Friday 27 July 2012

The benefits of solar water heating

The parliamentary commissioner for the environment, Jan Wright, had a perfectly sensible article in yesterday’s Herald on the value of solar water heating. In a nutshell, her point is that a large chunk of the economic cost of producing electricity including the environmental cost comes from the need to build and use peaking plant to satisfy peak demand, typically in the winter months. Solar water heating is at its most effective in the summer, and so does little to reduce the demand for peaking plant. Notice that this is not saying that there is no value to solar water heating in the summer (not all of the cost of electricity is the cost of building peaking plant), nor that solar water heating couldn’t help reduce demand during peak periods to some extent. The commissioner was merely pointing out that the benefits of solar heating will not be as high as one might think from a naïve calculation of how much overall reduction in electricity usage you can get from solar.

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!


  1. Thinking about it logically it seems obvious that solar would be less effective during the winter months. I'm surprised anyone would assume otherwise. Now, I'm sympathetic to a lot of Green Party stances, but like most members of our political landscape they do on occasion allow ideology to get in the way of rational thought. I wonder if this might not be a case in point.

  2. While solar hot water heating is more effective in summer and electricity demand is higher in winter, these two generalizations don't tell the whole story.

    Firstly, modern solar hot water heating panels (using vacuum insulated tubes) are ridiculously effective at what they do. My parents seldom ever have to electrically heat their water, even in winter they get hot water from the solar system. In summer the system can easily heat the water past 80°C. Granted they live in Central Otago, which gets year-round sun, but their panel isn't even at the optimum angle due to planning restrictions and the height of their roof.

    Secondly, most of NZs power is generated by hydroelectricity, which can store water in the lakes if demand is sufficiently low. Unfortunately demand over the summer continues to increase with the widespread use of air conditioning. So any reductions in power demand in summer contribute to having more water to generate with in winter, reducing prices. Looked at another way, high power prices in winter are simply a result of there being less water to generate with.

    For those non-Kiwis reading this: 60% of New Zealands electricity comes from hydroelectricity (20% gas, 10% geothermal and 10% a mix of other methods). The South Island (colder, higher electricity demand) is almost 100% powered by hydro. Typically lake inflows are low over winter as there is less precipitation in the mountains and most of that falls as snow. Gas, coal and geothermal plants can't ramp up and down so are only appropriate to meet base-load demand. Wind is so fickle that it can only ease demand on hydro plants. Hydro is the only generation technology that can scale so meets all peak demand as well as most base-load. Hydroelectric power stations have extremely low running costs so the marginal cost of production is near-zero. The average cost of production is just the huge upfront cost of building a hydroelectric scheme spread across as many units of electricity as they can produce.

    Getting back to my original point: Reducing electricity use is a good idea, even if it doesn't reduce peak demand. Doing so to be environmentally friendly is a silly reason though, as our electricity comes from a renewable, non-emitting source.

  3. Yes a good point re the storage nature of hydro, but whats this about air conditioning? Isn't kiwi air-con opening a window?

  4. They subsidized everyone putting in heat pumps to reduce air pollution. A heat pump is an air conditioner that runs in reverse. But it does have a forward gear. After the govt fronted some of the fixed costs of installation, wasn't particularly surprising that summer a/c use went up. It won't go up much as it's temperate here.

  5. I mostly agree with you, Jack, but a few points are relevant. First, peak-load is more a seasonal issue in New Zealand than in, say, North America, and so thermal generation can be used to generate peak demand rather than base-load in the sense of meeting winter demand. In that way, environmentally unfriendly thermal generation is marginal. Second, yes hydro resevoirs enable us to store potential energy in the summer, but New Zealand's hydro is characterised by relatively small stock storage relative to flow, and so most of the time electricity saving in summer can't help meet winter demand. (There are exceptions, such as this year, where low autumn rain led to low reservoir stocks heading into winter, and this was reflected in the wholesale price.) Solar water heating is economically valuable to the extent that it reduces demand when wholesale prices are high. It can do that to some extent in the winter, and will be highly valueable in dry autums like this year. It may well be a good technology for the country. My point is simply that you can't use the savings to an individual household as evidence for that if a) the capital cost is subsidised by the government, and b) the household is insulated from fluctuations in the wholesale price. One final point. I doubt if your parents having their solar heating at the wrong angle makes much difference. As a professor of thermodynamics and holder of a solar water heating patent once told me, the optimal angle changes throughout the year, leading to what he termed "very flat optimisation". Is your parents angle steeper or flatter than the optimum? If it is flatter, then they will be getting better performance in the wnter as a result of the restriction, albeit a cost of reduced performance in the summer.

  6. I appreciated your effort to build this post. Solar water heater can brings us to the primary negative: the money you put in. While sunlight is free, the system required to convert it into hot water for your home can cost a pretty penny if you go the professional route.