ARENA says latest bids shows large scale solar costs falling quickly

The Australian Renewable Energy Agency says the final round of bidding for its large scale solar funding program shows the costs of the technology are still falling, and will likely continue to fall.

ARENA – in possibly its last grant funding round before its remaining $1.3 billion of legislated funds are stripped by the Coalition government – says twenty different solar projects totalling 757MW lodged a final bid for a share of the $100 million in grants to be allocated.

The asking price for grants, ARENA says, has fallen to 28c/watt in this round from 43c/watt when expressions of interest were lodged late last year. This compares to $1.60/watt when AGL Energy built the Nyngan and Broken Hill solar plants with the help of ARENA funding last year.

The funding to the Nyngan and Broken Hill plants was always considered to be on the generous side, even though ARENA has argued that it was necessary to kick-start the large scale solar industry.

It says the latest round of funding shows that the size of grant funding required to get projects across the line is falling quickly. And that should mean more projects can be funded in this round.

“ARENA is playing a vital role providing bridge funding for projects that will make large-scale solar PV more competitive by increasing confidence and building supply chains,” CEO Ivor Frischknecht said in a statement.

“Our funding round has already reduced costs through competitive tension and encouraged a portfolio of new Australian solar plants to proceed to more advanced stages of planning and development.”

A spokesman said the new round of bidding had shown a “significant” fall in engineering, procurement and construction (EPC) costs between the two rounds. Total project MW ratios had come down from an average of $2.19/watt in the shortlisting stage to an average of $2.11/w in the final applications; or 5 per cent.

The lower bids were also likely supported by announcements from the Queensland and NSW governments that they would write power purchase agreements for 120MW of solar in the case of Queensland, and more than 40MW of solar (92GWh) in the case of NSW.

The long term contracts from NSW and Queensland will have allowed the developers to reduce the amount of grant funding needed. The lower bids should also mean that ARENA will be able to lift the amount of solar plants it can support – from 200MW to 280MW if the full funding is to be allocated.

All but four of the 22 projects shortlisted for the funding in January are located in Queensland and NSW (the list can be found here) . A total of 20 lodged bids in the final round, seeking $211 million of grants for $1.6 billion in projects, although ARENA is not saying which two projects dropped out.

Frischknecht says the funding results clearly demonstrates “how quickly large-scale solar PV costs are falling supported by ARENA funding, which has resulted in rising confidence, lower finance costs and a more supportive market for power purchase agreements.”

But he sys that hurdles remain. “Doing something the first few times is always harder and more expensive, and building large-scale solar PV plants is no exception,” Frischknecht said.

ARENA says it expects the cost of large scale solar to fall well below $100/MWh before 2020, and private developers say it could fall further and sooner. Some suggest a price of around $80/MWh may already be appropriate, which probably helps explain the lower grant funding bids.

Financing remains the key, and banks will be unlikely to offer the lowest rates until they see more projects. That is one reason why the Clean Energy Finance Corporation is making some $200 million available to help provide debt finance for the projects.

“Growth in the local large-scale solar PV sector will provide a significant boost for Australia’s regional economy, with our competitive funding round estimated to create upwards of 1000 new jobs in construction, manufacturing and civil engineering,” Frischknecht says.

Detailed due diligence and merit assessment analysis of the 20 applications is now being undertaken. ARENA expects to announce the successful projects in September this year.