Last week, I provided an initial response to an article in Climate Spectator by Finn Peacock who expressed concerns about the Abbott government’s Million Solar Roofs program. I believe that a well-designed program can play an important role in addressing market barriers and helping low income earners reduce their power bills by installing solar.
In this article I want to explore in more detail how the Million Solar Roofs program could be designed to avoid some of the pitfalls of previous grant programs and ensure the policy meets the needs of Australian families, the solar industry and the government.
What we know so far
While details are sketchy, the government has indicated the $500 million program will deliver an additional million solar roofs over a decade. This will be through making 100,000 grants available each year of up to $500 for the installation of solar hot water or solar panels.
Before the election, Greg Hunt indicated the program would focus on low income earners and would primarily, but not exclusively, be aimed at encouraging the installation of solar hot water.
Funding for the program was halved on the eve of the election and the Australian Renewable Energy Agency was given responsibility for the administration of the program. This funding cut will make it harder to achieve program objectives while uncertainty about its administration may hamper its rollout.
Helping low-income earners
More than 1.8 million Australian homes now have solar hot water or solar panels on their roof, making solar an everyday part of Australia’s lifestyle. We know that the people most likely to install solar are those in the outer metropolitan, mortgage belts of our big cities and people living in regional communities. Australians have embraced solar because it is an effective way of reducing power bills.
The lowest income earners and renters have not, however, generally been able to embrace solar due to a number of important market barriers. Put simply, the biggest indicator that someone will install solar is whether they own their own home and have sufficient and appropriate roof space. Low-income earners rarely own their own homes.
From ABS data we estimate that more than 20 per cent of Australians are holders of a concession card and this sector of the market is typically not easily accessed by the solar industry.
The program could be limited to holders of Commonwealth concession cards or their authorised representative, who could be the solar supplier, the landlord or other appropriate party. Under an earlier PV rebate program, the solar supplier was able to apply for the grant on behalf of the householder and this arrangement should also be a feature of the program. The scheme should also allow participation by local government and other agencies that could package up energy solutions for concession card holders. Landlords that are providing rental accommodation for concession card holders and properties that come under the National Rental Affordability Scheme could also be eligible under the scheme.
Many low-income earners already receive rebates from state governments to assist with their energy bills. Being able to tie these programs together to provide additional support should be facilitated and encouraged under the scheme.
Addressing market failures
We believe that the key focus of the scheme should be to address market failure and ensure that it does not target market sectors that are already installing solar. The program should add to the total number of installations, not just fund solar systems that were likely to be installed anyway.
Low-income earners and people who are renting are unlikely to install solar because of a lack of access to capital, split incentives and information gaps. People who are renting are unlikely to benefit financially from energy efficiency measures, whether they be solar or more efficient lighting, and governments have struggled to find a way around that split incentive.
The Million Solar Roofs program could assist to address this failure and, in the process, open up a new market for Australia’s declining solar industry.
Solar industry in decline
The solar industry is currently hurting. The industry has grown rapidly in recent years with the support of the Renewable Energy Target and feed-in tariffs. The removal of many of these incentives has meant industry activity has declined significantly over the past 12 months. Solar systems creating certificates for the eight months to end of August have reduced by 31 per cent for solar PV and 22 per cent for solar hot water compared to the same period in 2012. The industry is expected to contract further over the next 12 months, leading to further job losses and more business closures.
The decline for solar PV in particular is illustrated in the following graph:
Figure 1: Solar PV systems creating STCs since June 2012
Solar PV system installations in all states and territories have declined significantly over the last 12 months.
The solar industry is also affected by the uncertainty surrounding another review of the RET in 2014, having just recovered from the bruising of the last RET review, finalised just nine months ago. The level of deeming is to be progressively phased out from 2016 onwards which will reduce the support provided by the RET to solar over time.
The Abbott government should, at the earliest opportunity, reaffirm its support for the Small-scale Renewable Energy Scheme and let the industry get on with business.
The truth is the Million Solar Roofs program cannot work without being complemented by the SRES, so it is in the government’s and industry’s best interests to reaffirm support for the SRES.
Scheme implementation and improving industry standards
Under the SRES we have a strong regulatory system in place to ensure good practice. This currently works through the requirements that systems creating certificates have approved products and are installed by an accredited installer. In addition, compliance is further reinforced through the solar inspections process, the work and publications of the Clean Energy Regulator and the fit and proper person provisions.
All systems that are supported by the Million Solar Roofs program should be eligible to create Small-scale Technology Certificates and be subject to their compliance requirements. Further, grant payments should only be made once the system installations have been approved by the Clean Energy Regulator for STCs.
Rebate programs do have a history of creating ‘boom and bust’ cycles for industry – the dreaded solar coaster – but this can be avoided by placing a cap on annual funding and regularly publishing the level of grants being processed and approved.
Limits could also be placed on the number of grants to be collected by any individual solar re-seller to ensure no one company controls the market, and grants could be limited to one per site.
There are good public policy justifications for helping low income earners reduce their power bills by installing solar and there are good public policy reasons for addressing market failures. The Million Solar Roofs program can be designed to deliver positive outcomes for low-income earners, for the solar industry and for the government. It is important the solar industry works with the government in getting the design of this program right.
Ric Brazzale is managing director of Green Energy Trading and president of the REC Agents Association.