Russel Norman then posted on facebook a letter he received from a constituent extolling the virtues of solar heating. (HT James Meanwell.) The essence of this letter is that the correspondent installed solar heating, paid for in part by a government subsidy, and this in combination with a wetback heater and other energy saving devices is contributing to very low power bills in his/her 400 square metre house. The correspondent then says:
My reason for writing is to tell you that Jan Wright has got it wrong when she says that solar water heating has little impact on domestic power savings. I have no financial or any other interest in the solar industry for that matter but I’m at a loss to know where she is coming from with her comments deriding solar water heating. Based on my own experience within our own house set-up, I believe her comments are without foundation and harmful to what should be our goal of greater energy efficiency.Now, in a normal market, an anecdote of this kind conveys useful information: if some capital equipment saves you more money than it costs to install, there is clear evidence of some economic benefit. But we can’t conclude anything from this anecdote. First, by his or her own admission, solar is not the only electricity saving measure—the wetback in particular is probably much more effective in the winter months. Second, there is no question about solar heating reducing the cost of producing electricity; the interesting question is whether the savings outweigh the capital cost of the solar panels and installation. If that is paid for in part by the government, we know nothing about the overall value. But the main problem is that the letter doesn’t engage with the commissioner’s issue about managing peak load at all. And this points to the final reason that the individual savings are not a good measure of the social benefit.
Specifically, the wholesale electricity market in New Zealand is an energy-only market. That is, generators get paid only for the electricity they sell. The cost of constructing peaking plant therefore has to be covered by the price that electricity is sold for on those rare occasions when peaking plant is used. That is why the wholesale price has to rise in the winter, particularly in dry years. Retail customers, on the other hand, are typically only on fixed-price contracts in which the retailer company charges a prices that will on average cover the costs of purchasing power at the wholesale market. That is, customers face a price in excess of marginal cost during off-peak times and a price below marginal cost in peak periods. Any time customers finds a means of reducing consumption during off peak times, they are simply creating a need to increase the overall average price. That is, the savings to them are mostly just a transfer from other consumers, not a net gain in economic efficiency.
Green politics can be about a genuine attempt to address environmental externalities, but there is always a risk that they can end up as middle-class capture. It is surprising, therefore, to see Russel Norman publishing this letter from the owner of a 400 square house, which appears to be a poster child for the latter interpretation!
