The timing was appropriately perverse. On the day that most listed Australian solar companies had finalised the release of a massive splash of red ink on their accounts, the result of a series of boom-bust cycles inspired by various state governments, Victoria decided to trigger another mini boom-bust cycle by becoming the latest, and presumably the last, to slash its solar feed in tariffs.
Like other major states, Victoria will from now offer a derisory payment of 8c/kWh for exports from new rooftop solar PV installations. The Victorian announcement had been expected though disappointing news, but given Victorians have until the end of the month to qualify for the transitional tariff of 25c/kWh that currently stands, there is likely to be a rush for installations.
This is not a new experience for the Australian solar industry. It has seen it numerous times in recent years from the hodge-podge of tariffs introduced by state governments, and then suddenly removed. Some were absurdly generous, such as the NSW Labor’s governments gross feed in tariff that paid 60c/kWh for all electricity generated. Some were more measured, such as the net tariffs in Queensland and South Australia that paid 44c and 52c/kWh for electricity exported to the grid. These later systems were more durable and less expensive for all consumers, but their sudden withdrawal had the same impact – a sudden rush and then a slump.
For many in the industry, the end of the tariffs will come as something of a relief. Suppliers such as the listed Solco say they are looking forward to he “post rebate” PV world – one where they expect solar can be evaluated on its own merits.
There is a good reason for them to want some stability. The boom/bust cycles have been nearly impossible to manage. Solco was one of the many to benefit in previous years, but announced late Friday that its results for 2011/12 had slumped dramatically, with revenues falling by 57 per cent to $22.9 million, its bottom line result slumping to a loss of $4.4 million, and posing huge management problems on inventory which it hopes are now addressed.
It was not alone. Few companies in the Australian solar PV business are listed, but those that are have shown the dramatic impact of the slump in revenues in the past 12 months. Origin Energy, the biggest utility and one of the biggest installers, noted that the PV business had dropped in half, but didn’t break down its numbers. CBD Energy’s rooftop division eco-Kinetics saw revenue slump nearly 75 per cent to $33 million from $125 million and post a $10.3 million loss. That business is now being folded into the CBD Solar business. Silex Solar, a subsidiary of the listed Silex Systems, saw revenue slump and the company is now out of the rooftop flat panel solar business.
Some forget exactly how big the solar PV industry has become in just a few years. Just four years ago it was basically a cottage industry inhabited by enthusiasts and those servicing off-grid areas that had no other options, and a bunch of excellent researchers who saw most of the benefits of their work head overseas, and in some cases took themselves with it.
It now comprises, according to the Solco annual report, some 2,000 companies and employs an estimated 15,000 people, and competitive pressures are being added by a continued influx of new participants, with manufacturers such as Yingli setting up operations as well as EPC contractors. All are attracted by the prospect of Australia becoming the world’s first country to boast of a mass market solar PV market.
Consider this graph below. It shows that around 8 per cent of all suitable homes in Australia – or around 500,000 dwellings – have a rooftop solar PV system (not including solar hot water). In some states, the penetration level is already well above 10 per cent of available buildings. According to Solco that still leaves a potential four million residential systems available.
This penetration is mostly the result of the feed in tariffs, and the massive cost reductions, both in international modules and local balance of systems costs, that have occurred in recent years. Solco speaks for many in the industry when it says that these policy drivers have served their purpose.
Solco believes that the prospects for the industry are strong, given the pricing of components, with module costs falling 45 per cent in 2011 and by some estimates will fall a similar amount in 2012. Solco says inverter, racking and other balance of systems costs are falling too and making PV more competitive than previously predicted.
But it says the biggest single factor for the uptake of solar PV is rising retail electricity costs, and the major barrier to its uptake, the upfront capital costs, are being steadily removed by innovative finance offerings such as leasing offers which are expected to flourish in the residential and commercial sectors.
“(The FiTs) now provide the industry with nothing but a negative social stigma for non-renewable electricity generators to use as a tool to maintain the status quo,” the company said in its recent annual report.
But therein lies the problem. The industry craves stability, but it still wants fair value for its product. The new tariffs have been set more or less at the behest of the utilities, who are wary of the impact of solar PV because of its ability to eat a massive hole in their revenues – both at the distribution and retailing level. In some states such as NSW, the payments are not even compulsory, because the government has bought the argument that competitive forces will be at work. Utilities, as Solco suggests, have used the cost of the FiTs to demonise solar and amplify the costs to non-solar users, and are now using that as an excuse to change tariffs and make solar less attractive as an investment – another potential barrier.
The solar industry argues that 6c/kWh or 8c/kWh does not reflect anything like the value of solar exported to the grid, and suggests that what is now being implemented is a reverse subsidy. The Clean Energy Council and the Alternative Technology Association suggest the export rate should be double, at least in the range of 12c/kWh to 20c/kWh. Others suggest a 1:1 rate, or just short of the price of electricity imported, while others suggest a rate of 40c/kWh would best reflect the benefits of having some 5GW or more of solar PV in Australia – an amount that Australia is expected to reach within a few years, and then likely double or triple. At that point, the value of solar PV will become a huge and important debating and economic point.