CLIMATE SPECTATOR: A year on the solar roller coaster

Australia's solar industry has enjoyed a strong year despite an incredibly unstable policy environment. But can the solar juggernaut roll on in 2013?

Climate Spectator

Over the past 12 months it seemed as if the solar PV industry managed to succeed in spite of the best efforts of government and utilities to squeeze it back into the box labelled "small and cuddly toy”.

For government, solar PV has become a bit like that really cute and small puppy you pick up from the dog pound where you don’t really know its breed and how big it will grow. Then after a few months you realise you’ve got something that’s a mix between a Great Dane and St Bernard and you now need to face up to rearranging your house, car and kids to accommodate it.

The sector passed the 2 gigawatts installed mark towards the later part of the year and about 20 years ahead of schedule for the Department of Resources and Energy.

In addition Australia took the title as the largest residential solar PV market in the world with our quirky policies heavily targeted at household voters, while completely ignoring commercial rooftops.

The Australian Energy Market Operator began to sit up and take notice. It released analysis of solar PV’s likely future uptake and its contribution to peak demand. It projected under its moderate uptake scenario that by 2030 solar PV would take around 1300MW out of system peak demand in NSW; 1000MW out of Queensland and 1000MW out of SA.

While peak demand across these states will grow between now and 2030 these numbers are significant enough to substantially depress wholesale pool prices. This solar peak demand contribution is equivalent to 8 per cent of NSW and Queensland’s current peak demand and more than a quarter of SA’s peak demand.

State governments redefine "fair and reasonable”

Over the year state government officials progressively redefined a "fair and reasonable” feed-in tariff. They essentially decided that this meant households should pay between 25 to 60 cents for electricity they import, but over exactly the same time period they should get paid about 8 cents for electricity they export to their next door neighbour.

NSW’s IPART recommended (but did not require) electricity retailers to pay the expected wholesale market price of between 5.2 cents to 10.3 cents per kilowatt hour of exported generation. But on the fact that solar PV and indeed other formed of embedded generation weren’t exclusive to the residential sector and could potentially offset network capacity requirements – IPART decided that was "out of scope”.

Victoria’s Competition and Efficiency Commission also recommended feed-in tariffs be reduced to reflect wholesale prices. But at least it also recommended that the electricity market rules be reformed to require network businesses to offer prices for generation delivered during network peak periods. The Victorian government several months later then scaled down the feed-in tariff to 8 cents and ignored the recommendation to do something about network regulatory reform.

The Queensland Competition Authority topped it off by suggesting that households not be allowed to consume their own PV system’s generation. Instead it proposed consumers be forced to sell all electricity to retailers at wholesale rates.

One PV advocate equated this to being forced to sell the fruit and vegies grown in your own yard to Coles and Woolworths before having to buy them back at a large mark-up. This was never going to fly and the recommendation was dumped. But the QCA then followed this up with a subsequent recommendation that owners of solar PV systems be levied an additional charge for network costs, again dropped in the face of an angry outcry.

Out of all this acrimony it didn’t seem to occur to Queensland government officials that maybe the idea of charging customers a single, regulated, smeared price per kWh irrespective of time or location was broken. No it was clearly solar PV that was the freeloading villain, not the underlying market. A "market” that involves a $415 million annual cross-subsidy to rural QLD consumers. And a "market” that provides a multi-billion dollar subsidy for air conditioners.

But I suppose these aren’t really a problem for a state government when it also enriches its Treasury with revenues from state-owned gold-plated networks and generators as well as helping out its rural voter base.

The key issue for next year will be whether energy ministers act on an AEMC recommendation that feed-in tariffs be adjusted to provide a value for avoided network peak demand.

Federal government solar coaster also got a work out

The initial winners under Solar Flagships didn’t make financing deadlines, eventually replaced by AGL. Solar thermal is now a non-event in this country as ARENA ruled out coming to the rescue of Solar Dawn. And Infigen and Pacific Hydro are still awaiting a decision from ARENA on whether they can salvage something from their initial Flagship bids.

The RET Review preliminary report suggested structuring support for solar PV on the basis of a financial return that would struggle to even get a regulated network monopoly out of bed. However, according to the Australian Solar Council, the RET Review’s final report will likely recommend an alternative approach to contain the costs of supporting solar PV.

And then right towards the end of the year Combet sprung a surprise Christmas present electing to reduce the solar STC multiplier six months early and in time for the Clean Energy Regulator to adjust the SRES target downward next year.

Outlook cloudy

With policy support for solar PV now slashed across the board, next year could be extremely tough. Tumbling solar module prices and a high Australian dollar have allowed the solar juggernaut to roll-on in spite of policy change. But it’s not at all clear that these tailwinds will be so kind next year.