This thought has crossed the minds of many of us over recent months, especially given the frenzied debate around energy policy, security, supply, pricing, and climate change. What is clear, the landscape for generating energy using renewable technologies is so different now compared to even a few years ago. No longer does renewable energy generation have an environmental and social advantage over fossil-fuel based technologies it now also has a clear economic advantage, particularly when it comes to large-scale projects. With the backdrop of the recent closure of Hazelwood, and continued uncertainties over supply and prices more and more dairy farmers are asking “should I go solar?”. The quick answer for many is yes – I include all those who will do it because they rank non-economic reasons more highly – and no, for others. Perhaps a supplementary question should be “Can solar work for me?”
The way electricity is consumed on most conventional dairies – early morning, late afternoon, and overnight – means it is a challenge to maximise the direct benefits of solar. In southern Australia, the bulk of the electricity generated by photovoltaic panels (PV) occurs in-between milkings (during the middle of the day). How this bulk electricity is used can have huge implications on the economics of PV. Today, we have three broad options: (i) sell all unused generated electricity into the grid; (ii) store unused generated electricity and use it later; and (iii) change the timing of electricity-using tasks so they make use of the electricity as it is generated. The reality of course, is to deploy a combination of these options. In this post, I’d like to focus on option (i).
The economics of going solar also depends on the context. Will it be part of a new dairy where more possibilities are available, or is for an existing dairy where the equipment remains the same and it’s just the panels on the roof that changes. For ease of illustration let’s consider the latter. Let’s also assume the dairy has the following characteristics:
• Twice-a-day milking. 6:00 – 9:30 am and 3:30 – 6:00 pm (includes milk cooling time)
• 450 milkers. Calving all year round
• 40-50 units
• Conventional cooling (glycol chiller, with final direct expansion cooling in vat)
• Conventional cleaning (warm pre-rinse, hot wash, hot final rinse) – ~1,600 l hot water/day
• Average daily electricity consumption 450 kWh (large user)
• Electricity charges are 22.6cents/kWh and 10.1 cents/kWh (ex GST and after discounts have been applied) for peak and off-peak respectively. Annual spend on electricity is $22,206.71 (ex GST).
Option (i): Sell excess generated electricity into the grid
How big should the PV system be? That depends on several things such as; the load profile, how much of your consumption you aim to off-set, the available roof space (or ground space), and how much you’re willing to invest. For this case let’s choose a 50 kW quality brand PV system. The going price for this roof mounted system on a tilt frame is $59,545 (ex. GST) nett of RECs. And, from July 1, 2017 the feed-in tariff rate increased to 11.3 cents/kWh.
Whilst the calculations for the economic analysis might be straightforward, the real challenge is what numbers are used in the assumptions. For most dairies, there isn’t enough information at the ready so more assumptions are required. And unfortunately, many people selling solar systems don’t have a good appreciation of what goes on at a dairy, so poor assumptions are made, if they’re made at all. I raise this issue because I have seen too many instances where the intended outcomes are never realised because of poor or incorrect assumptions.
For this dairy, the maximum proportion of PV generated electricity that can be consumed directly is 48%. This is because the bulk of the electricity generated is typically between 11:00 am and 3:00 pm, when very little or no equipment is operating. To increase the proportion of direct consumption would require shifting tasks to this timeslot – option (iii), to be discussed in another post.
The PV system
Even with 48% of the generated electricity being directly consumed – and 52% being exported – the annual savings are substantial, $10,613 in year 1. The simple payback period for this investment is 5.8 years. If some estimates about future tariff price increases are made then payback would be shorter. And, if the current tariff rates were higher (some dairy farmers are paying much more) then the payback would be shorter.
The “take-home” lesson here is that the more you can consume directly the better the financials stack up. If the PV system was bigger, say 80 kW, you might be able to capture a little more for direct use during the winter months but you will be simply exporting more to the grid. It is still financially attractive but requires more investment (~$95,300) and payback time is extended by about six months.
The financial indicators above assume that the money to fund this investment is lying around under the pillow (we all wish it was). Fortunately, over the last three years or so the financing market has become far more amenable to funding energy related equipment. The number of institutions that offer products targeting this space seems to grow every month. One such institution is the Sustainable Melbourne Fund (http://sustainablemelbournefund.com.au/). In recent times, it has broadened its focus to regional areas and are very interested in getting involved in the agricultural sector. They were really impressed by the environmental credentials of the Green Cleaning System I designed a few years back (http://www.agvetprojects.com.au/greencleaning/) .
Financing an investment such as this can be very attractive as the savings in the electricity bills can be used to service the repayments. By negotiating a low (interest) rate and reasonable term length (5-7 years) these types of projects can become cashflow positive from the very first bill. For example, if we were to finance the above 45 kW PV system over a 7-year term the fixed monthly repayments would be $846 equating to $10,152 per year. If we manage to achieve 40% or more direct consumption of the PV generated electricity then this project would be “cashflow neutral” or even slightly positive from the outset. After 7 years the saving can be banked.
So, “Should I go solar?”. I think it is worth thoughtful consideration. The option presented here is the least financially attractive of the three options, but still has merit. Ensure that any assumptions made are directly relevant to your situation. Do your homework and don’t hesitate to seek advice.
Until next time, cheers.
This article was first published on The Milk Maid Marian blog in July 2017