The International Energy Council has flagged that uncertainty about renewable energy policy threatens to hold back Australia’s large scale renewable projects, reflecting the investment drought that has plagued the industry in recent years.
The IEA’s assessment of Australia stands in sharp contrast to its world view, where it has lifted its global medium term outlook for renewable energy by 13 per cent, primarily because of the policy certainty that exists in most economies.
The IEA predicts that around 9GW of renewable generating capacity will be added to Australia’s grids by 2021, but it sees the main driver for growth as distributed generation, mostly rooftop solar, awith concerns over the large scale renewable target (LRET) remaining “a forecast uncertainty over the medium term.”
It forecasts Australia to add 5GW of solar PV by 2021, and the remaining 4GW a mix of generation. It observes “some utility scale [PV] projects coming online over the medium term.” It is more pessimistic when it comes to large scale wind, noting that the reduction in the LRET in June 2015 undermined onshore wind deployment.
|Wind (MW)||Solar PV (MW)||All renewables % of generation|
|% of generation||4%||2%|
|% of generation||4%||2%|
It is not clear the precise extent to which the IEA expects the rooftop market to dominate Australian solar through 2021. The report states that the 5GW of expected solar should come “mostly from commercial and residential projects.”
Given that, as the IEA observes, in 2014 and 2015 the residential segment alone accounted for 70% of all renewable capacity added in Australia, it appears that the IEA is only expecting a meagre amount of utility scale solar to be installed over trhe mid-term.
With 5GW of PV forecast to be installed over six years, and assuming that the 70% residential rooftop market share roughly holds, that leaves only around 250MW – 300MW annually of expected capacity to be shared between the C&I rooftop and PV power plant sectors.
These forecast numbers can therefore be seen to indicate the extent to which the IEA lacks confidence in Australia’s large scale renewable policy framework.
Indeed, the need for policy certainty was the major theme emphasized by the IEA’s Renewable Energy Division head Paolo Frankl during his presentation to media before the forecast’s release.
He noted that policy improvements were behind the mid-term forecast being increased by 13% in the latest iteration of the report. The increase had come largely on the back of the extension of the Investment Tax Credit in the U.S., China’s increasing renewable ambitions, the fast emerging Indian solar market driven by both state and national government programs, and recent electricity market reforms and successful tenders in Mexico.
Asia is set to remain the center for renewable deployment growth in the mid-term, the IEA finds, and Frankl noted that Singapore was, therefore, an ideal location to launch the 2016 forecast. Singapore is also the most recent IEA member country.
The Asia-Pacific region is set to see the most robust growth in the IEA mid-term forecast. The IEA expects renewable generation to grow by 54% to 390TWh between 2015 and 2021, with some 85GW of solar PV to be added, increasing its market penetration by over 220%. 35GW of onshore wind is set to be added, equaling a growth in the generation of 117%.
When addressing the Australian market specifically, the IEA commented positively about the impact the SREC program is having on enabling the rooftop PV segment.
Noting that “socket parity” has been achieved in most Australian capital cities, the IEA writes: “small renewable energy certificates… should continue to make residential and residential projects economically attractive.”
In an extensive section focused on Australia’s “mature” and “number one” rooftop PV segment, the IEA concludes that it is unlikely drastic tariff changes will be imposed that could undermine rooftop solar’s competitiveness. Such a move would likely involve a shift away from volumetric electricity charges towards expanded fixed and peak power-based rates.
The electricity demand in Australia has declined in the past few years, even accounting for self-generation. This means the demand met by the grid and centralized generation was shrinking faster.
“However, concerns about cross-subsidies tend to vanish when distributed generation is made accessible to all. For example, electricity retailers, many of which are also involved in conventional electricity generation, established novel policies to support further rooftop deployment with a broad range of business models including third-party financing and leases.”
While it’s undoubtedly positive for the IEA to increase its forecast, it remains relatively conservative in its expectations for renewable deployment both in Australia and globally. The IEA and its renewables head Frankl in particular spoke in glowing terms as to the ability of the solar sector to brind down module production costs, he maintained policy remains of central importance when it comes to deployment.
“Renewables are still dependent on policies to create the right market rules and frameworks to attract investment,” said Frankl. “There is still a lot to be done here.”
The IEA charts large scale solar and wind contract prices in its report, however, is quick to disassociate some of the record low contract prices, often obtained through a tender process, from renewable LCOE more generally.
“There have been some very interesting announcements, some may not materiliaze and some [projects] will be at higher prices [when completed]. But they do indicate a trend, and with long terms contracts, and good resources, then there can be a very, very sharp decrease in costs altogether.”
The full report elaborates: “While these benchmark cost ranges [US$40/MWh – US$100/MWh] are increasingly comparable with generation costs from new gas power plants in some countries (Brazil, Uruguay, Chile and South Africa), fuller competitiveness assessments would need to quantify integration costs, as well as the value of the injected electricity to the system, according to the load profile of demand and the time and location of generation.”
For distributed PV, the IEA forecasts commercial rooftop systems to hit around US$950/kW in India by 2021 and US$1,200 in Germany. It expects residential systems to reach below US$1,500kW in China, India, Australia and Germany over the same period.
Defending its previously conservative renewable forecasts, the IEA argues that policy settings, primarily the ITC extension in the U.S., were the primary driver for the upward revision of its forecast and that it has no bias towards any particular fuel type.
The IEA will release its longer term World Energy Outlook in mid-November, which will outline a number of scenarios for renewable deployment globally.