Australian solar market review - 2014

After more than 20 years of playing nicely with incumbent energy industries and genuinely trying to find ways to collaborate through an orderly transition we hit the wall this year. The gloves came off.

Another year is almost over and to celebrate we thought a review of the big changes and major events that shaped our solar year would be a great way to close out before we take a break for Christmas.

Hope and inspiration.

The rise of the solar citizen and demise of Utility 1.0

Incredibly, Australia showed the world just how powerful and influential the electricity consumer of tomorrow has become. Today, they are solar citizens taking control of their costs, developing independence and doing their little bit as a global citizen. Tomorrow, they’ll be called prosumers and have started fundamentally changing the world’s major economic machines forever. Today's version of electricity companies (Utility 1.0) is inexorably, begrudgingly heading towards Utility 2.0

The profound power of around four million voting age Australians who wake up every day in solar homes has not been lost on our leaders, despite the public denial and protestations. At a state and federal level no other interest group in the country can rally so many passionate people so fast and in such numbers as our industry and owners and every single day it gets bigger.

After more than 20 years of playing nicely with incumbent energy industries and genuinely trying to find ways to collaborate through an orderly transition we hit the wall this year. The gloves came off and we saw deception, manipulation of the rules and outright lies from some of our most senior leaders in the most outrageous and blatant way I have ever witnessed. Personally, while I have genuine and immense respect for the incredible achievements of the electricity industry in Australia’s development, I ran out of patience this year. My view today is that we are being “gamed” in an ever increasing number of ways, and I’m not buying the bull or platitudes anymore.

There are a myriad of opportunities for innovation, for Australia to show the world what’s possible and to get Utility 2.0 underway. All we have to do is open our eyes up to the fact we have far more renewable resources than non-renewable sources and go for it. It just takes some guts and vision. We now know that the fossil fuel industry gets almost $10 billion dollars a year in subsidies in Australia and based on conversations with utilities, they are losing around $1 billion a year to distributed solar through lost sales. The US Institute for Self Reliance has calculated that in the US, utilities are looking down the barrell of $48 billion per year loss by 2025 if they don’t get on board.

This year we heard a lot about these losses. However, they are more accurately described as wealth transfers; from corporations to consumers. This can be viewed as good or bad depending on your perspective but one thing is as plain as day: voters get it, love it and, ultimately, they own the ballot box, not corporations.

This year the collective efforts of Australia’s solar citizens and everyone who stood beside them and supported them changed the world just a little bit.

Technological advances

Australia is a fascinating solar market unlike any other.

On the one hand, I remain perplexed and concerned about how much low quality product continues to flow into our country. Everyone loves a bargain including me, but we continue to see product failures, collapses and too many stories about appalling service. The trend is changing, but I still don’t understand why for the sake of a few hundred dollars some solar retailers, wholesalers and consumers continue to ignore the inevitable risks and the false economy of selling junk.

Luckily however, it seems that Australians also love to be early adopters and in our industry at least we have some genuinely brilliant innovators.

We have seen the evolution of monitoring systems from a nice gadget to something that has become a business tool for solar retailers which saves time and money and can provide output insurance for solar owners through companies like Solar Monitoring Australia. I’ve been saying for a while now that it’s all about data and was delighted to hear the head of a major network company echo these exact sentiments recently when he said, “The power, so to speak, will lie with those entities that 'own' the data. They will be the ones that own the future.”

We have also got some of the best technology in the world right here, made by a bunch of innovative Australian companies. Although arguably we have been forced into a situation by incumbent industries protecting their own interests, it means we now have some of the best export control equipment in the world which will inevitably become de rigueur in years to come as solar penetration rises to the levels we have here. Companies like Power & Drive Renewable Solutions are simply getting on with the task and working their way around Utility 1.0.

And of course, there is storage  – I’d suggest the number one topic of the year for anyone answering phones at solar businesses this year.

Our year has been heavily focused on storage with a growing number of clients seeking help to understand, develop and launch new products and the market has grown beyond even my most wildly optimistic forecasts. We started the year out by winning an enormously entertaining debate at the inaugural energy storage conference , where we proved (according to the audience vote) that utilities will not win the the energy storage war; our contention is that prosumers will control the space.

One of the biggest announcements of the year on this topic came from Enphase who have rocked the world with the scale and miniaturisation of their micro inverters and now, have taken storage down the same path of “micro distribution” with the announcement of their impending micro AC battery. Beta trials start mid next year in Australia and I can’t wait to see how this pans out.

Tellingly, I almost forgot to mention solar panels! Although they still represent the largest single proportion of cost in a system the world of PV has been very, very tough. Game-changing performance gains have been increasingly hard to come by although the ANU and UNSW continue to set world records. In Australia, the PV trend has clearly been towards commoditisation as evidenced by the amount of Tier 3 product that continues to flow into the market, despite the fact that the price differential is minimal compared to Tier 1 brands. Locally, Trina Solar got the crown for the most popular brand in 2013 and are now being tipped as the world's largest manufacturer by shipment volume in 2014. In a single year (2014) they’re forecast to ship an astounding 3.6GW; equivalent to more than Australia’s total installed PV capacity and around 15 million solar panels.

Locally and globally, I suspect one of the biggest challenges for PV manufacturers will be the ongoing commoditisation battle and the containment of fraudulently labelled solar panels. Although the practice is relatively rare, a number of cases have occurred in Australia of both unofficial imports and also court cases against companies charged with allegedly importing incorrectly (brand or power rating) labelled products.

Solar business

At the business end of the solar world in 2014, I think 'subtle consolidation' is the simplest way I could describe global and local goings on.

Internationally, we saw profits marginally improve for most major PV manufacturers although the enormous debt levels and declining share prices of some is still worrisome. The Bloomberg Solar Index of major participants shows a 5.5 per cent gain for the year to date although the Guggenheim EFT index shows a 7.6 per cent decline over the last year, albeit significantly better than 2013.

It seems that where PV companies improved, inverter manufacturers in the main took the heat and struggled more than ever. We saw the collapse of manufacturer Sputnik/SolarMax, the fifth largest inverter manufacturer in the world and reductions in outlook and profits from most of the majors. SMA and ABB continue to lead the rankings in volumes but have a number of mostly Chinese and US based competitors snapping at their heels with 1-2 per cent growth in most quarters this year.

Down under, we saw a combination of mergers, acquisitions and the inevitable continuation of collapses as the pressure of uncertainty bit home. There are literally hundreds of notices of deregistration and liquidations this year, a trend that is sadly not new. Notable collapses and liquidations this year include Biosolar, units of the listed CBD Energy including Westinghouse and Ekokinetics. The most notable acquisition of the year was SunEdison’s purchase of Energy Matters.

The one consolation for the year on fraudsters was the news that serial conman “Pastor” Stephen Jones has finally pleaded guilty and will face sentencing in early 2015. Jones fleeced hundreds of solar customers (among others) and although their money is gone, it seems they will finally see justice served.

Ultimately, as I keep saying to politicians when industries expand and contract so vigorously as ours has under rapid policy changes, it's regular Aussie families and businesses who suffer.

And of course 2014 will also go down as the year that solar financing grew up in Australia. I witnessed a growing horde of solar retailers switching from “interest free” financing (that, of course, isn’t free at all) and tuning to a growing number of higher quality finance products. Chatting with international analyst about solar financing in Australia the other day, one commented that he was “dumbfounded” that our market hasn’t “kicked the dirty habit” and moved to better products yet. The challenge has been to make more sophisticated financing as simple and easy to access as interest-free and companies like Classic Funding Group have done a great job of getting this right. 

We also watched as Retail Exemptions were rolled out to solar PPA providers at the rate of almost one a week. Although it’s early days, solar PPAs are rolling into the market and, I suspect, will really get some traction in 2015. We worked with a number of companies to develop offers and conduct due diligence work including the team from Lighthouse Infrastructure’s Solaire Income Fund who have successfully funded both residential and large scale PPAs in Australia. 

One great project we also got involved with this year that fits in the business category is the Clean Energy Council’s 'Retailer Code of Conduct'. I was invited to join the advisory panel as an independent industry representative this year which was an honour and a pleasure. Having been involved with the CEC and its predecessors for more than 20 years, it’s a huge relief to finally see a program in the market that provides an extra degree of security for consumers focused on retailer behaviour, rather than installers.

The wrap

2014 was always going to be a tough year. For those who had the foresight to buy our Market Forecast, they had better insight than most into what has panned out; we were yet again extraordinarily close to the money on the final year results. However, this is a decline for the second year in a row and that means pain across the industry. I look forward to sitting down with my old pal Warwick Johnston to predict 2014-2019 in January.

Although there was great news on some very large PV projects proceeding this year almost everyone I spoke to was devastated that the year didn’t deliver more, a direct consequence of the horrendous uncertainty driven by the utterly pointless RET review. The failure of these projects to proceed cost jobs and wasted vast amounts of time and money, a fact that our government seems to care less about. The only small salvation was that the small and medium sized commercial solar sector grew (albeit from a small base). There are a growing number of solar retailers and project developers who are now well positioned and kicking some goals. Notably, one of the biggest projects that got the go ahead was the privately owned 1MW Brisbane Markets project which was managed by the Solar Choice Commercial team and will be installed by TodaeSolar.

Operational efficiency was my number one theme in my business coaching work this year. With falling prices and tight margins refined business processes and efficient operations is the only way to survive in my humble opinion. The pressure from Utility 1.0 will undoubtedly continue but they will succumb to pressure from within as true innovators hit the ground running. I don’t think the government has anywhere to run on the RET either. It’s far from over, but the unequivocal arguments in favour of the scheme and wide popularity are a big fat barnacle shaped pill that the PM is going to have to swallow.

Storage has arrived, we are working our way around export control and prices are as low as ever.

Our industry is tuned right in to what the world is searching for – hope. When it comes to how to deliver that hope, we are on the money too, delivering inspiration of how to do things in a whole new way. Solar is no silver bullet, but we are front and centre in the revolution.

What’s our crystal ball say for 2015? Stay tuned….

Nigel Morris is director of Solar Business Services.