Solar's shade of grey

A reply to Tristan Edis' "Cut price solar" article from Andrew Macintosh, former deputy director at The Australia Institute.

Within Australian climate policy circles, there is tendency for some to see the world in black and white. You are either ‘for’ or ‘against’ climate change, or ‘pro’ or ‘anti’ renewable energy. Although a convenient rhetorical device, this approach brushes over complexity and too often falsely represents peoples’ positions.

It was in this spirit that Tristan Edis wrote a piece in Climate Spectator late last week (Cut price solar, April 13) critiquing a paper I co-authored with Deb Wilkinson for The Australia Institute in November 2010, simply because it doesn’t fit in the unquestioning ‘all renewable energy schemes are good’ camp.

The essence of Edis’ argument is that PV prices have come down sharply over the past two years and this disproves our findings, which he claims were that “solar PV was an expensive frivolity that wasn’t going to amount to much” and that PV support programs are “largely welfare for the rich”. Of particular concern to Edis was that we failed to have regard to information from the consultancy AECOM, which shows solar PV prices fell sharply in 2010.  

In case the title of our paper — The Australian Government’s solar PV rebate program: An evaluation of its cost-effectiveness and fairness — didn’t give it away, we sought to evaluate whether the Solar Homes and Communities Program (SHCP) achieved its aims of promoting the uptake of renewable energy, reducing emissions and helping develop the Australian PV industry. We also looked at the fairness of the distribution of the rebates under the program. Contrary to what Edis suggests, the paper did not look at the merits of PV; only those of the SHCP.

Our actual conclusions on the program were as follows (this is a quote from the version of the paper published in Energy Policy in 2011, which has improved abatement cost estimates).

“The residential component of the PVRP–SHCP performed modestly against the chosen measures. The program was a major driver of a more than six-fold increase in PV generation capacity and output in the 2000s. However, the increase was off a low base and PV’s share of the Australian electricity market in 2010 is still only 0.1 per cent. The program was environmentally ineffective and costly. It will reduce emissions by 0.09MtCO2-e/yr over the life of the rebated PV systems (0.016 per cent of Australia’s 2008 emissions) at an average abatement cost of between $238 and $282/tCO2-e.

“The program also appears to have had a relatively minor impact as an industry assistance measure, with much of the associated benefit flowing to foreign manufacturers and most of the domestic benefit being focused outside of the high value-added manufacturing areas. Finally, the data suggest there were equity issues associated with the program, with 66 per cent of all successful applicants residing in medium-high and high SES rated postal areas.”

The report does not suggest solar PV is an expensive frivolity that won’t amount to much, and neither Wilkinson nor I have ever subscribed to that view. Our research simply suggests that the SHCP didn’t produce much abatement, that the costs of abatement were high, that its contribution to driving down the cost of PV was modest, and that it hadn’t led to the creation of a thriving domestic PV manufacturing industry. We also found the rebates were skewed toward postcodes with high socio-economic status scores.       

The reason we did not have regard to the data published by AECOM on a survey it conducted in mid-2010 is that the SHCP was shut down in June 2009, and we were only interested in PV systems that received a subsidy under the program.

Rather than discrediting our research, the AECOM report’s data and findings support it. All things being equal, the ongoing falls in PV prices suggest that the SHCP was not a significant driver of the observed price trends, and that the most important factors in the trajectory of PV prices have been the appreciation of the Australian dollar and the declining price of imported PV systems and components. Funnily enough, this is exactly what AECOM found.

“This decline has been driven by a number of factors including the general global economic downturn and policy reversals in Spain that served to decrease demand, build up inventories and hence lower module prices. These declines in module prices have flowed through to lower PV system prices in the global market and as the majority of PV systems sold in Australia are imported, lower system prices for Australian consumers.

“The decline in Australian prices has been intensified by an appreciating exchange rate lowering the cost of imported systems and potentially, increased competition amongst domestic PV system retailers as the market grows in size.

Here is the catch. Many solar technology advocates believe the decline in PV prices supports the case for ongoing PV subsidies. But the reverse is true. If PV prices are falling sharply without government subsidies, the industry doesn’t need additional assistance. Let the carbon price and market forces do the work.

Another significant point of disagreement in renewable energy policy is the contention that more PV now is not necessarily a good thing.

While Australia has a national emissions limit, the rollout of renewables will not affect the net emissions outcome; all it does is alter where and when the abatement comes from. Emissions reductions obtained via PV substitute for abatement from another source. This will apply doubly once the cap-and-trade emissions trading scheme starts in July 2015. If the rollout of PV displaces cheaper abatement, it will increase the cost of meeting Australia’s emission targets. To date, this is what PV subsidy schemes have been doing.

Why then, do we have renewable energy schemes? The answer is (or should be) that their primary aim is not to reduce emissions but to drive down the cost of low-emission technologies. In doing so, they can lower the long-term cost of cutting emissions. A renewables policy that isn’t significantly accelerating the decline in the cost of renewable energy is a waste of money. It brings forward costs that are better delayed.

The experience with the SHCP illustrates this. The SHCP ultimately subsidised the installation of 156 MW of PV generation capacity at a total (public plus private) cost of roughly $1.7 billion (real 2012 dollars, including GST). If we’d delayed the purchase until today, Edis’ data suggests the same spend could acquire 500 MW of PV capacity. Sometimes delaying the rollout of renewable energy makes sense; but that seems to be too much of a shade of grey for our black and white debate.    

Andrew Macintosh is the Associate Director of the ANU Centre for Climate Law & Policy.

Editor's note: my article, Cut-price solar, was not intended to suggest that the analysis in Macintosh and Wilkinson's paper was poor or that they had not been thorough. Their conclusions were entirely sound based on the data they were able to obtain and in fact were markedly better than prior analysis such as that of the Australian National Audit Office. The point of my article was to suggest that the cost structure of solar PV has been changing so rapidly that we all need to be incredibly careful about the conclusions we make about the technology based on extrapolations from the past. I have made this mistake myself and there are many others that are experts in the sector who have been surprised by the rapid change in solar PV prices. I apologise for any misinterpretations that may have flowed from my article.

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