The head of US-based solar manufacturer and developer SunPower says the company is about to add storage to its solar offerings, and says Australia should be at the leading edge of the localised, or distributed generation market.
SunPower CEO Tom Werner says the time is now ripe for the next evolution of the distributed solar market – the addition of energy storage.
SunPower – a company now valued at more than $US4 billion, and with a better than expected profit recently under its belt – is soon to add storage to its solar offerings in Australia in a pilot program that will evolve into the introduction of home energy management systems.
“That’s the evolution, it will be interesting for sure. And in Australia, it makes completely sense”, he says, because of the country’s excellent solar resources, and its high electricity costs, mostly due to the network delivery charge.
Werner also has high hopes of large-scale solar PV, although in Australia this will not be in the form of the mega projects of 550MW or more that SunPower and others are building in California, but smaller-scale solar farms that are delivered close to the source of demand.
“Large scale PV can be distributed generation and it doesn’t have to be really big, it can be done near the point of demand,” Werner says. “And that gives it better economics. If you look at transmission adjusted cost of PV, it looks like a great generation option.”
In Chile, for instance, the company is building a 70MW solar plant that is the world’s largest to be built on a merchant basis – meaning that it has been financed by banks on the basis that it will compete on the spot market with other fossil fuels. That, he says, will send a powerful message to policy makers.
In the meantime, the rooftop solar market, along with storage, will pose significant challenges to the incumbent industry. As we reported in yesterday’s story, change is happening, and it may get messy, but the best position to be is with the disrupting technology, rather than the incumbent.
The following is an edited transcript of RenewEconomy’s interview with Werner. Chris O’Brien, the managing director of SunPower Australia, also took part in the interview.
RenewEconomy: What is SunPower’s attraction to the Australian market.
Tom Werner: Solar PV make sense here. The solar dynamic is somewhat similar here as America, but the economics work better in Australia than in most places in America. In America, for the utilities, the horse is out of the barn already. It is hard to put the genie back in the bottle and I think similarly here in Australia it just makes sense economically. I was in Adelaide, and there was solar everywhere. People want solar and it’s economic, so it is going to happen. The question is how to get there. My early view of what I have seen here is that it is similar to American politics, there are sound bites of what people want to hear rather than what’s actually driving the economics. And I think there is greater clarity in America, and there will be greater clarity in time here, that solar actually does work.
RE: You said …
TW: … so if you think about smart phones, or the i-phone, the shift in 2007, those product life cycles ar so fast, the conversion from land line to wireless to smart phones, the incumbents never thought that this is a good idea, so you get a little of that both here and in America.
RE: Why does solar make sense then in Australia – is it the high electricity prices, the high dollar, the falling cost of production …..?
TW: It makes sense to produce energy where you use it. Particularly in Australia, you have this huge space so transmission is incredibly costly, so to produce energy where you consume it just makes sense. The challenge is to match supply and demand. So in Australia I think it could be at the leading edge of how you do distributed generation and how you can match supply and demand. Australia could be the front end market.
Add to that the fuel risk. Sunshine is free, and I think that Australia is a great proof point for natural gas price risk, you didn’t project then as the (exports) increase the great equalizer push prices up. If you can eliminate fuel risk then you just have to match supply and demand, and that creates a great market stimulus to figure that out.
RE: You also have the incumbents, as you said. They didn’t like mobile phones when they came in, and they didn’t like solar when it came in.
TW: We do not know how it will evolve. It will be messy, that’s what we do know, but it is great to be in our position because we are the disruptor and it is all upside. It is not all easy because we have to continue to get costs out of the value chain, that’s our messy side of it, and to create systems that match generation with demand.
RE: So, it’s going to get messy, how do you make sure that the playing field is open?
TW: The consumer has got to win. If consumers win then you have true north, and then that will drive policy. It feels like the goal is a good goal in Australia, which is to put in a system that the cost of electricity does not continue going up. That’s a good goal, the question is how you get there. It seems like that if the cost of solar keeps coming down, then attacking solar is probably not the best way to get costs down.
Addressing the free-rider accusation
RE: But how do you counter the fact that solar is constantly labeled as a “free rider” on the grid?
TW: The key is matching supply and demand. I don’t think it is clear in Australia or America how that plays out, what the value of the grid is and how that will be realized. There is a value to the grid for sure. The extreme solar view should be that it should be delivered for free, and the extreme grid view is to change the tariff and increase the fixed charge.
RE: That seems to be what they are going to do.
TW: You can price out distributed generation, but it doesn’t make a lot of sense, it is called distributed generation for a reason. But again, that’s over the next 5 to 10 years when the grid has to learn how to co-exist with DG.
RE: So where do you see the big opportunities in Australia. You have invested as a supplier, and as an equity holder in Diamond Energy.
TW: Residential looks like it is ripe for evolution, things like adding storage, adding energy management, how you finance the system, what the economics are –we plan to be at the forefront of all the above.
Chris O’Brien: On commercial, the tariff structure that we use with greater reward being recognized for self consumption, and the commercial load profile being more akin to solar generation ours, we expect it will come on as a market for us.
RE: It has been pretty slow to come on so far.
COB: part of that is the split incentive challenge between building owner and tenant.
RE: How do solve that, through financing mechanisms?
COB: So we expect some smart financing solutions to come through on that, but we also see the property owners taking a different view to what the proposition is in the future.
RE: Are you concerned about the policy challenges, such as the RET review?
COB: We are just focusing on what we can control. We have a view that we would like policy stability, to develop our longer term visions, but it is largely out of our control.
TW: Changing policy frequently is not a great energy strategy, so having some consistency and predictability makes sense for all parties.
Plans for Australia
RE: Last time I talked to you was about home energy management systems, do you still see a prospect of that?
TW: We are doing a pilot in Australia, we are not quite ready to go into the specifics. It is primarily a storage pilot, but it makes a whole lot of sense here.
RE: What might it look like?
TW: The big challenge is that you have great sunshine, and the cost of solar has come down, so you can generate electricity inexpensively. Then the question is can you match load with generation, and storage and energy management provide two other pieces of the puzzle to allow you to do that. So, a building owner, where they are residential or commercial, will go from no control of your energy bill to total control of your energy bill. That’s the evolution, it will be interesting for sure. In Australia, it makes completely sense.
RE: So it will incorporate leasing?
TW: Not yet, but that will make sense because you are increasing the capital outlay.
RE: What about opportunities for large-scale solar in Australia? I guess it would make sense but there are issues about the wholesale cost of electricity and the surplus in capacity.
TW: That’s the most policy sensitive. But large-scale solar PV is a misnomer as well, solar PV is easily sited, so you can turn the equation on its head and say where do I need generation, where do I need capacity, and you can site PV better. Large scale PV can be distributed generation and it doesn’t have to be really big, it can be done near the point of demand. And that gives it better economics. If you look at transmission adjusted cost of PV, and it looks like a great generation option.
Utility scale and merchant markets
RE: In the most recent conference call, you talked about your C7 (concentrated solar) technology, and the arrival of wholesale parity in merchant plant, and you are building one now in Chile.
TW: Yes, if nothing else it allows you to talk to policy makers and tell them we are building a merchant solar facility in Chile – and the policy makers go “I get it”, I can rationalize this. Just five years ago, PV couldn’t sell without incentives, the merchant plant in Chile proves that that is not the case. Now, as we do C7 in China, it is a triple win –access to a great market, low-cost of electricity, and very capital efficient. By going into the world’s largest PV market, and the world’s most competitive PV market, it will make us step up our game. C7 can be competitive in other parts of the world too.
RE: Is C7 a technology that can work in Australia?
TW: Yes.
RE: You talked recently about micro-grids in Australia, what is the concept there?
TW: You would have rooftop solar, and large-scale solar, and the thing in between is called a micro grid. Australia is the leader in microgrids, it has to be because it has a dispersed population, and the big mines, so some of the technology we can do here will be something we can learn from. In the US, there is a concept of co-operating and competing with the grids, so that can be part of the olive branch on how we can work together.
RE: Battery storage, there is a lot of talk about Tesla and its gigawatt factory. How do you assess that, is that the game changer that some people say it will be?
TW: WI think it is a game changer, because it presents competition. And we like competition in storage because we are not investing in storage, we plan on integrating it. Storage is very likely to be a very big business, as soon as the next five years. The Tesla announcement incentivizes other big companies, whether they are Koreans, Germans, or Japanese, that are serious about storage. For Tesla, it means lowering the price point for batteries, so doing something on the scale they are doing is good for us. Storage looks a lot like PV did five years ago, you need scale to get the costs down. So what we are seeing now is plans for scale, so we will see the cost coming down.
RE: In your pervious earnings call, you talked about the next generation production facility, Fab 4, which is going to bring down the cost of solar another 35 per cent, that still seems to be the story of solar, costs coming down.
TW: Solar is going mainstream, you scale up and you bring costs down. You have to keep bringing costs down. I don’t think it is a solar panel cost reduction as much as it is going to be a balance of system and soft costs. Soft costs in residential are bigger than hard costs, so the focus will be as much on soft costs than the panel.
RE: Is that a regulatory thing, an approval thing, of an efficiency thing?
TW: It’s kind of all of the above. It’s mostly about customer acquisition, that has a lot to do with financing, how to make solar more accessible to average consumer. The policy side matter too, because it affects the installation.
Solar financing goes mainstream
RE: And the financing side is interesting, because you have recently announced a deal with Google, and there is big money coming into solar financing by the mainstream banks in the US. What signs are we seeing that that is happening in Australia?
TW: It is early in Australia but it will happen in Australia as well. What we are seeing in America is mainstream finance reduce the risk premium that solar used to have. In Australia, why would you see the risk premium any differently, particularly if you see the amount of solar installs in Australia continue to increase. It is that risk premium that will be exported, or adopted elsewhere. This is the mainstreaming of solar, the bigger it gets the harder it is to say it doesn’t work, it’s too risky, it costs too much. You are fighting gravity at some point.
RE: You have a lot of mainstream financing houses acknowledging the impact that solar will have on global energy systems, even now the energy markets in general, and the possibility of energy price deflation, there is a recognition that solar will dominate the market.
TW: Well, it already is, if you look at the percentage of new energy generation in Europe and America, solar is the largest source. The mainstreaming of solar is upon us, in America you certainly see tenders in part of the country you would never have expected, in Georgia for instance, areas which are quickly embracing solar. That is another interesting thing about the Chile merchant plant, because you are selling electricity into the grid, and it is getting mainstream financing. They are liking the idea of having no fuel price risk.
RE: Do you have plans for merchant plans elsewhere?
TW: We have 7.5GW pipeline and there is merchant in that pipeline. Some.
RE: The biggest impediment appears to be how the networks adapt, and no one seems to be sure how this happens. Any predictions?
TW: I think that the combination of fixed charge and rate structure are certainly the right levers. What we have to do is to reach consensus on the impact of PV. Today, the solar people say that it improves the performance of the grid, and the operators are saying the opposite. So we need to get together on that. But, the idea that you need a lot less wires – when you think about the value add, it is not generation – when you don’t have to move the electricity, it seems like a really good thing.
South Australia chooses supplier of the world-first hydrogen capable turbines to support its charge towards…
Indonesia, with the fifth biggest fleet of coal power plants in the world, vows to…
Environment minister Tanya Plibersek defends coal mine approvals as 170 people arrested for blockading world's…
Many people are disappointed by COP29. It did not bring transformative change. But it was…
Australia’s electricity system is physically decentralising, but the regulatory response is to extend the current…
Australia's bid to host UN climate talks for first time stalled at fractious Baku COP,…
