Solar’s grim 2014: five headwinds await

With power price rises moderating, panel prices no longer in freefall and doubts over the million roof rebate, Australian solar will struggle in the year ahead.

At the start of last year I predicted the solar PV party was over. In the end 850 megawatts was sold, down 17 per cent on the prior year but on par with 2011. This far exceeded my grim expectations for the year.

Still, I remain a bear and 2014 will be tougher than 2013. I put this down to five headwinds:

1) Electricity bill shock effect moderating;

2) Global solar PV module prices unlikely to decline this year due to robust global demand;

3) Depreciation of the Australian dollar adding to PV module price pressures;

4) The government’s million solar roofs rebate may not materialise;

5) No ‘get in before the feed-in tariff ends’ push.

1. Electricity bill shock effect moderating

Many outside the solar sector fail to realise that one of the keys to solar’s rise was consumer electricity bill shock, not simply government subsidies.

With electricity prices doubling between 2007 and 2012 (before the carbon price was introduced) and tabloid sensationalist coverage of the issue, consumers finally started thinking about how they might reduce electricity consumption. Solar was a simple bolt-on solution that required no change in household behaviour and habits, making it a highly attractive option.

But these electricity price rises are now expected to moderate because much of the rise in network charges has filtered through, and oversupply in the wholesale electricity market should mean these prices stay low (although Queensland defies the trend). 

The Australian Energy Market Commission (AEMC) expects that NSW and ACT residential prices will decrease on average over the next three years by 0.7 per cent per year. In South Australia over the same period they foresee market offer prices will decrease by 0.9 per cent a year, thanks in large part to lower wholesale electricity market prices (helped by the addition of lots of wind and solar capacity). In Tasmania, Victoria and Western Australia prices are expected to either be flat or increase by less than inflation.

This leaves just Queensland with rises above inflation at about 8.6 per cent per year. This is a product partly of the Newman government’s inane price freeze directive. On election to government Premier Newman instructed the regulator to keep prices constant. So the subsequent year utilities then increased prices by even more to catch up on the revenue lost from the prior year’s price freeze. No wonder that government is keen to point the finger at the Renewable Energy Target as responsible for price rises despite the fact the AEMC revealing its cost will decline from 1.39 cents per kilowatt-hour to 0.89 cents by 2015-16.

2. Global solar PV module prices unlikely to decline much due to robust demand

All the solar market analysts are expecting a big rise in global demand for solar PV this year. Most foresee demand of around 45 to 50 gigawatts (almost the entire amount of Australia’s installed power generation), up from around 36 GW in 2013. 

Over the past few years solar PV manufacturers’ margins have been compressed to wafer thin levels because there has been far more supply than demand. But with this big rise in demand (driven by China and Japan) the glut in capacity will be largely soaked up, and manufacturers will face less competitive pressure. The prediction is for module prices to be relatively stable this year, before declining again in 2015. 

3. Australian dollar depreciation

Further frustrating the situation with solar PV module prices, and also inverters, is that the Australian dollar is depreciating relative to other major currencies.

Last year the Australian dollar spent the first half above parity with the US dollar, reaching a pinnacle of $US1.08. But it has declined significantly since then and hit US88 cents in December.  The US Federal Reserve has said it will now wind back its policy of injecting the US economy with cash which has kept its currency low and encouraged other countries to follow a similar policy.

The Australian Reserve Bank chief Glenn Stevens believes that the Aussie dollar’s value has been “uncomfortably high” and that its fair value is closer to US85 cents.

4. Government’s million solar roof rebate may not materialise

The Abbott government failed to provide any allocation of money for its million solar roofs rebate program in the mid-year budget update. This program was intended to provide a $500 rebate for solar PV systems targeted at low income households.

The Coalition provided unambiguous costings for this program during the election so it seems strange that this couldn’t be included in the mid-year budget update. Its absence has prompted a view among some industry participants that either the program won’t be ready to launch by July next year, or the budget will be further slashed (days before the election, the promised rebate was halved from $1000 to $500).

5. No ‘get-in before feed-in tariff ends’ push

A successful feature of solar sales technique has been to precipitate the purchase decision by warning potential customers that they’ll miss out on a government subsidy if they don’t act soon. Last year sales were helped by the winding up of Queensland and South Australian feed-in tariff programs. But there are no feed-in tariff premiums available any more to wind up.

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