Our newly elected government wants another million Australian homes to become solar powered over the next 10 years.
To achieve this they are offering a $500 rebate – on top of the existing government backed financial incentives – to households who buy a solar PV or solar hot water system.
Data from the Clean Energy Regulator shows 500,000 roofs have had solar PV installed since January last year. If installations continued at the current rate – sans rebate – we would have another million homes with solar PV roofs in three years.
To reach their 10-year target there is absolutely no need to spend $500,000,000 on another solar rebate.
More importantly, the introduction of rebates is likely to shackle the industry and leave households thousands of dollars worse off due to underperforming solar PV systems.
An influx of cheap, questionable systems
The most popular solar PV system size in the current market is 3kW, with a good quality one starting at around $5000.
But at the bottom of the market, there are cheap 1.5kW systems advertised for $1499. These systems, of questionable quality, performance and durability, will now be a whopping 33 per cent cheaper.
The extra $500 discount is more likely to increase sales at the lower end of the price scale. Most of these systems use very low quality panels and inverters, and often the companies that are selling them go broke.
The systems generally underperform and failure rates are high. An increase in households having bad experiences with unreliable, underperforming solar systems isn’t good news for the installers doing the right thing and selling quality, well-supported systems.
Additional government handouts will also likely re-attract cowboys to the industry who undercut the legitimate players who have to factor overheads, such as good customer service, proper quoting systems and warranty support into their prices.
This was a huge problem a couple of years ago when the solar credits multiplier was pretty generous. Thankfully, it is less of a problem today now that margins are much tighter and sales volumes are lower.
The last thing the solar industry wants is another influx of fly-by-night solar companies with their super cheap deals.
Solar may soar with rebate
Driving the sale of cheap, questionable quality systems which have little hope of paying back financially and environmentally is not the only impact of the rebate on the solar market.
The $500 rebate may actually increase the price of solar through reducing the value of existing financial incentives.
The current scheme available to solar installers is based on the price of small-scale technology certificates (STCs), and it is a system that works and is well designed.
STC prices have an upper limit of $40 and no bottom limit. The current value of the STC incentive is about $2500 off the upfront cost of a typical, 3kW system.
Generally speaking, if the supply of STCs increases, the value of them reduces. A big increase in cheap solar system sales, due to lower pricing and aggressive advertising, will see the amount of STCs increase proportionately. If the STC price drops more than 20 per cent, for example, a 3kW system will cost a minimum of $500 more.
Riding the solar coaster
In the solar industry, we call the wild, rebate and feed-in-tariff driven swings in demand the 'solar coaster'. It describes the enormous peak in sales when the imminent end of a rebate is announced, followed by a deep trough after the rebate actually ends.
This makes it very difficult to run a business. Many firms have gone broke riding the solar coaster.
The $500 rebate will be capped at 100,000 installs per year for 10 years, if I have understood the sketchy details of the policy correctly. This compares to annual installation volumes of about 250,000 PV systems and 50,000 solar hot water systems in Australia.
Will the 100,000 system annual cap on the rebate lead to a mad rush for the first few months while the 100,000 rebates are claimed and then a slump for the rest of the year? Previous experience tells me this is very likely. People respond quite predictably to the offer of free money.
The solar industry craves stability. This badly thought through, out of date policy will not deliver stability. It will result in more opportunists, lower quality systems, a continuation of the solar coaster, and may even increase the cost of solar for Australian households.
Greg Hunt should save himself a cool half billion and leave the solar industry alone. Or, if he really wants to help, he should use that cash to reinstate the $1000 solar hot water rebate for 500,000 homes. The poor cousin of solar PV – which includes a lot of Australian manufacturing jobs – is really struggling, and could do with a hand out.
Finn Peacock is the founder of SolarQuotes.com.au.