Missing the DG opportunity

New Zealand businesses are missing out on the chance to invest in their own electricity production and develop internationally competitive companies because of misguided renewable energy policy, writes Mike Bassett-Smith from Powersmart Solar (pictured).

The Sustainable Electricity Association of New Zealand’s annual conference late last year made one thing very clear – past government policies toward renewable electricity generation has been incomplete and poorly considered. It has so far failed to curb the key problems facing our energy future, and left New Zealand businesses on the sidelines of one the world’s fastest growing industries – solar energy. 

Despite New Zealand’s relatively high quality and clean energy portfolio, there is currently no clear vision for the future of renewable electricity generation when it comes to distributed generation (DG) micro sources like solar power systems, which are given a superficial treatment in spite of a perfect fit in our generation portfolio, impeccable environmental credentials, and tremendous opportunities for product and service export.  It is clearly time for action.

Many overseas markets for DG systems are exploding with the help of government and market-based incentives like feed-in tariffs (FITs), capital rebates, carbon trading, and tax incentives. New Zealand companies and consumers receive zero support.

The market opportunity we are missing is huge. In 2007, the world market for just solar photovoltaics was approximately US$20.3 billion. By 2017 it is forecast to more than triple, and then multiply a further 155 times by 2050. Few other markets today compare with the scale of the opportunity these technologies present. 

Consider our closest neighbour – home to firms that are all but dominating the Australasian market for DG systems. Total Australian installed capacity of solar power systems is approximately 85 megawatts, almost A$1 billion, and growing quickly. In the 2007/08 year, the Australian Federal Government directly funded the bulk of 26MW of industry work (around A$260 million) and has recently announced another A$200 million in funding for solar power systems for schools.

Our political leaders counter by insisting that we can easily achieve the ‘90 percent renewable by 2025’ goal more cheaply with plans to build large power plants. This reasoning is flawed and entirely beside the point.

Power plants are popular because they are profitable for small investor groups with New Zealand’s high and extremely volatile wholesale rates, which only exacerbates electricity costs, while DG systems (with the proper legislation) offer end customers an investment in savings. DG systems offset retail electricity expenses for their owners on site.

Large power plants also contribute directly to current problems with transmitting power long distances from source to consumer, and constant grid upgrades. DG systems reduce this effect and have been proven worldwide to enhance grid reliability and reduce wholesale electricity market volatility. 

Meanwhile, the worldwide industry for small energy systems is growing exponentially. By not supporting the New Zealand industry for DG systems, the Government is severely curtailing the industry’s ability to compete both locally and internationally, generate export earnings, develop technology, and create highly skilled jobs. 

The German experience remains the best example of how this support can be implemented. So far Germany has more than tripled its €3 billion investment and built an internationally dominant industry with the best years still ahead. Their experience is also entirely relevant to us because of the specific barriers currently halting local industry development. 

The legislation of a German-style gross feed-in tariff for DG systems in New Zealand is the first and largest step needed to drag the industry into the worldwide playing field. The country’s return on investment should be similar to Germany’s considering our regional market opportunities, tremendous sun and wind resources, local skill base, and geographic isolation.

There is no doubt that we have a wonderful natural market for DG systems, particularly solar power systems. However, we cannot simply continue to wait for these stars to align by themselves. In all other markets, it has taken the removal of barriers by governments to get the industry going.