This is the second note in our energy transition research series, exploring how solar energy fits into the current and future energy mix in New Zealand. Solar energy is a tried and tested renewable energy source, in fact, humans have used solar energy as early as the 7th century B.C.
How is electricity from solar energy produced?
We thought it is worth a few sentences on the technical aspects of solar before we jump in to how it fits into the New Zealand energy mix.
Solar energy is created by nuclear fusion that takes place in the sun. Fusion occurs when protons of hydrogen atoms violently collide in the sun’s core and fuse to create a helium atom. Photovoltaics is the most familiar way to harness solar energy and usually involves solar panels, a collection of dozens or even hundreds of solar cells. Each solar cell contains a semiconductor, usually made of silicon. When the semiconductor absorbs sunlight, it knocks electrons loose. An electrical field directs these loose electrons into an electric current, flowing in one direction. Metal contacts at the top and bottom of a solar cell direct that current to an external object. The external object can be as small as a solar-powered calculator or as large as a solar farm, one of New Zealand's largest Te Herenga o Te Rā, connected to the grid in January 2025 has over 70,000 solar panels.
The case for sunshine
Solar energy currently accounts for around 1% of electricity generation in New Zealand[i] or 372 Gigawatt hours (GW) in 2023 which was a 30% increase from 2022 driven mainly by the economic viability of solar.
Ministry of Business, Innovation and Employment (MBIE) modelling suggests that energy demand could increase between 35 – 82% by 2050[ii] driven by commercial and industrial sectors. The electricity grid capacity currently sits at 43.4 terawatt hours, this is largely unchanged from 39.5 terawatt hours in 2003. Demand growth from data centres alone is expected to increase Auckland’s electricity load by 40%. Solar could account for as much as 13-15% of the grid before wider system integration challenges arise.
While business and residential onsite solar installations can be a highly effective way of managing electricity costs and mitigating some of the environmental impacts of large scale solar, the focus of this Navigator is on grid scale solar projects. We spoke to Lodestone Energy on the case for solar energy in New Zealand.
Grid scale solar, in particular locally distributed solar farms, has several advantages. Solar farms are less onerous than wind assets to run the gauntlet of the current RMA process. Hence speed and efficiency to get to market is a key positive. Once a site is identified and construction begins, solar farms can be deployed quickly. Localised smaller solar farms can be built in less than six months with the larger projects taking two-three years.
Solar has now become more cost-competitive with wind as solar capital costs have declined, largely due to lower equipment prices and efficiency improvements. Capital costs are approximately $1 million per hectare, or $1.5 million per megawatt (MW). Recent wind projects in New Zealand, whilst still competitive, are estimated to have had capital costs closer to $2.5 million per MW with turbine prices in the last year risen between 15-20%. Solar equipment costs which account for about 60% of the cost of a solar farm have fallen, potentially reaching a lower point on the relative cost efficiency curve, in most cases falling below the cost of wind development. The second cost of solar development is labour. At approximately 35% of costs, labour acts as a function of productivity and efficiency, with room still for potential further efficiencies in labour and installation costs.
Grid scale solar installations often have local community impacts. Although, in recent developments these have not been an impediment. For instance, a 30-50 MW site sits on approximately 50 hectares, with panels no more than two meters high. This is relatively small compared to the overall footprint of most towns in New Zealand. Planting can be used to screen the farms reducing the visual impact. While ideally the land used would be less productive land, agrivoltaic models are also used, meaning land can still be used for agriculture alongside solar production. While this can mitigate risk, it doesn’t account for resistance from the community, and this can be a significant obstacle for the larger projects.
The smaller scale solar farms can be placed strategically near local centres (1- 2 km distance) reducing transmission costs in comparison to wind farms which often require long-distance grid connections. Smaller scale distributed solar farms have an added advantage of being able to be connected into the sub distribution network without needing to connect to the large-scale electricity grid system. It can be more cost effective and simpler to deal with the local lines company than connecting to the Transpower grid system. This can be a competitive advantage for new solar development relative to wind.
The New Zealand government is supportive of solar investment and private capital involvement, with a focus on increasing competition in electricity markets.
The government is actively working to streamline consenting processes including the Fast-track Approvals Bill, introduced on March 7, 2024[iii]. The Fast-track process aims to establish a permanent regime for fast-tracking consents nationally and regionally significant projects, including renewable energy projects. One of these projects is the Foxton Solar Farm which Genesis and FRV Australia are about to build.
Solar energy projects can often gain a non-notified consent limiting the number of parties who can have a say on the projects.
Challenges ahead – the need for baseload generation and batteries
For an integrated operator, solar power's variability requires the use of other firming generation during periods of low sunlight. The gentailers have this with diversified portfolios. However, as investment in solar increases, they will still need to consider firming capacity.
This variability means solar will compliment other energy sources especially wind and geothermal in the New Zealand system. Solar farms have a capacity factor of about 20% compared to a 35-40% capacity factor for wind. Capacity factors describe the up time for electricity generation.
Battery storage is likely to play an influential role in managing the network and the peaks of solar energy coming online during the day versus the demand from consumers and businesses which is largely in the morning and evening. Meridian Energy is close to finishing its large-scale battery energy storage system (BESS) south of Whangarei with the intent to connect this to a large-scale solar farm nearby, which will support a more stable supply of energy to the grid. There is some disagreement on the economics of batteries at scale, however, the reality is battery storage will be needed for a reliable and secure renewable energy system.
In New Zealand, electricity demand is weighted towards requiring significantly more generation in winter than in summer. With solar being more weighted towards summer generation, the ability of solar to meet total system flexibility needs is limited. However, from a system perspective, solar generation will allow market participants to manage hydro water storage better in summer and shoulder seasons, maintaining increased flexibility for winter. As the market experienced in the dry winter of 2024 and potentially again in 2025, hydro flexibility and storage are key aspects managing system stability.
The surge in grid scale solar farm consents leans into the need to continue to invest and upgrade the national power grid to accommodate increased solar generation. Transpower expects almost seven times the 950MW Climate Change Commission estimate of new solar generation by 2035 to be built in the next few years based on the scale of projects announced. However, some of this will be announced but not completed due to various issues such as funding, consenting and land availability.
An article on solar needs to take a perspective on the known supply chain environmental and human rights impacts. It’s a fact that 95% of the world’s solar equipment comes from China, this includes panels, piles and trackers. Using top tier manufacturers and incorporating site visits and audits into the supply chain analysis may help mitigate some supply chain risk, however, there are only four top tier suppliers globally. The more challenging issues of silicon production in China’s Xinjiang province and the mining of metals required for solar panel production remain a concern for all solar manufacturers.
Recycling is also a concern. Solar panels currently have a lifespan of 25-30 years, however with technological advancements this may improve, this will add to maintenance costs but more significantly poses the issues of what to do with them at the end of their useful life. It is possible to recycle 98% of solar panels, however, it is cheaper to dump the panels in landfill than to recycle them. The government has made some steps towards solar panel recycling under the product stewardship program, however, with only one private company awarded a solar panel recycling permit in New Zealand there is a long way to go.
Outlook sunny with as always, some cloudy patches
Solar has the potential to democratise energy supply and be a key component of both large-scale farms and the distributed energy solution in New Zealand. The ability to build solar capacity quickly and cost effectively means solar will be a key component of our energy mix. Stability and consistency of supply will require battery storage capability, this is not just a solar energy issue.
There are a number of environmental and social issues to navigate, in particular the human rights and environmental issues associated with mining the metals required for the panels. Neither are quick fixes but they are solvable.
Solar energy has the advantage of being a well understood and commercially viable energy source and has earned its place in the New Zealand energy system.
[i] Energy in New Zealand 2024
[ii] Electricity Demand and Generation Scenarios: Results summary July 2024
[iii] In New Zealand, 10 solar projects were fast-tracked under the Fast-track Approvals Bill. These projects are part of a broader group of 22 renewable energy projects, which also include wind and hydroelectric initiatives, aimed at adding a total of 3 gigawatts (GW) of electricity generation capacity to the national grid. Farmers Weekly October 7, 2024.
Additional sources
Solar eclipse: Our renewable power struggle — North & South Magazine
When the sun sets on solar panels – end of life solutions
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