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Why Australian solar installers are suffering, and consumers are laughing

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Here’s a statistic that will make Australian solar installers green with envy, or at least cry in frustration. The average margin for a rooftop solar installation in the United States market is 40 per cent. In Australia, some installers are struggle to get into double figures.

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That actually turns out to be good news for consumers – who in Australia enjoy some of the cheapest prices for installed rooftop solar in the world, and more than 1.5 million homes and businesses have already taken advantage of this.

This in turn has turned Australia into one of the leading markets for rooftop solar in the world, and puts it at the forefront of the battery storage revolution, with many leading battery storage companies using Australia as the launch-pad for their battery storage products, including Tesla, Enphase, LG, Redflow and many others.

Still, the situation with installers and the cost of rooftop PV is an interesting one, although it should be noted that it is not the only factor governing installation rates. In the US, most states retain a generous feed in tariffs, equivalent to the full retail price. In Australia, tariffs have been slashed to a fraction of the retail price.

But the US market is also subject to heavy “balance of system” costs, mostly related to the planning and approvals process, although this is being smoothed out. Still, Australian solar system prices average around $1.63/watt, less than half the $US3.50/watt average price for residential installation in the US.

Part of this is explained by the intense competition in the Australian market, the impact of large utilities in the rooftop installation market, and the tendency for many Australian households to be happy to put up “cheap” solar panels, equipment of lower quality.

But the mark up from installers is still quite stunning. As Deutsche Bank notes in a research report that looks at big price falls from manufacturers:

“Even though we expect some of the cost reductions to be trickled down towards the end customer, we still expect installers to make the most money in the supply chain.”

Geoff Bragg, from the Solar Energy Industries Association in Australia, says margins for Australian installers ranges from around 17 per cent to 26 per cent. “Any Aussie installer marking up less will be heading for closure in my opinion,” he said. And many have in recent years.

It is one of the ironies of the solar market that utility scale solar in the US is so cheap, while its rooftop installations are so expensive. In Australia, it is the exact reverse.

 

The good news for consumers in both countries is that rooftop solar module prices are about to fall sharply, with analysts predicting that module costs could fall by nearly half in the next year to as low as US30c/watt – due to massive amounts of new capacity, and significant cost reductions in the manufacturing process.

Bloomberg New Energy Finance said last week that module prices could fall to US30c/watt in 2017, and now analysts at Deutsche Bank says they now expect module prices to fall as low as US35c/watt.

Deutsche Bank says prices have already fallen to as low as US41c/watt, and US35c/watt is likely to be reached within 6-9 months. Part of the reason is lower import duties, but components such as solar cells have also fallen rapidly, with Taiwanese cells down to US20c/watt, from more than US30c/watt.

As for manufacturers, Deutsche Bank expects margins to contract to the low teens later in 2016, but in 2017 could fall into the single digits. That will put some pressure on share prices for the listed manufacturers. That might make consumers as the happiest of all the components of the solar supply chain.

 

  

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  • Kenshō

    I’m looking forward to the wave of investment when FIT’s end this year. Once premises install storage, the gravity will shift to the new paradigm of RE/storage, the community’s interest will be storage and ARENA will primarily invest in RE/storage.

    • Brian Tehan

      FITs ended some time ago in Victoria but solar is being installed at, probably, the fastest rate ever. I don’t think that batteries will take off in a big way until they get a bit cheaper. Of course, there’s always the early adopters that help bring the price down for the rest of us.

      • Kenshō

        I would have thought a small battery would help people get off the export/import merry-go-round of diminishing returns. People who have a home/office, the retired or anyone who owns their own business would benefit. The inverter/charger could also help businesses reduce demand charges with load management.

        • Mike Dill

          You are absolutely correct, but the economics are just barely there in some places, and there is some element of uncertainty for the common person who does not understand all the technology. We are just starting up the learning curve for a majority of the population.

          • Kenshō

            The point is, if we don’t focus on where “the economics are just barely there in some places”, it never will be anywhere.

          • Mike Dill

            That is why first adopters who do not worry much about the economics are so important. I did not expect a ‘fast payback’ for my solar array, or for my electric car. I expect that the cost for them will balance out in a few years, but if they do not, that is still alright with me.
            I will be getting a few kW of batteries next year, and i think that they will be break-even after nine years. Not a good personal investment, but it is something that I can do for the environment.

          • Kenshō

            My sentiment exactly, sometimes I’m annoyed with people who want to calculate exact tipping points. I knew I was moving ahead with my system anyway and decided just to experiment around what could be achieved, knowing the knowledge and experience would go into the next few buildings on the property. With your situation, I think nine years is fantastic especially if the batteries have a warrantee surpassing that. And if the battery reaches 80% of its life by then perhaps it can be moved to a smaller building on the property. That’s what I’m planning on doing. Overall, I’m all for clocking up experience with RE/storage, as I think the ideal paradigm matters more in the collective, than exact tipping points.

      • Mike Dill

        With solar PV currently at less than 10c/kWh, putting in excess and ‘losing’ a third to the utility is still cost effective. When and where storage makes sense, there will be a huge market.

        • Kenshō

          Mike, I think your in Las Vegas where solar towers with storage are taken seriously because they power city lights during peak demand. Australians don’t see that because we have nothing of the kind.

  • Kenshō

    I think it’s important as a community we accept no one’s going to take renewable energy seriously until it has storage. Storage creates frequency stability. Storage makes it possible for renewable energy to form the backbone of a grid.

    • Lightfoot

      nonsense. The Grid is cheaper than storage. Look at all the solar panels on homes around you. And commercial businesses are rapidly taking part now as well. Are all these people just playing around? Or do they see solar panels as a worthwhile investment already? I think you will find it is the latter.

      • Kenshō

        No because:
        # a grid-connect inverter can’t stand on its own feet if the grid goes down. It can’t be sold to mainstream media as anything other than a sidekick to the fossil fuel industry as it cannot stand alone,
        # the grid is NOT cheaper than storage, when all the other factors are taken into account like transmission losses, saving bigger grid infrastructure and cutting down on network vulnerabilities to wind and fire damage,
        # an inverter/charger can carry out load management behind the meter and flatten any consumption curve, flattening demand charges,
        # on the grid in SA, storage would stop the FF generators throwing their weight around by supplying spikes in peak demand. The inverter/charger is capable of dispatchable power by ramping its output up at the speed it takes an electromagnetic field to power up. When the demand peak reduces, the inverter/charger can ramp its output power down at the speed the electromagnetic field collapses,
        # the inverter/charger can assist while FF generators are powering up onsite or offsite,
        # the inverter/charger can manage multiple AC inputs e.g. wind and a generator. If a community had PV/wind and a demand peak occurred, the inverter/charger could power the load from the battery while it starts the community generator.

        All in all, it is the inverter/charger fed by batteries, that renewable energy microgrids have been built with in the past in developing countries and remote locations. The inverter/charger and batteries have always had superior frequency stability to a fossil fuel generator. The renewable energy paradigm will only truly begin with RE/storage. The grid-connect inverter is a piece of shit and adding more solar panels on the grid without storage, does not serve us. All RE without storage does, is creates doubt about the reliability of renewable energy and then we all get kicked around by mainstream media. Not my house. The lights stay on when the grid goes down.

        • Coley

          While I largely agree with your general points, you forget those who for various reasons are always going to be ‘tied to the grid’
          Are you suggesting everyone with a few £/$ in their pockets goes ‘off grid’ and leave others at the mercies of the utilities?
          Far better for people who have solar to be in a position to bargain with utilities re; a fair and proper FIT, that can benefit all consumers.

          • Kenshō

            No I’m definitely not suggesting communities go off grid as an individual solar system would cost upwards of $30k. A hybrid solar system that works with the grid is best. I’m suggesting an equal relationship, where the solar system supplies the house during the day and cuts into the evening peak. With little FIT currently offered in Australia, a grid-connect inverter is pretty powerless to get a decent system payback, especially people who come home after dark. They will have to export then import all their power.

          • Kenshō

            I think the most powerful focus is hybrid systems with small inverter/chargers and small battery, big PV, aiming for the holy grail of the 10 year payback. Then a true revolution will happen.

  • Bryan

    Solar installers, especially the large solar leasing companies in the U.S. are also starting to struggle. Margins are being squeezed by the local smaller dealers and it’s killing the solar leasing company’s business model for both leases and purchases. Most of the solar leasing companies in the U.S. will be bankrupt by the end of the year.

  • Kenshō

    The day renewable energy will be taken seriously, is when a fossil fuel generator falls over and that community knows renewable energy kept the grid up and running.

  • Kenshō

    Installers need to stop f__king us up by installing grid-connect inverters. It is now slowing down the country. No one takes grid-connect inverter technology seriously as its merely an ancillary to the grid. Pretty disappointing if the customer has a grid outage with plenty of installed PV and the premise goes down. Please stop doing it. Even a small battery can be installed and upgraded when batteries further reduce in price. The whole system needs to be prepared now. No more grid-connect inverters.

  • Kenshō

    The cost of a hybrid solar system can be reduced by only installing an inverter/charger that supplies the base load of the property. Peaks can be sourced from the grid. In outages the system can stand alone, by the customer not turning too many appliances on at the same time. Average sized houses need no more than a 4 to 5kW nominal output inverter/charger. Small houses like mine perform well with a 2.5kW nominal output inverter/charger.

  • Kenshō

    For most people, the battery only needs to be big enough to confidently supply the amps for the inverter/charger. Such a battery will cruise the property through the solar day by avoiding export/imports and cut into the evening peak. This and a relatively small inverter/charger is the optimal setup for this period of history for most people.