Rising electricity prices and falling costs for renewable energy technologies have led many businesses to look at ways they can reduce their energy costs by installing solar panels ‘onsite’, or sourcing renewable energy ‘offsite’ by building offsite solar farms or buying renewable energy. So what approach offers the best value for money?
Onsite or ‘behind-the-meter’ solar installations
For many businesses installing solar panels is an excellent fit, as operating hours and sunshine hours are often the same. That means that the energy generated by solar panels can be used instantly instead of buying electricity from the grid.
In our last blog post, we explained how the electricity supply chain is made up of energy generation, transmission & distribution, electricity market and environmental costs. When you generate solar energy on your own site, this offsets all of these costs. In essence, you are replacing the whole electricity supply chain with every kWh of energy your solar installation generates, so the value of each kWh saved is high. For a small business the value of each kWh of solar energy generated may be 25¢/kWh, and for large businesses, it is typically 12-15¢/kWh. This is illustrated on the left-hand side of Figure 1 below.
When batteries become cheaper, businesses with
- more roof space
- intermittent energy demand
- operations outside of sunshine hours
will be able to install more solar panels with batteries and achieve this same value for their savings.
Offsite renewable energy
Some businesses are considering building their own renewable energy generation system – typically a solar farm – or want to buy renewable energy from their retailer at the same or lower cost than current rates. In either case, the renewable energy generator that you source electricity from is ‘offsite’, and the electricity generated is delivered to the grid first. From the grid, the renewable power is distributed to your business premises in the same way regular power is delivered.
Because the energy still goes through the grid, you will still pay all the distribution and electricity market costs, as well as some or all of the environmental charges. Savings will be achieved where:
- The cost of buying the renewable energy generated is less than the cost of buying ‘regular’ power from fossil-fuel generators, and where
- The cost of Large-Scale Generation Certificates (LGCs) from the offsite plant is less than these costs when passed through on your electricity bill by your retailer.
This is illustrated on the right-hand side of Figure 1 above.
So which approach offers better value?
Onsite and offsite renewable energy strategies are complementary, and can both be pursued by business.
Offsite renewable energy generation can deliver small cost savings compared with buying ‘standard’ electricity from your electricity retailer. However, you may be able to source most or all of your electricity from renewables.
Onsite solar, and in future batteries, will deliver a much better return on investment because savings are across the whole electricity supply chain, but for most businesses the percentage of electricity that can be generated in this way is small, usually from 5-30% of total consumption.
By 2050, we believe renewables will power the grid, and that all businesses will run on 100% clean energy. However, reducing costs will be an ongoing focus for businesses. Maximising the use of onsite roof and land space for solar arrays and battery storage will improve your bottom line and provide clean energy at the lowest cost.
Each solar project is different, and each project needs to be evaluated on its own merit. If you are interested in getting a business case developed for your planned solar installation, please contact Barbara or Patrick.
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