Origin says big solar to dominate large-scale renewable energy market

Let’s hope that Tony Abbott and his government, should they remain in power, like solar power, and the prospect of rows and rows of solar modules.

Origin Energy, the biggest energy retailer in the country, says that large-scale solar plants will quickly overtake Abbott’s bets noire, wind energy, as the most cost competitive renewable energy technology, and will likely dominate the new build required to meet the reduced large-scale renewable energy target.

Origin CEO Grant King says wind energy is not likely to fall in costs, because of the declining Australian dollar, the distance from new projects to transmissions sources, and because it is a mature technology. (And, if you believe New Zealand’s Meridian Energy, because the political opposition to wind energy will likely raise costs too).

But large-scale solar – little of which has been built in Australia to date without additional government grants – is looking more attractive, both in terms of costs and because solar projects can be built more quickly, from planning to construction, than wind farms.

Origin Energy produced this graph to show the transition between solar and wind costs. But it says that even these estimates of the falling cost of solar may prove conservative.

“Wind, which has traditionally supplied renewable energy, is unlikely to come down in cost,” King told a media briefing following the company’s annual results on Thursday.

“If anything, wind energy will go up in cost in our view because sites are becoming further removed from transmission and are costing more to connect.” The appreciation of the dollar and the fact wind was a “mature” technology, meant it was unlikely wind costs would fall, he said.

“The big story is that solar costs continue to come down and come down quite dramatically,” King said. “We suspect that this chart in a few years will have underestimated the falling costs of utility-scale solar.”

Indeed, solar module manufacturers such as Canadian Solar believe that large-scale solar costs will fall to around $75/MWh by 2020 – a good 20 per cent below Origin Energy’s estimates.

“We think people will be surprised by the rate that utility-scale solar will be able to take up a significant amount of the renewable energy target.

King said the best way to predict what the future holds was to look at “where the prospectors are”. And by prospectors, he meant project developers lining up solar project sites. Origin, which has a share in a 69MW project in Chile, has also bought the rights to develop a 280MW project in northern Chile, albeit for just $1 million.

“Chile is at the leading edge of large-scale solar in terms of costs and deployment,” King said.

King, however, does not share the bleak view of the Australian market held by of his major counterpart AGL Energy, or of New Zealand renewable energy giant Meridian Energy.

AGL CEO Andrew Vesey said last week that lingering uncertainty about clean energy and climate policy meant that companies were still holding off on investment, and may do so until after the Paris climate conference.

Meridian CEO Mark Binns said on Wednesday the Abbott government’s antipathy to wind energy meant there was no point pursuing wind energy developments in Australia at the moment.

King said even meeting the 33,000GWh target would require significant investment – and, if anything, renewable energy targets were likely to be raised in future, not cut. “It is not going to be reduced,” he said.

Indeed, the market was already responding to the new policies, and the combined “black price” (the wholesale market), and the “green price” (renewable energy certificates) were trading in an area where new renewable energy projects were feasible, and was matching the levellised cost of energy (LCOE) or wind and solar.

King said that the 26 per cent emission reduction target from the Abbott government was “not lacking in ambition or effort” and would require significant investment. Even Labor’s proposed 50 per cent renewable energy target for 2030 would meet less than one half of those required emission reductions.

Other highlights from King’s analyst and media briefings were:

The future of rooftop solar:

Origin Energy has ambitions to claim the top spot in the rooftop solar installation market, but it still has a long way to travel. It currently ranks number 7, and installed only around 700kW from the May launch of its rooftop solar PPA deal (where it owns and installs and maintains rooftop solar while charging customers for the output) until the end of June. That compares to a total installation market of around 60MW in that month.

King expects rooftop solar will continue to grow at around 800MW a year – despite the changing tariffs in the market – and says that future revenue growth from energy markets will come from rooftop solar, metering and technologies such as battery storage. “We are not afraid of the future,” he says, but King expects battery storage take-up to be relatively slow, because of the high costs. We explore this issue in more detail here.

The decline of base load gas:

Origin received a boost in its energy market trading, thanks to the so-called “ramping” period for the huge LNG projects, which allowed Origin to profit from sales to LNG customers. But the future of gas generation in Australia is not looking good. AGL Energy has decided to close down half of its Torrens facility in South Australia, and Snowy Hydro announced last week that it would close the 210MW base load facility at , which was only built in 2009. It says it is base load gas is simply not needed. But Snowy Hydro and Origin will continue to use peaking gas plants, which they say will be needed to address the increasing volatility of prices as more renewables are introduced into the system.

Origin on Wednesday called for measures to accelerate the removal of brown coal generators from the system. This graph shows that gas generation could fall by nearly three quarters out to 2020, while large-scale renewables adds another 14GWh out to 2020, and small scale solar another 14GWh out to 2030. Some, such as Bloomberg New Energy Finance, anticipate twice that amount of rooftop solar.

The rocky future of LNG:

Origin Energy’s biggest investment has been in the LNG businesses, but the falling oil price is making that investment look less profitable than it once was. At $100/barrel, Origin could be expected to be delivering a dividend of $900 million a year from its share of the project, but with each $10 fall in the cost of oil, the returns fall by $200 million from 2017 Hence its focus on cutting costs ($200 million a year from 2017) and paying down debt. The oil price is currently trading at less than $60.