Are wind and solar now at the point of cost-competitiveness versus fossil fuels where it’s really time to cut them off government support?
It might be getting to a point where we need to seriously consider this question.
Both AGL and the Australian Industry Group in their submissions to the review of the Renewable Energy Target have entirely legitimately raised the issue that some renewable energy technologies are at a point, or a close to a point, of cost-competitiveness where they just don’t need a government leg-up.
For AGL, it argues the small-scale renewable energy target, or SRES, should be closed because it believes solar PV is now a financially attractive proposition for many households without receiving the SRES rebate discount.
And the Australian Industry Group flagged that if projections by the government’s Bureau of Resource and Energy Economics are accurate, then within the 2020 to 2030 timeframe wind and solar could be cheaper than fossil fuel power sources.
We don’t throw billions of dollars at low emission energy technologies because we think people’s roofs would look better with a solar panel on them. Nor because we think long pipes stuck onto the exhaust of a coal power station make them more loveable (in the case of carbon capture and storage). It’s about spurring improvement at a reasonably contained cost, so that they'll ultimately become affordable to roll-out at large scale across the entire electricity market.
If wind or solar power become, or already are, cheaper than any other source of power available, why should we give them an additional leg-up? Surely that’s job done, and the money can be saved to spend on spurring the development of other low carbon technologies which can fill the gaps in supply that can’t be reliably met from these technologies.
Yesterday I flagged that commodity analysts (guys who spend their professional lives thinking about coal, oil, gas and metals markets, not climate change) at global investments banks Goldman Sachs and Citi see wind and solar emerging as legitimate competitive threats to coal and gas.
And those within the renewable energy industry also point out that they believe they are not far from being competitive without subsidies.
In an interview with Tom Werner, the chief executive of US solar giant Sunpower, I spent a bit of time specifically probing him about his claims that solar was nearing the point of competitiveness without subsidies. Werner points out that they are building large-scale (greater than 50 megawatts) solar projects today in the US that are viable at $US100 per megawatt-hour without any supplemental government support. That may be a long way north of current Australian east-coast wholesale electricity pool prices, but it isn’t all that far off the cost of new-build combined cycle gas power in Australia and pretty much everywhere else other than the US (approximately $70-$100/MWh depending on the gas price and scale of project).
Importantly, if they can keep up even a third of the rate of cost reductions achieved in the last few years, then by around 2020-2025 you’d expect utility-scale solar to be unambiguously more attractive than gas-fired power.
And the chief executive of solar manufacturer Suntech Power told RenewEconomy yesterday that:
“We are sure that by 2016 – or at the latest 2017 – the levelised cost of solar PV will be the same as coal-fired generation in China.”
If you think this is all a given, then the renewables sector faces some tough questions as to why there’s such a desperate need to retain the Renewable Energy Target.
One example where a very critical eye is required is government providing support over and above the RET for use of solar PV in off-grid diesel displacement.
About two months ago I received a phone call from someone with long experience in the solar as diesel displacement market. He was very concerned that ARENA was about to shovel large sums of money out the door to miners to do solar projects which they’d happily do without any government assistance. I didn’t share his concern at the time because there were bigger worries about where ARENA’s money was likely to end up – back in consolidated revenue. And people have been talking for a long time about the potential for solar to displace diesel-fueled power costing around $250 to $400 per megawatt-hour, yet its inroads have been modest.
Still, that may be on the cusp of dramatic change.
In interviews with Sunpower’s Australian managing director Chris O’Brien and First Solar’s Jack Curtis, their bullishness about the competitiveness of solar PV in displacing diesel use for power in off-grid locations leaves me wondering why there’s a government program to support such projects.
In chatting to Curtis about their new project at Rio Tinto’s Weipa mine, he explained that while the closure of ARENA would certainly hinder development of off-grid solar projects, it wouldn’t be a “showstopper” over the medium term.
O’Brien also felt that ARENA was very important to overcome some early-mover hesitancy amongst miners. But when I pressed him that ARENA funding was unlikely to be around much longer he responded, “There’s still a strong economic argument when you’re talking about producing energy at $400 a megawatt hour because you have to shoot diesel out into the middle of nowhere.”
Still, this all prompts the question – if solar is still yet to break into the off-grid market where power costs between $250 to $400 per MWh, are we really at the point where solar is about to take over the broader power generation market free of subsidies?