WHEN Newcastle City Council announced its Summerhill solar array, I initially wondered whether it was core business for a council to operate a power station, whether it was solar or not.

I knew that household solar panels were financially viable, meaning that larger ones should be just as cost-effective, given economies of scale. But I still wondered if the council would really save the claimed $250,000 to $350,000 a year on power bills, given a capital cost of $8 million, including $6.5 million borrowed from the federal government’s Clean Energy Finance Corporation, admittedly at an (undisclosed) low interest rate.

It seemed a bit too good to be true, and I was not the only one to think this way. Non-Labor councillors Brad Luke, Kath Elliott and John Church all had doubts about the project, which were expressed in council and covered in an article I wrote in March.

But after meeting with the council expert in charge of the project, Adam Clarke, and having as many questions as I could think of answered, it seems as though the council’s money is being well spent.

Of course there are no guarantees in life – or business – but if the predictions at the heart of a final, independent business case prove correct, then the council will indeed make its promised savings, and produce clean, green electricity along the way.

Of course there are no guarantees in life – or business – but if the predictions at the heart of a final, independent business case prove correct, then the council will indeed make its promised savings, and produce clean, green electricity along the way.

Clarke acknowledges there was scepticism within some parts of the council when work on the project began three years ago. He said an internal business case done in late 2015 looked promising, so a feasibility study was done after that, followed by the final independent business case in May 2017 and a follow-up version in November, which found an even stronger financial basis for going ahead.

The council’s consultants are a Brisbane firm called Resource Analytics, which describes itself as specialising in financial modelling for local government.

Resource Analytics’ website says: “Resource Analytics assisted in undertaking the financial feasibility study for a 5 megawatt photo-voltaic system for the City of Newcastle located at their Summerhill landfill site. This includes the preparation of financial assessment models, contribution to the expression of interest procurement process, and the evaluation of market information to determine project viability.”

The 14,500-plus panels in the Summerhill solar array (covering five hectares) are predicted to produce about half of the council’s electricity needs.

 But don’t solar arrays only work when the sun is shining? And what about the council’s night time power needs, which are apparently larger than in daytime, thanks to more than 14,000 street lights?

Well, this is where electricity trading comes in. Modelling predicts the solar array will produce more power during the day than the council consumes. This extra power will be sold into the grid, making money as well as removing the need to pay that day-time power bill. And as the streetlights are on during the night, the council already gets this power at mostly off-peak rates, which are cheaper than peak or shoulder power prices.

All up, the council consumed 14.1 gigawatt-hours of electricity in the 2015-16 year used in the report. Half of this amount, or 7.1 gigawatt-hours, was used by streetlights.  By time of use, peak and shoulder periods accounted for about 3.1 gigawatt-hours each, with 7.9 gigawatt-hours consumed off-peak.

The power output characteristics of solar cells are now well known, and detailed estimates provided by companies bidding for the job (won by Carnegie Clean Energy and Lendlease) indicate Summerhill will initially produce more than 7.1 gigawatt-hours a year of electricity, mostly in peak or shoulder periods.

Solar cells, like anything else left out in the wind and rain, will tend to deteriorate, but the report says all major manufacturers guarantee the output of their panels will be 80 per cent or more after 25 years and “typically higher, closer to 90 per cent in some cases”.

Anyone who’s ever tried to claim a warranty on something 25 years old might question that assumption but the report points out that the plant can be sold at “any point in its lifespan” and that there is a ready market for solar plants with reliable cash flows from pension funds and other asset managers.

As is standard practice for infrastructure projects, the consultants use “net present value” (NPV) methodology to calculate costs and benefits. NPV is a theoretical measure, as the consultants note: “This approach sets out the cash flow of capital and operating costs in 2017 dollars for each option over the modelled period (of 25 years) and then, utilising the principles of discounting and allowing for inflation, reduces the cost to a single present value to represent the whole-of-life cost.”

The May report said the council would save $5.9 million over 25 years “compared to a continuation of existing electricity supply arrangements (‘business as usual’)”. This saving is “after council has recouped all costs associated with construction, operation and financing of the project”. This amount is the saving that comes up the most when a “simulation analysis” is done on the project by putting it and the other parameters involved through 10,000 runs of a computer program. The “mean” or middle saving produced by this program was $7.1 million.

When the figures were re-run in November, using updated parameters, the new most likely saving was $7.8 million and the mean saving $8.9 million over 25 years.

The analysts say cash flow analysis “underpins the view” that the project was “self financing”, although that assumption was based on “any excess cash generated versus business-as-usual” is placed in reserve”.

A “summary analysis” shows how the original $5.9 million saving was arrived it. The cost of 25 years of power, without the project, is put at $20.1 million. If the project was built, the council would still pay $10.8 million (because the plant only generates half the council’s needs). When the sale of excess electricity, revenue from carbon certificates and an end-of-life sale price are added in, and the cost of building, operating and maintaining the plant and the costs of electricity trading are subtracted, the total costs come to $14.2 million, which is $5.9 million less than the $20.1 million business as usual figure.

As I noted, these are not actual dollar amounts. They are estimates obtained by using a number of theoretical variables, from the weather (sunshine or “irradiance” data to help calculate electricity output), historical electricity usage, power prices (peak, shoulder, off-peak, as well as spot and pool prices) and carbon certificate prices: and not just now, but for the next 25 years.

Time will tell whether the predicted savings eventuate.

The analysts say their work “does not price any additional economic, social or environmental benefit” that could flow from the project but they note that Summerhill helps the council reach its target of 30 per cent low-carbon electricity by 2020, and to cut its carbon footprint by 30 per cent on 2008/09 levels.

Work will start on site shortly.

This article originally appeared in The Newcastle Herald on May 26 2018.  Click here for the original article.