The Economics of an Investment in Solar Power - part 2

by Energy Action | Oct 12, 2016
Projections for the solar generation capacity in Australia continue to soar. Large scale grid-side solar farms will continue to offer big jumps in installed capacity that help lower the overall cost of solar hardware relative to other energy generation sources.

As part 1 of this series stated, while solar packaging may make the realities of energy efficiency seem more within reach, you must consider the payback, sizing, and coverage of the solutions before you sign on the dotted line.

We covered off payback in part 1 of our ‘the economics of an investment in solar power’ series. This article will look at the solar installation sizing and what that means for your decision in investing in a Power Purchase Agreement (PPA).

 Sizing

 The right sizing of a solar installation for a site connected to the grid does not mean it is maximising the size of the solar array to cover all available roof and ground space you have at your disposal.

 Given that the financial return on using batteries as an alternative to grid supply remains longer than battery warranties, the best kilowatt hour (KWh) to produce on your sites’ solar array is one that you can use on site to avoid the cost of electricity delivered from the grid.

 Why? This KWh avoids retail energy costs, environmental costs, and grid consumption costs. Any KWh you produce which you cannot use on site is either sent to the grid for no economic benefit to yourself, or sold to the grid for a price related to your electricity retailer's costs to supply you. This is usually at either the average wholesale market price or at your contract rate, minus an administration cost per KWh.

 The ideal sizing of a solar array should be maximised to the point of 100 per cent utilisation on site only. Any significant reduction in site utilisation of the power produced by the solar array will extend your payback and diminish your return on investment. 

 What does sizing mean for your decision to invest in a Power Purchase Agreement (PPA)? 

 The key consideration to be aware of is whether the PPA is for power output from the array or for output consumed onsite. It can’t be both, and either way, you’ll need to double check the numbers.

 A risk to look out for is a quote on a PPA for an array output that understates the projected cost of the PPA over time. If the array outperforms the output presented, you still pay. This is OK if you can use the power on site, but it is at your cost if the power is simply bled to the grid.

 Our advice

Check what is presented, check typical expected outputs from the array, and then check internally as to energy consumption expectations over the term of the PPA: check, check and check again!  

 Click here for more information on Solar PPAs and how your businesses could be benefitting from one.

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