2011 may be described as a ‘fairytale’ year for Australian solar power. For our market doubled in size, growing to be the sixth largest in the world. But just as a fairy tale is also full of bad characters and moralistic lessons, the fairytale year was rich with dangers and intrigue for Australian PV. Tongue firmly in cheek, we take a look at the fairy tale year just passed, and reveal what will happen in years ahead. (Spoiler alert: it ends, as all fairy tales do, with ‘they lived happily ever after’).
In 2011, the solar beanstalk grew to extraordinary heights, awaking many angry giant fossil-fuel vested interests. Electricity utilities cried wolf, only to be caught lying (in bed, pretending to be grandmother of Australian solar). The Murdoch press huffed and puffed, but couldn’t blow down the people’s insatiable desire for solar. And like the seven dwarfs (most of them dopey) governments nationwide tried valiantly to attack anything that couldn’t be dug up, finally chancing upon a poison apple that put the industry to sleep.
It was a year that governments revealed their inability to manage the community’s insatiable thirst for solar. People power trumped political back-flips when it forced a back-down from a newborn NSW Premier, who threatened to retrospectively tear up solar contracts. Other governments' efforts to wind back solar incentives ranged from fine-tuning for stability and sustainability (Queensland), parliamentary debate (South Australia), and industry engagement (Victoria), although some managed to continue to make decisions in isolation.
The inflexibility of the federal government’s incentive scheme proved to be a reccurring nightmare; it wasn’t sufficient that the ill-conceived "solar multiplier" had caused the REC price to dive, the redesign of the Renewable Energy Target, and a plummeting REC price months later. The poorly thought out policy attempt to create a stable market instead stranded millions of RECs in “the clearing house that just wouldn’t clear.”
But woe, the leaders were being led astray! Government departments repeatedly used vivid imagination, rather than facts, when providing advice. When ‘calculating’ the costs of the Solar Bonus Scheme, the NSW Treasury believed the sun had increased in power by almost 50 per cent, and had to have successive consultants and auditors shatter their childish dreams. Every bureaucratic report assumed PV prices that were more akin to the ‘middle ages’ of solar (two years is an eternity in the magical solar land), which meant that PV’s promise was consistently understated, or more often simply overlooked. A crystal ball would have achieved greater accuracy.
Alas, convinced by claims that the fairytale Gas Queen was fairest in the land, the combined efforts of state and federal governments put the ‘Snow White’ industry to sleep and, in a wicked twist, pulled back government support, unleashing a wave of demand that dried up overnight and sucked the life out of the industry. A poisoned sleep was forced upon Australia’s only solar manufacturer and its largest PV retailer, amongst many others.
Fortunately, the good solar godfathers at SolarBusinessServices and SunWiz Consulting have been looking into their crystal ball, and have just released a forecast for the industry that sees the power of good emerging triumphant. As the excerpt below shows, the solar industry will eventually break this curse, with Prince Market Forces already nearing the castle. Installations in coming years will be increasingly less reliant upon government support, as solar prices continue to improve to the point where the people avoid the grid like it was some twisted old troll. The industry will be befriended by businesses and miners all seeking to reduce their electricity costs, and eventually the electricity industry itself will embrace its previously shunned step sister. Strategic markets will emerge within particular states and sectors over the coming years, growing both in size and in range, and could recover to current levels within five years.
What the report says:
“Regardless of how optimistic one’s assumptions are, the heat is predicted to well and truly come out of the residential PV market in Australia. This is largely because the hyper-favourable economic proposition brought a flood of customers into the market, effectively ‘bringing forward’ into 2011 customers that might have more likely purchased in 2012 or beyond. The astronomical growth rates of 2010 and 2011 were clearly outside normal market trends and the sentiment in government has swung around due to pressure on electricity prices and budgets. Now that the solar multiplier has been reduced and feed-in tariffs have been adjusted in every major state, the economics of residential PV have declined considerably. Still, the economics of PV remain favourable, and the combination of a carbon price, rising electricity prices, and falling PV prices should soften the blow and lead to a recovery in a few years’ time, albeit to a much lower level than the heady days of 2011.
However, over coming years the small-commercial sub-segment will sustain the market somewhat – the question is, to what degree. In some regions, this sub-segment faces higher electricity prices than the residential market, and is unlikely to export power from 10-30kW systems meaning feed-in tariffs aren’t so important. Returns on investment are thus likely to exceed those in the residential market, meaning if the PV industry can provide finance and target sales to owner-occupied buildings, a major opportunity awaits.
In almost every scenario we modelled, the ACT looks set to be the shining light of what a real large-scale market could look or should like in Australia and could well happen at lightning speed. The key issue to watch is whether the proposed reverse auction process works to deliver good outcomes or simply drives towards lowest cost at the expense of good outcomes. The devil in the detail behind this impending policy will be crucial to watch for.
Having said this, the potential in Western Australia could see it pip the ACT at the post as the favoured large projects centre if its resource sector does take off as expected - its outstanding solar resource and the combination of potential wealth and demand could create a tantalising proposition for PV.”
And they all lived...
The next chapter in the Australian Electricity Industry saga will present major challenges for the lead proponents, as vested interests redouble their efforts. Standing in between Prince Market Forces and the sleeping solar princess are a set of challenges for the industry; new skills required to service a commercial (as opposed to residential) market. Though some will fall by the wayside, companies employing the most intelligent strategies will reach the castle first, awaken sleeping demand, forgive their step sister and invite electricity utilities to join the party. For in the end, good triumphs over evil every time, and they all live happily ever after.
Authors Warwick Johnston and Nigel Morris were recently awarded an Industry Contribution Award for advocacy support and leadership by the Australian Solar Energy Society. SunWiz and SolarBusinessServices have recently released the Australian PV Market Forecast 2011-2016. For more information visit www.sunwiz.com.au/index.php/industry-services/market-forecast.html