David vs Goliath? Solar shapes up to big utilities

The Australian solar industry is preparing for what it calls a “David and Goliath” battle against the country’s biggest generators and network operators. The outcome will likely decide the immediate fate of rooftop solar in Australia, and the pace of the so-called “democratisation of energy” – a contest that pitches households and their solar modules against the centralized utilities that have dominated the industry for a century or more.

The Australian Solar Council’s launch on Wednesday of its “Save Solar” campaign – where it wants to raise the relatively modest sum of $25,000 to help defend the renewable energy target (RET) – came as the first of the large state-owned generators renewed its attack on renewables and called for the RET to be removed.

About 1.4 million Australian households have rooftop solar systems, and the combined capacity of more than 3.1 gigawatts is having a dramatic impact on the way the nation’s electricity market is structured, and on the business models of incumbent generators. It is shifting peaks, and reducing the amount of electricity needed during the day.

Queensland’s Stanwell Corp is closing its 385MW gas-fired Swanbank plant because it is being priced out of the market, although it is going to re-open 700MW of capacity at its Tarong coal-fired generators once the carbon price is removed in what it hopes will be that start a “coal revival” in the Sunshine State.

Stanwell has also signalled its total opposition to the RET – a position that it, and its political masters in the Campbell Newman government – have argued before. It says that the RET and other clean energy measures are “distorting” the market. More critically, it is making its operations unprofitable.

Stanwell’s position typifies the dilemma facing incumbent generators and network operators in Australia – and other international markets where solar and other renewables are making big inroads. CEO Richard van Breda complains about the cost of electricity in Australia. But his biggest problem right now is that the wholesale cost of electricity has never been lower since the launch of the National Electricity Market more than 15 years ago.

The low price forced his company to close half of its Tarong power plant in late 2012, and to report a loss from its portfolio of more than 4,000MW of coal and gas fired generation in 2012/13 – a situation that it blamed almost entirely on rooftop solar, which is not only stealing demand, but with other renewables is causing wholesale prices to fall.

In the meantime, gas prices are surging as the massive LNG plants near completion. Queensland households, for instance, will be slugged an extra $68 a year next year as the gas price rises start to bite. Ironically, the cost of green schemes is predicted to fall.

The close of Swanbank highlights how gas fired generators are being priced out of the market, although it enables Stanwell to sell its gas to other customers rather than burn it to generate electricity. That is exactly what Stanwell did with its excess coal after closing down the Tarong units.

The fact that Tarong is to be re-opened later this year, should not surprise. The carbon price will have gone, and Stanwell said last year it hopes that the extra electricity demand from the new LNG plants will spark a new “coal revival” in the state. The only thing that can spoil that renaiisance, it appears, is rooftop solar and other renewables.

Much is made in the industry about “cheap coal”, but it means little to end-use customers in a country where the cost of delivery is so high. Australians pay more than any other country for network costs and retailers take a hefty margin (in NSW and Queensland, for instance, households are slugged between $100 and $150 a year just so the electricity retailers have a big enough kitty to offer discounts to other customers).

Households, on the other hand, are discovering fooftop solar can generate and deliver electricity for around half the price of grid electricity. The move to time of use pricing, higher connection prices and other tariff changes in the pipeline is simply providing an additional economic incentive to install more solar, and to consider the addition battery storage. “Can I get off the grid” is becoming a much more common question of solar installers.

The options for the incumbent utilities are limited. Network operators could adapt to new technologies – a recent CSIRO report suggested that if they didn’t, then one third of households in Australia could leave the grid by 2050. The generators simply face a loss of revenue and their assets being squeezed out of the market. They could, as utilities in Europe are starting to do, embrace more renewable energy but, like Kodak with digital technology, the upper echolons of executive power appear frozen in time, and redundant business models.

So their major strategy for the moment is simply to try and stop rooftop solar in its tracks. Which is why they are pushing so hard against the RET. The state owned generators have, of course, the ear of the state governments who not only own the assets, but regulate and set prices for electricity. Enormous pressure is coming from these and privately-owned utilities such as Origin Energy and Energy Australia to have the RET removed entirely, or severely diluted.

The Solar Council fears that the remaining incentives for rooftop solar – which consists of a renewable energy certificate for ever megawatt hour of electricity the systems are deemed to produce – could be removed entirely, despite contributing to less than one per cent of electricity bills. This, it says, would push out the return on investment in rooftop solar beyond the interest of most households, slow down adoption, and put many of the industry’s 15,000 solar jobs at risk.

“We know another 3.5 million Australians are planning to put solar on their homes over the next five years, but those families will have a big rethink if the Renewable Energy Target is scrapped or weakened,” Solar Council CEO John Grimes said.

“The best thing you can do to reduce your power bill is to go solar, so you would think the Government would be encouraging investment in renewable energy.”

This is where the politics get interesting. The plunging cost of solar has taken industry by surprise, and politicians are yet to come to grips. The first government that will have to do this will be Western Australia, which is struggling with credit downgrades but which must fork out $500 million each year to subsidise the cost of grid-based electricity. If those subsidies were removed, the case for solar and distributed generation would become even more of a “no-brainer” than it is now.

For the ideological hard-heads in the Coalition, and those that seek to advise them, refuse to accept the new technology and describe the CSIRO’s scenarios as “science fiction”. TAustralian households, however, have a different perspective