2017 will represent a “transformational” year for solar farm development in Australia, with over 20 projects likely to reach financial close. While the 12 ARENA supported projects are likely to be the first to lock in funding, an additional pipeline of projects is set to attract overseas and domestic investors.
Sustainable Energy Research Analytics (SERA) released its large scale solar capital forecasts today, in which it finds the $1.3 billion in large scale solar investment set for 2017 will be surpassed by close to $2 billion in 2018.
“2018 will be even bigger for solar investment,” commented SERA’s Gero Farruggio, in a video blog.
The SERA forecast sees over 1GW of capacity, across more than 20 projects, reaching financial close in 2017. In the medium term, SERA is tracking more than 3.7GW of large scale PV projects in various stages of development.
Investment into the sector, both regarding equity and debt financing, is likely to come from domestic and oversees institutional investors.
SERA reports that some project developers are currently looking for equity partners, while others are selling projects or spinning them off to free up funds for new developments. It expects new overseas investors to be attracted to the Australian market this year and next.
“There will be a frenzy of activity in financing, EPC, and construction announcements,” commented SERA analyst Ben Willacy.
Given the sizeable opportunity, EPC companies will be busy bidding for contracts this year. SERA reports that only 27% of the large scale project pipeline has locked in an EPC.
“There are 17 EPC companies currently active in Australia,” says Willacy. “There will be plenty for them to go after.”
SERA forecasts a base-case of 202MW of utility scale PV capacity to be completed and grid connected in 2017, with that growing to over 700MW in 2018. The 2017 figure could be exceeded if some of the five projects smaller than 50MW move ahead more quickly than expected.
“The most likely scenario is that projects we expect to start in 2018 progress more rapidly than we expect, and get off the ground in 2017 instead,” explains Willacy. “Smaller assets can – of course – be built faster, and are therefore the most likely to over-perform compared to our timing assumptions. A total build of 352MW [in 2017] is possible.”
There are, naturally, risks to the forecast large scale solar pipeline. A large number of bigger projects have not yet reached financial close, nor acquired planning approval. Grid connection can also push out project timelines.
Policy uncertainty, in particular calls for the Renewable Energy Target to be scrapped, could also undermine investor confidence. However, SERA’s Willacy says that falling PV power plant costs mean there is would remain a strong business case for projects going ahead.
“Regarding the RET, if it looks likely the target will be scrapped and LGCs become obsolete, this would certainly jeopardise a large proportion of the capacity and capital in our forecast,” says Willacy.
“Projects that are planned on a merchant basis would clearly become far less attractive to the developer as they would make less revenue. And projects seeking PPAs will look less attractive to the PPA counterparty.
However, the cheapest Australian solar assets now have breakeven prices that are very close to NEM electricity futures prices, suggesting that they can be competitive in the market without LGCs. So scrapping the RET would seriously hinder utility scale solar’s growth in Australia, but it would not be terminal for all projects.”