CLIMATE SPECTATOR: Bargain basement solar

Australian consumers are still seeing solar prices fall despite a reduction in government support. So what's going on, and will it last?

Climate Spectator

Over the last few weeks some advertisements for extraordinarily low prices for solar PV systems have caught my eye on both the internet and newspapers.

I had thought I’d see prices for customers going up this January as the cut in the renewable energy certificate (or "STC”) multiplier from two to one took effect. Yet these advertisements are offering systems for as little as $1200 per kilowatt. This equates to about $1800 to $2000 without the government renewable certificate subsidy.

Compare this to April when, after a bit of Googling, I had come up with prices without subsidy of about $3000 per kW (Cut price solar, April 13).

Indeed these prices are substantially lower than the SolarChoice Solar Price Index average price listed just in November before the multiplier was dropped. At this time the average price of $2000 to $2250 per kW money down from the customer or about $2700 to $3300 per kW without the STC rebate (depending on the size of the system).

What’s going on here?

Recovery in the STC price

Firstly there’s been a lift in the STC price, but even with this recovery, the level of the rebate for the first 1.5kW is 40 per cent less. Somewhat compensating this is that the level of rebate for capacity after the first 1.5kW has increased by about a fifth.

Sacrificing quality

Sacrificing quality definitely has a part to play in some of these extraordinarily low prices. Some of the quotes involve panels of dubious heritage. Some purport a kind of Australian or German heritage when they’re clearly just sourced from any old third tier Chinese factory offering the lowest prices at the time they needed some stock. Also the inverters, while not from an unknown factory, aren’t SMA or Aurora-PowerOne either.

But there are very cheap quotes involving reasonable quality product, too. One high profile retailer is offering Suntech panels with SMA inverters for $1700 per kW to Victorian customers (about $2250 without STCs). And according to a range of industry insiders, the new industry benchmark for a reputable quality system is around $2200 to $2500 per kW with no subsidy.

Bigger systems

One thing that appears to be helping costs is the movement of households toward larger systems.

The average system size now is 3kW when less than a year ago it was 2kW. The steady drop and now removal of the multiplier means that customers now no longer see a steep price jump as they move beyond 1.5kW.

Human psychology being a strange thing, makes people more willing to consider 5kW, even though the level of the subsidy overall has reduced, and changes in feed-in tariffs mean the economics of a system that will be exporting in large quantities aren’t good.

Below cost module prices out of China

But it seems the main thing behind the lower prices is intense competition from module suppliers.

Sixty gigawatts of production capacity just doesn’t go into market demand of 30 gigawatts. Not all that long ago a shipment of modules delivered below $1/watt was something treated with widespread amazement. In the last month or two there are shipments delivered to warehouses in the 55c/watt range – this is below production cost.

In terms of demand for solar, normally China is well down the list behind countries like Germany, the US and assorted European countries. Yet, according to energy consultancy Solarbuzz, in the last quarter of 2012 it surged to the top. This is a sure sign of major stress amongst Chinese producers, not just enlightened government policy. The US anti-dumping tariffs are no doubt starting to bite. Chinese governments at a local as well as national level are staring down the barrel of plant closures and buying up output to keep them afloat.

The decision by the US to impose punitive tariffs has left Australia in a plum position to benefit from the oversupply in China. Larger Chinese panel suppliers would need to think very carefully before selling product into Europe below cost. A price war in Australia is tolerable, but not in a market as large as Europe.

Also, if Europe were to impose similar anti-dumping measures as the US, it would throw the Chinese PV industry into complete turmoil. In addition while the Japanese market is picking up on the back of generous feed-in tariffs, they have a strong preference for their own manufacturers, followed by Europeans, with China last on the list.

So even with a massive cut in the level of government support, Australian solar PV customers would barely know it.

Does this mean another bumper year for solar PV sales in Australia?

Industry participants seem extremely tentative.

They know solar module prices below cost can’t last forever, and some wholesalers are already facing price rises. A consolidation of Chinese production capacity has to happen, or otherwise Chinese demand has to expand. Either way this would lead to recovery in margins and an increase or at least stabilisation in prices.

And the slashing of feed-in tariffs across all states makes a larger system a tough sell on financial grounds. While average system size has increased noticeably over the last 12 months, this has been heavily influenced by the rush to get in before the cut to the Queensland and Victorian feed-in tariffs. The industry won’t have the same tailwinds behind it this year.

Solar PV looks set to remain a popular product in spite of government cuts to support, but many participants are nervous about what 2013 has in store.

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