Green Energy

Three reasons the solar PV party is over

Article published on www.businessspectator.com.au, February, 15th 2013.

The Australian solar PV party is over.

The remarkable run of rapid growth solar PV has enjoyed since Costello spiked the punch bowl with the $8000 rebate back in 2007 is at an end. Last year's close to a gigawatt of installations will be the high water mark that will not be exceeded for several years.

2013 will herald a tough year of adjustment and consolidation.

The fact that solar PV market has continued to plough-on unabated, in spite of repeated cuts to government support, has led some to conclude that solar PV is some kind of unstoppable juggernaut set to wipe away everything before it.

But there were a series of three tailwinds that enabled this to happen and these have now run out of puff.

1 - Declining solar module prices have now reached diminishing returns

When the $8000 rebate was launched in 2007, module prices delivered to Australia were in the realm of $5 to $6 per watt. Australia was at the bottom of the queue for provision of module product and it was actually difficult to get reliable supply at the quantity desired.

Since then there have been incredible reductions in module prices which meant that even with the steady cuts government support, out of pocket prices for customers barely changed and in fact have steadily declined. Since 2007 the module cost per kilowatt (kW) has dropped from $5000 to about $550. This $4450 saving was critical to solar’s ongoing sales in spite of a reduction in government support per kW of about $8000.

However even if module prices dropped by a further 20 per cent this will mean a saving of just $110 per kW. Such a drop in prices seems incredibly unlikely given PV manufacturers are losing huge amounts of money at current prices. But even if it happened it’s just not big enough to significantly increase customer uptake. It certainly can’t offset the loss of electricity revenue for customers from cutting the feed-in tariff from 44 cents to 16 in Queensland nor the cut to about 8 cents in other jurisdictions.

2 - The spike in electricity prices will abruptly end

Since 2007 Australia experienced an exceptional spike in electricity prices due to a range of poor regulatory decisions made by government. These included changes that encouraged gold plating of network capacity; installation of smart meters in Victoria that were charged for upfront; and regulators hiking-up household regulated retail prices based on the assumption that wholesale generation costs would spike upwards when in fact they declined.

When combined with the hysteria around the carbon price, this bill shock motivated a large number of people, many uninterested in the environment, to actively consider purchasing solar.

However in 2013 and 2014 we will roll-over into a new regulatory period with new rules that mean the regulator is highly likely to clamp down on network businesses' expenditure proposals. Also the depressed prices in the wholesale electricity market are likely to be passed through to consumers by new regulatory decisions. Plus the costs associated with smart meter roll-out in Victoria will be largely behind us.

WA is probably the only exception to this rule, as its retail prices are still not reflective of costs to supply and need to increase further.

According to little publicised forecasts prepared for the Australian Energy Market Operator, price rises across every state in the NEM will abruptly drop away and prices could even decline in some states.

3 - Reductions in government support can no longer generate a “get in quick” effect

Over the last few years the Australian Solar PV market has been characterised by sales surges as customers were induced to buy before a reduction in government support levels. This was seen with changes to the $8000 rebate, each time the REC/STC multiplier was changed (except when Combet surprised everyone in November) and when the feed-in tariffs were cut in several states.

Governments are now left with little to cut. Households are now paid little better than the wholesale market rate for exported electricity. While solar PV is paid its renewable certificates for fifteen years worth of generation up front, the level of support is not noticeably better than what is given to large scale renewables.

Customers now feel like they can take their time before buying. This may be a good thing in terms of improving the level of quality in the industry. But for sales there’s nothing quite like a human being’s concern about missing out on free money to motivate action.

Find more information about our innovative technologies on Ciel et Terre's website.

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