When I talk to Australian PV industry people they all tell me the same thing: ‘It’s all about Commercial PV; almost’.
Uptake data from Sunwiz Consulting confirms that commercial PV applications in Australia are growing, with the first quarter of 2012 seeing the highest uptake in Australia’s history of 40kW plus systems. However, the trend is running slightly below our expectations for the Commercial market as a whole, demonstrating that selling larger systems is very different to selling Mrs Jones a system for her rooftop.
Several factors are driving this increase.
Firstly, it is the rapidly rising cost of electricity, even for commercial customers. Solar PV can compete today, in many parts of the market if a sufficiently long-term view is taken and a rational approach to cost benchmarking is used. However, the utilities have (it appears) very cleverly hired mobile phone bill writers to create their bills too; you’ll need to take maths extraordinaire Adam Spencer with you to unravel the real cost of electricity on a typical commercial electricity bill.
Only last week I sat with a client looking at a project who’s (very large corporate) customer said “look I only pay $0.06c kWh, it says so right there!” They spent some time running the numbers and poring over spread sheets and finally demonstrated that the price was really$0.18c kWh (and rising), much to the electricity procurement manager’s horror.
Just wait till he gets his September bill, price rises and carbon price included.
The second factor is the combination of the falling PV price and the wavering, but still strong, Australian dollar. PV prices in Australia fell again between April and May, by roughly 4 per cent according to our own analysis, and international manufacturing cost forecasts are bullish for the remainder of the year on the back of falling silicon prices too. However, having worked for a major PV manufacturer in the past, I urge great caution on the issue of price given the volatility and margin issues the industry is facing.
Indeed, one manufacturer I spoke to highlighted that assuming they do hit their cost reduction targets for the year end, they have to claw some back as margin recovery, given the multi-million dollar losses most are currently making. The market may thus not see much of these reductions at all, and relatively small shifts in the foreign exchange rate could easily swamp any savings that are passed on.
So it’s a great proposition, its growing rapidly but is remains a niche – for the moment.
On the flipside, barriers still remain.
One major complexity for PV retailers is economically finding commercial customers and talking the right language to the right people.
This highlights the almost monopolistic advantage that incumbent utilities have over the opportunity, highlighted just last week in VCEC’s report on FIT’s and the difficulties in connecting as a distributed generator (unless you are in or own the network of course…).
Utilities have the data, the relationship, the customer details, the load profile and the credibility to forecast price rises and scare their own customers into commercial PV if they choose to yield it. But there’s nothing like competition to breed innovation. There is a steep learning curve ahead, but the dynamic abilities of smaller companies are increasingly impressive and will keep the utilities on their toes I predict.
The other big issue in Australia is the combined cost of finance and the expectations on investment returns. Speaking with another international client recently they were lamenting the “extraordinarily high” return expected by Australian businesses, compared to European investors. He initially couldn’t see why commercial PV wasn’t booming down here until we unravelled some of these market nuances.
It seems that the success and prosperity Australians enjoy, and which I wrote about recently, may have lulled business into the same sense of false security that consumers have about our standard of living.
The commercial PV market is becoming an increasingly significant segment of the Australian market and industry is working its way up the learning curve rapidly. Under the right conditions we will see a new boom in Australia, despite what the haters would have you believe.
Nigel Morris is Director, Solar Business Services.