12 large scale solar projects to get ARENA funding. And the winners are …

All eyes are on the Pullman Hotel in Sydney, where on Thursday, 12 out of the 20 large-scale solar projects shortlisted for the Australian Renewable Energy Agency’s $100 million funding round are expected to be announced as winners of federal government grants.

The announcements are expected to trigger the biggest single investment surge in any renewable energy technology in Australia to date, even outpacing investment in rooftop solar at the height of the premium feed-in tariffs.

Apart from the projects set to go ahead directly from the ARENA tender, the results are also expected to trigger financing commitments for other large-scale solar projects, many of which are keen to cash in on high prices for renewable energy certificates, surging interest in financing from local and international funders, as well as another big slump in the cost of solar modules on international markets.

RenewEconomy understands that 12 of the 20 projects that made the final short list (out of 77 initial inquiries) will get some sort of funding.

The fact that more than half the projects will be helped by ARENA is not unexpected, given the huge reduction in the project costs elicited during the tendering process. It will mean that the ARENA funding round will produce around double the 200MW of large-scale solar capacity that it originally targeted.

It is thought that nine of these 12 projects will be using single axis tracking technology, which a recent study suggests – see our article Solar does work, and a lot better than we thought – provides the best outcome in terms of output and returns on investment.

The tender result is also expected to show that the levellised cost of energy for large-scale solar has fallen to around $100/MWh for the best projects, well below the $135/MWh targeted by ARENA when it started the process.

A lot of this cost reduction is credited to the competitive nature of the bidding process. Last week ARENA chairman Martijn Wilder told ABC Radio the process had knocked down the amount of assistance needed to 10 per cent of project costs from the near 50 per cent needed to get the Nyngan and Broken Hill solar farms built.

It also appears that large energy retailers – under pressure to meet their renewable energy targets, but lately on a capital strike – are prepared to offer around $80-$85/MWh for long-term contracts.

The ARENA funding is needed to make up the funding difference between the PPAs, which tend to last for 10-15 years, and the LCOE, which is an average over the about 25 year life of the plant, at least in the early years of the project.

Other projects, however, such as the 100MW Sun Brilliance project in Western Australia, are prepared to “go merchant”, getting finance on the basis that the output will be sold on the spot electricity market and will cash in on high REC prices, which are also in the mid $80s/MWh at the moment.

The Sun Brilliance project also proposes using single axis tracking technology.

There is, of course, huge speculation about the identity of the ARENA winners, which were due to be confirmed in writing on Wednesday, and announced at a ceremony in Sydney on Thursday.

At recent solar networking events – the popularity of which have defied the Australian network owners lobby’s rather absurd prediction of virtually zero growth in the large scale solar industry over the next two decades – the smart money was for grants funding was focused on a handful of developers with multiple projects.

Several companies, such as Canadian Solar (Oakey and Longreach), Solar Choice (Whitsunday and Gannawarra) and Infigen Energy (Manildra and Capital) have two projects each in the running, and French developer Neoen has three (Dubbo, Parkes and Griffith). Each company is expected to get at least one of their portfolio projects approved.

Other favoured contenders included APA Group’s Emu Downs in Western Australia, Origin Energy’s Darling Downs project in Queensland, and the Genex solar-hydro hybrid project in an old mine in north Queensland. But it appears that these, and more, could make the grade.

The Kennedy wind-solar project in Hughenden, Queensland, which was part of the original 22-long short-list, dropped out after gaining ARENA funding for its proposed mega solar-wind hybrid project in a separate program.

The Queensland projects are expected to do well because they are backed by a state government pledge to support 120MW of large-scale solar by offering power purchase agreements. NSW has also offered similar support, although the nature of the proposal makes it highly conditional.

The ARENA process will have a significant impact on the large scale solar industry. A year ago, obtaining contracts of finance appeared impossible. Now the cost reduction, the growing familiarity with solar projects already built, and the interest of financiers, means it could be about to take off.

The economics of large-scale solar in Australia is expected to be further boosted significantly over the next year as the global solar module market faces another surplus as new production capacity is brought online.

In a report on Wednesday, Deutsche Bank said that module prices are expected to decline from current levels at the mid US40c-mid 50c/watt to the low US40c/W range in most markets globally.

This will help solar achieve “parity” with wind farms. A recent auction by the ACT government for 200MW of large-scale renewable energy capacity suggested that solar prices were not far behind the cost of wind farms.

Some analysts predict that as much large scale solar will be built as wind energy to help meet the 33,000GWh renewable energy target. Others, such as the Energy Networks Association, believe that no large scale solar will be built at all post the ARENA grants.