Moree shows big solar's not there yet

The second largest solar power project in Australia has had a difficult birth in spite of generous government support, including the recent withdrawal of Pacific Hydro. Given the economics of rooftop solar and wind, utility-scale solar must now deliver on cost reduction promises and move beyond government grants.

Well it took several attempts but Australia’s second largest solar power project in Moree, NSW, has now finally been committed to construction. The cat was let out of the bag prematurely on Friday by the NSW Environment Minister, but has now been officially announced.

However, it was not without some drama as one of the two companies behind its development, Pacific Hydro, withdrew citing excessive political and market uncertainty surrounding renewable energy. This leaves Fotowatio Renewable Ventures, or FRV, as the sole owner.

The project will involve 70 megawatts of solar direct current generating capacity (or 56MW in alternating current) fed to the grid and will cost $164 million to build. It will use a single-axis tilting structure that will move the panels in line with the direction of the sun to generate around 150 gigawatt-hours of electricity per annum, equivalent to the consumption of about 23,000 average NSW households. The solar panel module supplier for the project has yet to be selected, but the company who will design and construct the project is Greenlight Contractors.

First conceived back in 2009 and led by BP’s now defunct solar division in conjunction with Pacific Hydro, Moree was the original first-round winner of the tender under Kevin Rudd’s ill-conceived Solar Flagships program in June 2011. At the time the project was planned to be 150MW in size and cost $923 million, of which the government would contribute $306.5 million.

But at its first attempt, the proponent was unable to secure financing by the government’s deadline and the government’s funding was withdrawn.

The project was then reshaped with FRV coming on board and BP Solar dropping out. Since then the project has been downscaled to 37 per cent of its original size but critically the capital cost of the project has outpaced this, dropping to just 17 per cent of what was initially planned. The original project would have cost $6.15 million per megawatt (AC) but now will cost $2.9 million.

Yet, disappointingly, the government contribution to the project has not managed to decline at anything close to the same degree. Under the original Solar Flagships tender the government would have contributed $2 million per MW while now the Australian Renewable Energy Agency (ARENA) will contribute $1.8 million.  

In addition to this government grant, the Clean Energy Finance Corporation will tip in a loan of $47 million and will be the sole lender to the project.

Given this government support, the owners would probably only need to tip in something close to $50 million in equity (assuming the tax department claws back 30 per cent of the $101 million grant from ARENA).  Provided the Renewable Energy Target remains as currently legislated you’d expect this project would deliver quite an attractive return to its owners, yet still Pacific Hydro chose to pull out.  

The project will be proceeding without a power purchase agreement and so is fully exposed to market fluctuations in the price of power and also renewable energy certificates or ‘LGCs’ under the RET. The future value of LGCs, which would typically represent around half the revenue of the project, is under a dark cloud because the government has chosen to undertake a review of the RET where it has not ruled any possibility out of scope. This includes scrapping the scheme altogether, even though this would be contrary to its election promises.

Even though Pacific Hydro’s equity contribution to this particularly project would have been relatively low, Pacific Hydro’s Australian general manager Lane Crockett stated:

“With a number of projects in our Australian portfolio already exposed to market risk, the board has decided that it is not prepared to expose the company to further risk at this point in time.”

The project funding structure illustrates that there is still some way to go before utility-scale solar is competitive with wind power. For wind power you’d expect to pay around $2 million per megawatt and in return it would generate around 3000 to 3500 megawatt-hours per annum. This solar project will cost $2.9 million per megawatt and generate 2700 MWh. So using this rough benchmark solar’s cost per unit of electricity generated is 70 per cent higher. Even though solar’s generation comes at a more valuable time than wind (daylight hours) it won’t be enough to make up a 70 per cent cost difference.

Nonetheless, in response to questions from Climate Spectator, an FRV spokesperson said the company was confident that large-scale solar will be competitive with wind within the period to 2020. They certainly plan on further projects after Moree, having built up a portfolio of solar projects exceeding 1000MW. This includes projects from 30MW in scale to 150MW (which would be Australia’s biggest if built).

In the end, the ARENA grant to this project is very generous when compared to the level of government support provided to smaller rooftop solar installations. Such levels of support might be justifiable for the first few large-scale projects of their kind in Australia but should not be an ongoing feature. Large megawatt-scale solar developers will have to get their costs down substantially if they expect to make a meaningful impact on Australia’s electricity supply. 

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