Community solar: Is it really that hard?

In recent months, the Australian government has launched two important initiatives, both seemingly unconnected and yet both page one news.

One was the release of a white paper intended to highlight the challenges ahead in meeting Australia’s energy needs.

The other was the Treasurer’s encouragement to develop the Australian corporate bond market, coinciding with increasing demand from international investors for AAA rated Australian government bonds.

Where there could be a crossover between these two developments is in connecting the bond market with community solar energy initiatives.

In the United States when the First Transcontinental Railroad was built between 1863 and 1869, it was done with the help of 30 year government bonds and releases of government owned land.

This great initiative which supported expansion of the US economy and linked the country nationally, came about because of community support for a project everyone thought worthwhile.

The irony in Australia is that most people think using solar energy is a great idea and yet we don’t have structures or government support to deliver the cheaper electricity it offers.

One simple idea to bring about community use of solar energy is to follow the US railroads precedent and combine land availability and the bond market to deliver community solar projects.

When Minister Ferguson released his white paper it received a combination of criticism and congratulation but a common point on which all were agreed was that electricity prices are going to continue to rise.

In the current market and government renewable energy certificate regime, renewable energy has reached a parity cost with coal fired energy, except that the direction of renewable energy prices is down, not up.

So at a time when rising electricity prices hurts those who can least afford it, not to mention the impost on industry, why not explore solutions like community solar energy which can genuinely deliver benefits to people.

Here’s how it could work.

Solar units need land to begin with and in many municipalities there is Council owned land that could be used.

For some people, the cost of investing in solar on their roof is not something they can manage, so funding of the solar units could come from government issued bonds.

Subscribers to the bonds could be local, including “mums and dads”, self managed super funds and institutions, as well as international, especially given the credit rating.

Structure of the bonds could be such that it would allow for parallel creation of a fund that would contribute to meeting redemption at the end of the term.

The size of the solar modules would be governed by land available and community numbers and once operating, it would deliver cheaper electricity to the local community.

Given the likely increasing gap between cheap solar energy and higher costing coal fuelled power, there would be scope to share the benefits of cheaper electricity with the local community and also contribute to the parallel redemption fund.

Final bond redemption would be shared by the government and the parallel fund, with government benefitting from creating new energy assets at a fraction the cost of constructing new coal fired power stations.

Too often in the energy debate in Australia, the concept of opportunity cost is ignored and yet it is a key concept underlying the value of community solar.

For example, there was a lot of attention given to the cost of the New South Wales feed in tariff when it was stopped earlier this year.

The focus was on potential cost of the scheme of $4 billion if it had kept going but the actual cost to the state government will be something like $1.5 billion.

Hidden amongst all the criticism of the scheme is that it actually created a 380 MW people’s power plant on top of roofs in NSW which will continue to generate electricity for the next 25 years.

What this has meant for NSW is that it has been able to postpone maintenance of the grid for several years and if it had to create alternative generating power, a new coal fired facility in the Hunter Valley would cost something like $1 billion to generate 500 MW.

Applying this logic to community solar, it is actually an investment in cheaper energy, not necessarily a cost in itself.

Over the past few years, the cost of solar panels has been plummeting as their key ingredient, silicon, has fallen in price from $450/kg in 2008 to just above $25/kg today.

The contrast in electricity cost is becoming just as startling.

Average energy bills in NSW now show a cost of between 20 and 30 cents a kilowatt hour, reaching 43 cents at peak, while solar energy costs a household between 5 and 7 cents a kilowatt hour to produce.

Pricing of electricity in NSW is governed by the Independent Pricing and Regulatory Tribunal which approved a 17.6 per cent lift in prices for 2011 and is tipped to allow a 20 per cent increase for 2012, meaning the differential with solar is set to widen further.

Giving Australian communities the benefit of cheaper electricity and helping them avoid an initial capital investment seems to present the same compelling economic logic as building a railroad across America.

All we need to bring it about is a willing cooperation of government, at local, state and federal level, not in a way that is costly but in using ingenuity to deliver community benefits.

In a recent Quarterly Essay, Andrew Charlton pointed out that Australia would need to increase clean energy facilities tenfold by 2020 if it is to meet its target of reducing carbon emissions by 5 per cent.

Simply adopting the obvious benefits from community solar could be a way of helping to meet this enormous challenge.

It can’t be that hard, can it?

* Jeff Bye is an engineer and general manager of CBD Solar