Solar Flagships: Government watching actions of retailers | RenewEconomy

Solar Flagships: Government watching actions of retailers

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DRET admits power of three big retailers is “an issue” in deployment of large scale solar and new technologies.

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As four consortium prepare to lodge their updated bids for the re-opened solar PV part of the struggling Solar Flagships program, the Federal Department of Energy has revealed that it is keeping a watching brief on the behaviour of the big three energy retailers.

In questioning at a Senate estimates hearing last week, the secretary of the Department of Energy, Drew Clarke, said DRET was studying “very closely” the concentration of power in energy retailers, and its potential impact on the deployment of large-scale solar, and other large-scale, leading-edge technologies that need significant government support in their early years.

“Yes, it is an issue,” Clarke said in response to questioning by Greens Senator Christine Milne.

“I think we are observing a number of things in the market through this program, which is one of the things it was designed to do. We will see when we get to the end of this program, while it is still in play. There is still a competitive process in play, so I do not feel it is appropriate and, frankly, I think it is too early to make a call. But I am very conscious of the issue you are raising. We are thinking about it and studying it very closely.”

The issue about the power of the retailers – or gentailers as they are now known because they have become vertically integrated companies – has come into the spotlight in the $1.5 billion Solar Flagships program, as well as the renewable energy target, because most projects proposed for such schemes rely on the developer obtaining a power purchase agreement from one of these companies.

In Solar Flagships, because of the unique nature of the technology and the scale, PPAs were essential to get private finance and access to some $750 million of government funds on offer. However, neither the $1.2 billion, 250MW Solar Dawn solar thermal project, nor the $930 millio, 150MW Moree solar PV project were able to obtain one by the December 15 deadline.

After a near two-month review, DRET decided to grant Solar Dawn an extension until June 30, but because of important changes to the Moree consortium, and of plunging PV prices, DRET decided to open the PV tender to all four shortlisted candidates. That new tender is scheduled to close this coming Friday.

There has been widespread speculation about why Moree failed to obtain a PPA. Some of it goes to price and cost of the project, some of it to changes in the consortium and the need to find a new supplier after the decision by BP Solar to quit the global solar industry, but remain with the consortium. But some of it also goes to the fact that it was almost certainly dealing with a single large retailer, Origin Energy, because the other major retailers, AGL and TRUenergy, were committed to rival projects.

There has been speculation that Origin was close to signing a PPA but pulled out at the last moment. Or, as Senator Milne put it in the committee hearing, the contract was “torn up” by Origin CEO Grant King. Clarke said he would not respond to that suggestion because it was a matter of commercial confidence.

Clarke’s response came after questions from Milne on whether TRUenergy, AGL and Origin were in a position to frustrate the establishment of solar? “Some of them have a much higher investment in gas than in solar,” she said. “They can make strategic decisions about the future of the industry. So is it time we actually looked at how we manage this? Are we ending up with the Coles and Woolworths of the energy sector?”

Clarke said the gentailers, were not the only parties “that can make these things happen, but they are the people who are best placed in the current market structure.” Indeed, it is thought that Moree is now negotiating with another party, possibly a smaller retailer or a commercial customer, or even a Queensland utility. Solar Dawn has also been negotiating with a Queensland utility.

The issue about the power of the gentailers and the allocation of PPAs has become one of the hottest topics in the renewables industry in Australia. Developers are frustrated that contracts cannot be signed. The gentailers argue that their decision simply reflects the state of the market for renewable energy certificates, which has been in massive surplus in recent years because of a flood of certificates from rooftop solar. Some developers argue it underlines the case for feed-in-tariffs, such as those about to be introduced in the ACT, where a tariff for large-scale solar installations will be set by a reverse auction.

Clarke was asked by Milne if he thought that PPA’s should have been mandated before the shortlist was narrowed down. He replied that this would have only served to narrow the field even further, confer more influence in the gentailers, and would have been impossible to do in any case due to the complexities of such contracts.

Clarke also said the government had accepted all of the recommendations of the Solar Flagship Council, and rejected suggestions that the process had been “designed to fail”. Many in the industry have said that the plans have been too grandiose in scale, and the program would have been better served with smaller and more numerous projects.

“We are running a commercial experiment,” Clarke said. “This is not a science experiment. This is not about high technology risk. We took deliberate design decisions to get the technology risk down to a relatively low level. We have shifted it towards testing market parameters. We wanted to do it on a very large scale. We are learning. We are seeing how the market is responding. We are going back with the four (shortlisted PV contenders) . I really think the questions you are asking are exactly the ones we will have to deal with when we get to the end of this round 1 stage and ask, ‘What have we learnt and what does this mean for where we go next?’

Milne: “The only thing I would say to that is the industry were telling you all along they could not make the leap from the scale they were at to the scale you were asking for and that it was doomed to fail.”

Clarke: “No. I do not accept that. We had all views on the table. I do not accept that it was a unanimous view.”

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3 Comments
  1. Matthew Wright 8 years ago

    Only Feed-in-Tariffs will create an open and competitive market and without that we are very unlikely to see a significant shift away from old fossil fuel hungry dirty power plants.

  2. Alastair L 8 years ago

    Yes — what Matthew Wright said. Feed in Tarifs have worked in Germany and Spain but why on earth would Autralia take advice from countries actually getting the large-scale renewable energy economy kickstarted.

    Take advice from those who are getting the results you desire is a good motto. Perhaps the Australian government truly desires to protect the established polluting power generation industries while throwing an ineffective bone or two to progressives and greens in the noisy electorates. Sure looks that way.

  3. Paul O'Reilly 8 years ago

    The Australian solar industry was never ready to participate in mega projects of this scale. Previous government programs helped establish a broad network of small scale solar installers that could have made the transition from 10kW systems to a 100 kw or even 1MW installations . Solar Flagships offered no platform for these Australian owned companies to compete.
    I am confused by Australian government programs that continue to limit an open and competitive process regardless of scale. Currently in NSW it seems Ipart will cap system sizes eligible for a FIT even when it only represents the unsubsidized value of the electrons to retailers. This decision would be illogical and would only serve to again limit the penetration of solar into the market

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