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Australian big solar PPAs heading to $75/MWh, says ARENA

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The cost of developing large-scale solar farms in Australia will fall to as low as $70-75/MWh for projects starting construction in 2018, the chief financial officer of the Australian Renewable Energy Agency says.

Speaking at the Large-Scale Solar Conference hosted by RenewEconomy and Informa in Sydney on Monday, Ian Kay said that projects were currently reaching financial close in the Australian market – without ARENA support – in the low to mid $80s/MWh.

“We’re seeing major projects able to go ahead, in the low to mid $80s/MWh, without ARENA support,” Kay said, pointing to examples including the Gannawarra Solar Farm, Clare Solar, Ross River, and Taliem Bend.

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This is already a remarkable achievement, considering the current wholesale market standard sits at around $100/MWh.

But in a year’s time, Kay says large-scale solar projects are “likely to be priced down in the mid-70s (dollars per megawatt-hour)”, which was “just absolutely sensational,” he added.

“When it comes to vanilla large-scale solar (PV), I’m very pleased to say that ARENA’s work is done,” Kay told the conference.

“(Power purchase agreements) are still in the $80s (/MWh), but are coming down quickly,” Kay said, noting that this was in part, due to growing confidence that the federal government mandated RET would hold, as it currently stands will hold.

State government schemes supporting large-scale solar, particularly those led by the ACT, Victoria and South Australia, had also helped to build momentum, he said.

Kay said that alongside falling technology costs, industry-wide, ARENA’s large-scale solar funding programs had been a key driver of Australia’s industry, which had grown from one relatively small solar farm in 2012, to 18 big solar farms around the country to date, and many more in the pipeline.

He said that for the money the Agency had spent, it had thought it might get six large-scale solar projects up and running.

Rather, he added, “we have had nine reach … financial close of late, with another we hope will soon follow.”

Adding to the falling cost of project was also the increase in local components, he said: “that gives us the ability to drive costs here in Australia.”

All of these factors, “and even governments”, he said, Kay added, had played key roles in getting Australia’s large-scale solar indusrty “from a standing start to commercial within 5 years.”  

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  • Tom

    I wonder if any reader can inform me – what happens to the assets at the end of the PPA?

    • It keeps going – either selling into spot market or signing a new contract with someone.

      • Tom

        Thanks.

      • brucelee

        I’ve always wondered this as well, has any one produced a forecast wholesale price from a fully depreciated solar farm with only maintenance/opex costs. Also, vs fully depreciated coal.

        • Mike A

          The issue about farms at that stage is the power production from the cells at that time. Where the PPA requires a minimum power out to the end of the life then the panels have been replaced or maintained and there is some reliability. Deals in the UAE are like this. However you need a big reliable company to operate the project and you need a clever government to make sure the right terms are in there.

        • Ron Horgan

          I guess that the depreciation allowance, which is a tax break, would be reinvested in progressive panel and inverter upgrades.It should approach a very low stable cost of production relative to the costs of any fossil fuel.

  • Tim Buckley

    The long term deflationary impact of solar and wind, plus energy efficiency is clear. With Germany getting 41% of March 2017 electricity production from renewables, the collapse in average German wholesale electricity prices to decade lows is not a coincidence. Solar will shoot below A$75/MWh in Australia, easy. Everyone is underestimating the rate of technology development and the resulting price deflation, still. Thermal power companies here will make hay and continue to game the system near term while they can, but this is technology and finance driven, and unstoppable. Good news.

  • neroden

    That’s AUD, right? So USD $53 – $57 ?

    That’s actually… a bit too high considering how good your sunlight is in Australia. Chile, Mexico, and the UAE are getting cheaper PPAs than that. But I guess Australia has higher wages than all of those countries.

    • Mike A

      Likely to be the finance cost too as they are relatively high here.

    • Colin

      “That’s AUD, right? So USD $53 – $57 ?”

      Yes.

      As Mike said, finance, and yes labour costs, also depends on how much of project is sourced here. Oz is still a long way from the rest of the world.

  • MS

    Hello Everyone,
    What`s the duration of such PPAs? Is it being signed for 20-25 years or less?
    Apart from PPA, I believe the generator is also entitled to claim LGCs – Can they do a long term contract with offtakers to have additional revenue stream or they can just sell them in open/spot market? In any case, can you please advise on the current LGC prices?

    Many Thanks in advance!