First Solar to build $US86/MWh project

An auction for 500MW of solar PV in India has thrown up some power price bids that could mean wind and gas are in for serious competition. But it leaves one wondering why Australian solar projects are so far off the mark.

The bid results of the 500 megawatt (MW) solar auction in the Indian state of Andhra Pradesh have achieved power prices that suggest the technology is on the cusp of taking on wind and gas in Australia.

The lowest bidder in the auction was First Solar who submitted bids of $86 per MWh for one 40MW project and $87/MWh for another 40MW.

Given First Solar’s strong reputation as a major global solar PV module manufacturer and EPC provider of utility-scale solar projects, these bids carry high credibility.

In past solar auctions, the low prices obtained were illusory as successful bidders subsequently encountered difficulties financing and ultimately delivering the projects. Given First Solar’s extensive experience, one would expect they won’t encounter the same difficulties.

Image: First Solar's Greenough Project in Western Australia

The other bids under the process ranged from $US92 to $132/MWh for projects from 3MW up to 100MW, with bids totalling 1291MW of capacity.

This is well below bids submitted under the Australian Capital Territory auction held in 2012, which varied from $A178/MWh up to $A325/MWh with the three successful bidders offering $178/MWh, $186/MWh and $186/MWh (all in AUD).

Part of the difference could be explained by Canberra’s lower levels of solar radiation and also the small-scale of the Canberra projects. But given the huge size of the difference in price, one would expect technological advancements that have reduced the cost of solar since 2012 have a part to play.

The other key issue for Australian developers will be how much of the cost difference is explained by Australia’s very high costs of civil construction. Utility-scale projects in Australia have barely managed to improve on the installation costs achieved by small-scale residential installations, in spite of vastly greater economies of scale. Some of the speculated reasons for the difference include the fact that large-scale civil construction in Australia is characterised by high rates of unionised labour and less vigorous competition amongst suppliers, as well as the inexperience of Australian construction firms in delivering solar projects. Also, greater levels of red-tape in developing large-scale projects as well as the expense involved in highly complex commercial arrangements – which draw in highly paid lawyers, bankers and independent engineering experts – may also play a part.

If First Solar could manage to get close to the levels it is proposing to deliver in India, then it would be a game-changer for the future of new power capacity built in this country.