-out of subsidies to fossil-fuel consumption (12%).

Some of these aren’t that relevant to New Zealand – but number 1 certainly is. The IEA notes that the efficiency measures they advocate include “new or higher energy performance standards in many fields: in buildings, for lighting, new appliances and new heating and cooling equipment; in industry, for motor systems; and, in transport, for road vehicles”. In light of these recommendations, the shift towards greener building in New Zealand is a positive trend. We don’t have any regulations on road vehicles in terms of greenhouse gas emissions, but maybe it’s time we did. I’ll look at this more in the future.

Any of our readers who are students may like to go and have a look at the report for themselves – it’s not too hard to read, and there’s an executive summary so you don’t have to read the whole thing! If you’re at the University of Auckland, you can access it through the OECD iLibrary here.

Powering public transport in New Zealand

I recently authored a report for EECA titled “Powering public transport in New Zealand.” In this report we considered a range of emerging public transport technologies and whether they might be suited to small to medium sized cities in New Zealand.

The first question to answer is why do we need this study? Surely there’s loads of comprehensive international studies out there that we can use? Well, yes and no. International studies are useful and we did use them in our report. The second question is why is renewability relevant? Well, it’s relevant because 1) NZ has a ongoing incentive to reduce carbon emissions and 2) a renewable and efficient PT system provides us with a hedge against higher energy prices.

The local NZ context is also relevant for several reasons. Most  importantly the local context defines the broad characteristics of our urban form (low density), as well as the scale and structure of our PT systems (small). The local context also informs the price and availability of fuels (limited). And then the reconstruction of Christchurch presents a unique opportunity for us to embed PT into the urban fabric of a city from the outset. Lastly, our cost structures – especially labour – are different from elsewhere, so you can’t just say “country y is building technology x” so we should do that too.

So in our study we took the approach of using international research to identify some potential “winners”, which were then evaluated in more detail for their suitability in NZ. In this post I won’t go into too much detail; I’d encourage you to simply download the report and read it for yourselves (only 40 pages with lots of pictures and graphs. But for those of you (like Patrick) who have short attention spans I thought I’d summarise our key findings:

  • Alternative fuel pathways - we consider that there are three potentially viable pathways for New Zealand cities:
    1. Diesel substitution pathway, which would make use of increasingly efficient diesel vehicles (such as hybrids) and non-mineral diesel fuels, namely biodiesel and synthetic diesel. This pathway is attractive because it offers immediate, albeit incremental, improvements in PT renewability. Public transport is an ideal testing ground for such fuels, because it provides a concentrated point of demand/distribution. On the downside, to be feasible the price differential between mineal and non-mineal diesel would need to decline over time.
    2. Biogas pathway – which may be suitable where large quantities of biogas can be generated from landfills. Best suited to cities where reticulated CNG is available as a back-up, and that support large PT systems. Scale is important because the switch from diesel to CNG buses will incur fixed capital costs, e.g. in maintenance facilities, which would ideally be spread over as many vehicles as possible.
    3. All-electric pathway – While the low energy density of batteries does create some range and speed limitations for electric buses, our literature review noted just how quickly these issues were being circumvented with innovative in-service recharging facilities, such as over-head and inductive charging points. These re-charging facilities meant that battery electric buses can now get through the day without needing to be taken out of service for re-charging. One of the interesting advantages of battery electric buses is that they tend to charge overnight when electricity prices are low, whereas trolley buses and light rail draw down during the day when prices are high.
  • Alternative vehicle pathways – in a future of sustained high oil prices, such as those forecast recently by the IMF, alternative vehicles, such as hybrid and battery electric buses, because cost-effective alternatives to diesel buses. Fixed route electric vehicles, such as trolley buses and light rail, struggled to be cost-effective due to their high capital costs. Going forward, we would expect newer technologies, such as hybrids and electric buses, to develop more rapidly and only extend their comparative advantage over fixed route options.
Three of the more advanced vehicles are illustrated below, namely 1) the ADL Enviro 400-H double decker; 2) the Arctic Whisper with fast overhead re-charging; and 3) the BYD all-electric bus, of which 1,000 are currently operating in Shenzhen.

ADL Enviro 400H – Hybrid diesel electric

Hybricon’s Arctic Whisper – Electric battery bus with rapid over-head re-charging and back-up diesel engine

BYD’s all electric battery bus, with fast re-charging

 

If you wanted my personal opinion on what pathway(s) were most likely, I suspect the best way forward is to focus on purchasing more efficient diesel buses, before subsequently embracing all-electric battery buses when they become viable. Of course the circumstances of individual regions and operators will vary considerably, which is why we hesitate to make an universal, all-encompassing conclusion about what is best fuel/technology mix.

Based on our results we made the following recommendations:

  1. Central government should closely monitor alternative public transport technologies, because these technologies are evolving rapidly.
  2. Undertake a systematic analysis of the barriers to uptake of emerging technologies, such as weight and mass restrictions.
  3. Engage with bus operators to gain feedback on which technologies they see as having the most potential.
  4. Investigate whether trials can be used to gain on the ground experience of new technologies.
  5. Perhaps most importantly: Central government should establish a public transport vehicle procurement forum to help realise economies of scale in bus procurement.

Recommendation #5 is potentially the most interesting. What we’re encouraging central government to do here is to take a leadership role in the procurement of public transport vehicles. This has two positive consequences. First, it creates opportunities to gain economies of scale in vehicle ordering, which in turn drives the price down. Second, economies of scale are especially important when you’re trying to buy new technologies. As such, by facilitating a public transport procurement forum central government can help us to gain access to cheaper, better buses.

As the report notes, participating in the vehicle procurement forum would be completely optional and moreover self-funding through charging a small commission on successful orders. And ultimately by helping to lower the costs of vehicle procurement (which are a not insubstantial cost of the PT system) we should see reduced demand for PT subsidies and higher quality, more renewable vehicles.

It’s also a useful example of how our Government could take a leave out of the Scandinavian economics text book, by working  more closely with the private sector to coordinate strategically interdependent “win-win” outcomes.

 

  *** I’d like to acknowledge the contribution of Jörn and Liz at EECA for supporting this study, as well as Ian Wallis for helping to make it happen ***