Putting the brakes on commercial solar?

One of the more peculiar proposals that has surfaced in the Climate Change Authority's review of the renewable energy target is the suggestion of reducing the size of solar systems covered by the Small-scale Renewable Energy Scheme.

This was a thought bubble in search of a home – neither a specific recommendation nor a detailed proposal. 

It is the sort of tinkering that has dogged the renewable energy target since it was first established in 2001, and it is making Australia's solar industry nervous.

The Climate Change Authority explicitly recommended against merging the Small-scale Renewable Energy Scheme and the Large-scale Renewable Energy Target.

They also recommended that the SRES structure should remain largely unchanged.

However, the CCA went on to float the idea of a half-way house that would see smaller commercial PV systems placed into the large-scale scheme as a way of reducing the cost of the SRES.

The CCA's Discussion Paper states, “the Authority is continuing to consider whether the threshold for a small-scale solar PV system should be reduced below its current 100 kW limit to for example 10 kW.”

This would be an uncertain solution to a non-existent problem. Commercial solar – putting solar panels on the roofs of shopping centers and factories – currently represents just 3 per cent of the total solar industry.

So, where is the evidence that a blow out in the cost of the SRES is likely from systems sized 10kW-100kW?

To find out the Australian Solar Council commissioned industry experts, SunWiz and Solar Business Services, to analyse this question, as well as other recommendations from the CCA.

The Australian Solar Council report concluded that, even if the number of PV systems above 10kw increased five-fold, transfer of this volume of certificates from the SRES to the LRET “will have immaterial consequences on the SRES cost”.  

Worse, SunWiz and Solar Business Services found the unintended consequences of tinkering with the SRES and LRET were likely to greatly outweigh any benefits. 

They concluded “there is little merit in terms of reduced pressure on SRES creation or electricity prices from adjusting the size limit.”

The history of the RET is a history of unintended consequences, as change after change has taken the scheme in unexpected directions. 

Another change like this could trip up the smaller scale commercial solar industry (just as it's getting started) and deliver more investor risk to the LRET at a time it needs more certainty and less risk.  

The Australian Solar Council report makes an important point.  The more electricity commercial customers use, the less they pay.

Customers consuming less than 50, 100, or 160 MWh/year (depending on state) typically pay bundled tariffs that can exceed 35c/kWh. But once this threshold is reached, business customers can access tariffs of 16c/kWh or less, with the balance of the bill made up by demand charges.

The tariff structure creates a step-change in the financial viability of PV.  Offsetting expensive tariffs is the goal, but there is no incentive for any sizable export of excess generation. 

It is no wonder then that systems of 5-20kW in size appear to be the sweet spot and, therefore, systems of these sizes are more likely to proceed over the next few years, rather than larger systems.

There is already another significant barrier for larger commercial PV systems.  Up to 30kW a solar system is classified as a ‘micro-embedded generator' under the National Electricity Rules, and can be connected in streamlined process.

Beyond that threshold, distribution network operators may impose additional protection requirements, and the system connection process generally becomes much more onerous.

There are significant benefits in growing a strong commercial solar industry in Australia, which have been ignored by the CCA. 

Even more than residential solar, commercial solar correlates strongly with peak demand and has the potential to puncture Australia's spiraling peak demand problem. 

Commercial solar should be encouraged, not discouraged, and the embedded barriers to greater commercial take up should be addressed.

Rather than jumping at shadows and trying to fix a non-existent commercial solar boom, it would be better if the CCA helped us to get off the ‘solar-coaster' and provide the stable policy footing for solar the industry and public so desperately want.

John Grimes is the chief executive of the Australian Solar Council.