Is Australia still on the Solar-coaster?

Australia’s renewable history is far from smooth, it’s been a bumpy ride, with ups and downs and even the occasional loop the loop.

We’ve seen booms like 2005-6 when the wind industry in South Australia was going gangbusters, and in 2011 when the rooftop solar industry was really taking off and now in 2018-19 when wind farms, large-scale and rooftop solar are all being installed in record numbers.

We’ve also seen busts like 2007 when the Mandatory Renewable Energy Target was met four-years ahead of schedule and in the period 2013 to 2015 where Abbott’s attempt to scrap the Renewable Energy Target (with not insignificant support from the gentailers) brought the large-scale renewables industry to a stand still.

The question is – are we still on the rollercoaster ride particularly for large-scale renewables or are we now on-board the good-ship renewables? Put another way will the boom and bust renewable industry cycle continue or are we headed for exponential growth?

Good ship renewables?

Those who argue that the future is smooth sailing cite the following factors:

1. Renewables are the cheapest new-build technology.
2. With both black coaland gas prices high, some Australian new solar and wind projects can now even compete on price with existing incumbent generators.
3. The industry has built momentum and supply chains that are now unstoppable and finally,
4. That Australia’s coaland to some extent gas fleet is aging and as such in the medium-term there is a clear business-case for more renewables, as these aging generators shut down.

Rollercoaster ride?

However, those who say the rollercoaster still has a ways to go are concerned about the following two big bumps in the road (to mix metaphors):

1. A weak business-case in the medium-term, and
2. Transmission constraints.

Business case concerns

As we know, to build a large-renewables project a company needs finance.  To get finance, either you need an off-take agreement (someone to purchase your power), an underwriting contract or you need to convince investors that there is a solid-enough business case based on future price projections to go merchant.

With more than 6 GWs of new large-scale renewables generation coming into the market in the next two years, it is reasonable to expect average wholesale prices to start to decline. Though perhaps more importantly, with rooftop solar continuing to boom and the introduction of 3GWs of solar farms it is likely that daytime prices will drop much more significantly (the duck-curve anyone).  While more wind built in Victoria and South Australia is likely to compete with other wind farms, dropping prices low when output is highest. Both these factors undermine the business case for more solar farms and wind in southern Australia for a few years.

While batteries as part of solar and wind projects would likely help increase the business case, not to the extent that would maintain current deployment rates.

Meanwhile storage at scale or load shifting from for example overnight off-peak hot water to daytime off-peak is unlikely to occur in the timeframes needed to avert a drop-off in daytime prices. All of this means investors willing to back merchant projects will be limited, due to potential future low wholesale revenues.

Considering off-take agreements there are two main types of organisations that sign these – retailers and large energy users/corporates.   With the majority of retailers owning their own generation assets and their RET liabilities now met and no policy to replace it, retailers will now have little incentive to sign new Power Purchase Agreements (PPAs).

Both anecdotal evidence and research by ARENAinto the corporate PPA market finds that the major driver for companies to sign contracts with renewables projects is cost.  If the current renewables boom lowers wholesale prices, the cost benefit of new renewables to companies rapidly disappears, particularly with the value of LGCs likely to drop to near zero. With daytime wholesale prices likely to decline, will this mean that we will see a significant slow-down in corporate PPAs in 18months time?

At a government level, the future is equally unclear.  The ACT has contractedits 100% renewables target, the Victorian Government has not announced plans to do another reverse auctions and while the Queensland Government has yet to announce the winners of its latest round, it also has no plans to do more.

Federally, the Coalition’s current firm power round (mainly designed for coal) is unlikely to get signed before the election and even if they do, the outlook released today isn’t particularly good for renewables. While, if elected, it is likely to take a while for the ALP to implement any of their proposed policy solutions that might lead to new contracts for renewables.  This is unless they chose to make clean energy a top priority in the first 100days, which there has been no indication of to date.

So my question to industry is, where is the business case for investment in new large-scale renewables in the medium term?

Transmission constraints

Then there’s the issue of transmission constraints.  RenewEconomy readers likely know that some wind and solar farms are or are threatening to be curtailedby AEMO, and development of new wind and solar projects is being restricted in some areas of the grid.  New transmission capacity is needed, but the AEMC timeframes for approving new transmission infrastructure is at least 4-years before anything even starts to get built.

Meanwhile without government policy certainty, it’s hard for the AER to confidently approve new transmission infrastructure for new renewables generation under the current regulatory test process.  This is likely to be a big handbrake on the renewables industry in the next five years.

All these factors combine to make exponential growth in renewables seem difficult.  The likelihood is that we are at least headed to a dip in the deployment of large-scale renewables from our current peak, if not a full-blown bust cycle.

So the question is if we are currently just on another peak in the rollercoaster what are the renewable industry’s plans to change course and set sail for smoother (exponential) waters?

Nicky Ison is co-founder of the Community Power Agency and a research associate at the Institute for Sustainable Futures at the University of Technology Sydney. She is also the lead author of the Repower Australia Plan.