Commercial-scale solar in New Zealand

An analysis of the financial performance of on-site generation

Publication date: July 2021

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What is commercial-scale solar?

We define commercial-scale solar as systems sized for medium to large businesses. These would typically be located on the roof of a business, and would cover from 100 m2 to 10,000 m2. Electricity generated would mostly be used on-site to reduce electricity costs, with a small percentage exported to the grid.

Should your business invest in solar?

We commissioned analysis to give the business sector information about whether investing in on-site generation will be cost-effective. We found that internal rates of return 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 realises economies of scale). 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.

A key recommendation for businesses considering investing in solar is to carry out this type of analysis to accurately forecast financial returns.

On the basis of these findings there can be good investment benefits in commercial-scale solar, but they are clearly variable, so EECA recommends businesses carry out an in-depth analysis to determine potential financial performance for their company.

Marcos Pelenur - GM Strategy, Insights and Regulations - EECA

For solar to be commercially viable a business should ask:

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Businesses and locations included in this study

Fifteen different types of businesses in eight regions throughout the country were analysed, using a model to predict solar generation and financial performance.

These companies included a range of food and beverage businesses from primary production, through processing and distribution to retail, as well as infrastructure, manufacturing, general retail, offices, and education. The distribution of these is shown in the table below.

Locations are Auckland (AK), Hamilton (HN), Tauranga (TR), Napier (NR), Wellington (WN), Nelson (NN), Christchurch (CC), and Dunedin (DN).

(Image courtesy of Lincoln University)

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Business type

 
Food and beverage production site Auckland

Amount of generated solar that would be used

100%
Internal Return on Investment 7.2%
   
Wholesale food market Christchurch  Christchurch

Amount of generated solar that would be used

 96%
Internal Return on Investment  6.8%
   
Corporate office Auckland Auckland

Amount of generated solar that would be used

99%
Internal Return on Investment 7.6%

 

Solar capital costs

The costs of solar are constantly dropping, meaning that businesses should compare quotes available to them with what we have used in the report. Our analysis was based on published data, and we also tested the effect of higher and lower capital costs on the IRR. For example, if capital costs reduce by 20%, then the IRR will increase by 35%.

The importance of network cost savings for a business investing in solar is also a key finding for electricity distributors. It means that, in the cases identified, existing network pricing structures may send a signal for businesses to invest in distributed solar generation, and so distributors should consider whether this leads to a commensurate reduction in the cost of providing a network service.

More detailed information about the costs and benefits of installing solar is available in the full report.

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