Over the past few weeks there have been rumours that the government intends to cut or remove the exemption from diesel fuel excise that agricultural and mining businesses currently receive for use of diesel in off-road applications. The rumours have been sufficiently credible for the Minerals Council of Australia to run full-page advertisements in Australian newspapers arguing against removal of the exemption.
But removal of this excise exemption has a flip-side. It would tip the economics decisively in favour of solar PV instead of diesel for off-grid remote power generation. Diesel generators are approximately 20-35 per cent efficient in converting diesel into electricity. This means you need about 265 to 460 litres of diesel per megawatt-hour (MWh) of electricity.
Excise for diesel is 38.143 cents per litre, so this equates to an additional cost per MWh of electricity of around $100 to $175. When it is considered that solar PV is likely to generate electricity for a cost of around $250 to $400 per MWh excluding any subsidies, this is a big deal (inclusive of 30 per cent business tax).
Already diesel-fuelled electricity generation in remote regions is extremely expensive with a fuel cost of around $250 - $500 per MWh, depending on fuel prices and the efficiency of the diesel generator. Big mining companies will tend to pay towards the lower end, while a small agricultural station or Aboriginal community would face supply costs towards the upper end.
Many businesses stick with diesel though because they’ve already got a diesel generator in place and a solar PV system represents a significant up-front cost. Plus they are highly familiar with diesel generators and how to fix them which is very important in remote regions. Hybridising PV with diesel and/or batteries involves more sophisticated electronics which, while probably not all that more complicated, represent an unknown quantity for these businesses.
But the removal of the excise exemption would make them look a lot harder at the feasibility of solar PV. What’s interesting is that some of these remote smaller businesses may realise that their power costs will actually be lower than they were when the excise exemption was in place.
How big is the opportunity? According to the government’s Bureau of Resource and Energy Economics, oil is used to generate around 5 million MWh of electricity per year. If solar PV could capture half of this market it would drive a further 1900MW of capacity. This is greater than all the solar PV that has been installed in the country to date.