First, what is a solar farm? In its 2014 draft policy document, Mepa defined it as: “A sizeable commercial installation with a footprint larger than 1,000m2, not usually related to residential development, for the purpose of renewable energy generation by means of photovoltaic technology.”
When such a solar farm is community-based, it means that the capital needed to install and maintain this large array of panels is pooled voluntarily from the public. In turn, households or companies that do not have roof space available to install their own photovoltaics and benefit from government grants can gain from the scheme.
By paying a sum upfront to cover installation and maintenance costs through the years, these investors become entitled to credits on their own residential or commercial premises’ electricity bills. Generally, the benefits are given for a specific period of time, anywhere from five to 30 years, after which the panels need to be replaced (or re-priced) and a fresh round of funding can restart the scheme.
Disadvantages of solar projects
When compared to other power generation options, solar energy is considered inconsistent due to the variability of the weather and the fact that generation is limited to daylight hours only.
It also requires a large surface area to compete with the power output of other types of energy plants. The size of the footprint is of significant concern on such a small island.
These kinds of shortfall can be significantly alleviated through technological advances, especially by way of sun concentration on panels and enhanced battery storage.
A solar farm under construction in the UK.One specific disadvantage of a solar farm is related to the efficiency of transmission. The power generated by residential PV panels can be used immediately within the household. This avoids losses through transmission lines, which are estimated at between four and five per cent (Azzopardi, 2016).
Another disadvantage is to do with the risk of shocks to the electricity supply from a single site which may suffer from cloudiness and other elements.
As with many other significant industrial projects, there would be opposition to a solar farm from different stakeholders. The Not-In-My-Back-Yard (NIMBY) syndrome can stem from the aesthetics: some people feel that solar energy fields are unattractive and can detract from the natural environment.
Having the State, rather than a commercial company, taking care of your environmental and economic priorities… can bring much needed peace of mind to many
However, the major risk factor that could jeopardise the whole feasibility of the project is the type of institution that will operate the scheme. The operator, whether private, public or a consortium, needs to provide maintenance, insurance and security. A private enterprise will require annual fees from the beneficiaries to make the venture viable.
The scheme announced last week in Malta will be administered by the government, with no annual fees and a guaranteed return on capital.
The advantages
The government would not be required to allocate funding for the most expensive part of the project: panel installation. Such costs would be voluntarily sponsored by members of the public. Government still needs to devote time to administer the project, such as site selection and tender specification and review.
Another advantage for government is the utilisation of resources lying idle, such as bare land or rooftops, to harness free solar power. The same advantage can be applicable to the private sector where, for example, disused quarries can be turned into commercial solar farms.
The concept of economies of scale and scope dominate the benefits of this type of business model. This can be done by:
■ Optimising the site selection of the project so that panels can receive maximum sun exposure without any adjacent buildings imposing shade. This is very real problem in Malta’s dense residential areas.
■ Buying solar panels in bulk (through a tender process) so as to drive down the cost per unit.
■ Investigating the kind of professional installation that is required for the panels to be set up in the most efficient configuration possible.
■ Minimising the cost of the professional maintenance required throughout the lifetime of the project by choosing the most cost-efficient operator.
■ Outsourcing to the most effective bidder the specialist cleaning required to keep solar panels converting solar radiation at their optimal advertised rate.
■ Storing excess electricity generated during peak times in a battery system (as it becomes feasible in the future), making a centralised farm more efficient.
Consumers are sometimes overwhelmed with the bewildering array of options and suppliers available, as is the case when shopping for PVs. Marketing technical specifications such as KW, feed-in-tariffs and return on investments may alienate some potential customers.
Having the State, rather than a commercial company, taking care of your environmental and economic priorities and providing a tender approach involving expert engineers can bring much needed peace of mind to many.
This scheme looks on paper to be a win-win proposal for all parties involved
This project also makes good for the unequal benefit distribution of current government grants on PVs. Current subsidies are relatively regressive as they assist relatively richer households who own their own roof. Lower income families living in apartments have no viable option to source their energy in a cleaner manner while also benefiting from the government subsidy. This can be considered as promoting social equity.
Another advantage for government and society in general is, of course, the reduced dependency on non-renewable energy and the associated polluting effects. Consequently, Malta will also be in a better position to reach its EU-set 10 per cent share of renewable energy in final energy consumption by 2020.
Malta is not reinventing the wheel. This type of energy project has been implemented in many countries using different business models. The first one was established in 1982 in California, USA, with a capacity of 1MW. Nowadays such schemes are available all over the world with capacities over 800MW in Germany, China and the US, which are the market leaders.
However, nearly all of the solar parks operating around the world today are run by private utility companies. This may indicate that government wants to pioneer the solar energy market but ultimately wants to encourage the private sector to enter this market and use this scheme to set a benchmark for pricing and showcase the potential available.
Due to its very nature, it is very difficult to rely on solar power as a sole energy source. However, solar technology has reached a point where it has become a very attractive complementary energy source both on a small residential basis and on large-scale community projects. Going forward, the predictable steady progress in related technologies can only make such solar power generation more effective.
A solar farm administered by government can be easily funded by environmentally conscious and financially diligent citizens on a voluntary basis. In turn, such investors can enjoy lower electricity bills even if they do not have access to rooftops. High levels of efficiency are guaranteed given the great potential for economies of scale of such community solar farms.
This specific scheme, as analysed here, looks on paper to be a win-win proposal for all parties involved – government, society and especially its investors.
Scheme details
Location: Tal-Fiddien Water Reservoir Roof, Rabat
Site size: ≈16,000m2 (4,000 PV panels)
Output: 1MWp (max national demand: 426MW, NSO)
Pricing: €1,500/kWp
Options: 1/2/3 kWp
Units Credited: 1550 units / kWp purchased
Maintenance fees: 0
Term: 20 years
Feed-in tariff: 15c/unit first six years, 10.5c/unit remaining
Transferability: Yes, when changing address and in case of death (to heir).
Application Limit: Once 999kWp in 1/2/3kWp orders is reached.
Allocation: Very strictly exclusive for households whose main residence does not have right of use of own rooftop for installing PVs, like some apartments and maisonettes. On a first-come first-served basis.
Applications open: Last Monday.
Understanding KWh and KWp
Your electricity consumption is measured in kilo watt hours (kWh). One kWh is the amount of electrical energy consumed when switching on electrical equipment rated at 1,000 watts (the average microwave) for one hour. In your bill, one kilo watt hour is represented as one unit. (Enemalta.com.mt).
The kWp (peak) rating of the solar farm investment options relate to the maximum power that can be generated by ‘your’ solar panels. This maximum rating can only be reached for around four hours each day, depending on sunshine. Also, the quality, and therefore generation power, of the panels deteriorates by around one per cent every year. (Yousif, 2016)
Understanding the pricing
Opting for the minimum investment possible, 1kWp at a cost of €1,500, the following financials can be expected:
First six years: your bill will be credited with 1,550 units per year, at a feed-in-tariff rate of 15c/unit. This comes to a discount on your bill of €233 per year.
Remaining 14 years: your bill will be credited with 1,550 units per year, at a feed-in-tariff rate of 10.5c/unit. This comes to a discount on your bill of €163 per year.
Therefore, the payback period is reached in the months between the sixth and seventh years. During the remaining 13½ years you will be making a profit off the scheme.
Over the full 20-year period, the initial outlay in year 1 of €1,500 is offset by a total return of €3,676 by the end of the 20th year.
The €1,500 is not returned at the end of the term, but the savings made greatly offset this amount. So if the scheme was to be considered a fixed 20-year bank deposit, it would offer a compound interest rate of five per cent. (Interest payments on a bank deposit, however, would be taxed, unlike the returns on this scheme.)
For those more economically inclined, when the costs and benefits are netted and discounted (assuming two per cent inflation per year), the net present value is approximately €1,600.
The minimum 1kWp option will hardly cover a two-person household, that is, your electricity bill will not be zero by the credit offsetting of solar generation. However, as can be seen above, it still offers an attractive return.
By investing in the more expensive higher-kWp options, one can expect progressively lower bills and even better returns on investment. All package options have the same payback period of around six-and-a-half years, however the higher kWp options will yield more profit in the remaining years.
An interesting provision within the scheme is that when bills are effectively credited by an amount such that the total due is negative, ARMS can provide you with a cheque or bank transfer payment to settle the difference.
On the other hand, one must note that high electricity consumption households are charged unit rates which are much higher than the feed-in-tariffs used to credit the bill by this scheme.
nevillezammit@outlook.com