Renewable Energy Connectivity

A post from PaulL, regular reader and sometime poster.

I regularly read about productive farmland being used for solar farms. I see people questioning why productive farmland would go into solar.

I’m generally a free market kind of guy. I think land should go into it’s most productive use, and we can tell it’s most productive use by how much people are prepared to pay for it. If a solar energy company can afford to pay more for land than a dairy farmer, then by definition the land is more useful in solar panels than it is in dairy farming.

And yet, the market here isn’t actually efficient. So I would suggest that the government could assist to do things better. And I know some of what I’ll suggest smacks a bit of central govt planning, but I’m not totally averse to that where there are legitimate co-ordination problems (or, in fact, where co-ordination may be illegal).

Also, I hear all the stories about stock grazing between the panels, but I don’t really believe them. Firstly, I’d expect stock to damage the panels or equipment over time, so eventually it’ll be easier to not have stock in that paddock. Secondly, the whole point is that the panels are collecting sunlight. And grass doesn’t grow where something else took the sunlight. There can’t be anywhere near as much grass in that paddock as there was before it had solar panels in it.

My first observation is that solar can often afford to buy farmland because of subsidies. The land isn’t more valuable in solar, it’s that govt is subsidising solar which means solar is able to pay more than farmers. That’s not so much the case in NZ, but certainly the case internationally. That’s not the market speaking, that’s subsidies speaking.

My second observation is that there is quite a bit of land that is really suitable for having solar panels on it – in fact, it may even increase it’s value. Open air car parks with solar panels on them mean that cars are under cover, customers can walk out of the rain, and the land is effectively free from a solar perspective. It doesn’t in any way reduce the ability to park cars on that land. There are plenty of options like this – even going as far as saying we could put solar panels over roads. That land already can’t be farmed. Many of these car parks, roads and other locations that might be suitable are actually owned by govt, and govt would need to allow solar on it. Govt doesn’t have to plan it, fund it, or do it. But they certainly could say “here’s all the land govt owns that we think someone could put solar on if they want. We’re accepting tenders from anyone who wants a 30 year airspace lease to put solar on any of this land, and we’ll accept the highest price bid for any block that people show interest in.”

My most important observation is that there’s quite a bit of poor farmland in NZ. Some of it also has little to no scenic value. But the land that’s most valuable for solar is the land that’s closest to a grid connect point. The grid is operated by the govt, the grid connect points are also set by the government. Funnily enough grid connect points are usually in places there are lots of people, and there’s a strong correlation between good farmland and lots of people. In a sense the govt has their thumb on the scales – things they’ve done mean that solar is most economic in the locations with the most people and the best land.

Obviously a solar farm could pay for a new grid connection in some remote location. But now we have a co-ordination problem. NZ solar farms are reasonably small, and it’s hard to get Transpower to offer grid connections. No solar farm on their own is likely to be able to afford a grid connection in a remote location, let alone the lobbying and arguing to get Transpower to do it.

What’s my solution? Central govt planning unfortunately. Govt needs to assess which areas in NZ have good sunshine hours, land with relatively low scenic value and also relatively low farmland value. Then they need to declare that they’ll put a grid connection in that location once they have expressions of interest from 100MW of installed capacity, or whatever number is appropriate. And that the charge to connect to that particular connection point will be $x per MW, reducing based on cost recovery if more than 100MW connects. Then sit back and wait for the market to work it out, knowing that this will all be self funding.

One interesting implication of this is that there’ll be windfall gains in the land value of particular locations. We need to decide whether we see that as a problem, and to be careful that we don’t leave room for insider trading – people speculatively buying that land then influencing the decision on locations. Or, we could just say doesn’t matter, still better than what we’re doing today.

This is an easy green policy for the current government. It’ll make a lot of their base voters happier (many right wing voters really don’t like seeing good farmland going into solar), and it’s also a policy that would allow quite a bit more renewable energy more cost effectively. I’ll ignore for now the risks of having too much solar in your grid (I see you Spain), and just note that with the amount of hydro NZ has we’re not at that point yet (and nowhere near it). I’ll also note that solar goes quite well with hydro, if we idled our hydro for part of each day that’d be OK – it reduces the water used, and lets us use it at another time.