Solar Insights: Why government has failed at solar

The newly appointed CEO of the Australian Renewable Energy Agency, the venture capital fund manager Ivor Frischknecht, will have plenty on his desk when he turns up for his first day at work in Melbourne next month. And the largest of a multitude of proposals will be the $1.2 billion Solar Dawn project in Queensland, closely followed by a handful of other rejected and unsuccessful Solar Flagships ideas.

The Solar Dawn consortium was putting on a brave face on Monday after it failed to get a power purchase agreement and the state government used the opportunity to pull its $75 million share of the funding. Effectively, though, as a flagships project it is already dead. The federal government has passed the dossier to ARENA, and the PR campaign being launched by Solar Dawn is about trying to ensure it sits at the head of the queue when Frischknecht and his colleagues assess how they will disburse the $3.2 billion at their disposal.

The Queensland decision allowed Federal Resources and Energy Minister Martin Ferguson to take the moral high ground and chastise the Newman government for “letting slip” the opportunity to be a world leader in the development of solar thermal. But Ferguson should read his own words carefully, because no party is more responsible for letting slip opportunities on leadership in the solar field than the federal government itself. It will go to the 2013 election with not a single panel or heliostat installed from its $1.5 billion Solar Flagships program, despite more than 50 projects worth some $80 billion jostling for a bite of the action when it was first announced in 2009.

That’s a shocking indictment on the government. Just one project, AGL’s 150MW solar PV facility at Broken Hill and Nyngan, will be built with flagships funding, but it will have to take its place in the queue of AGL projects and that company’s need for renewable energy certificates (pretty much defeating the point of the whole flagships exercise) and will not begin construction for another two years. The tragedy is that the government’s inability to create an effective scheme has tarnished the image of large scale solar projects – when it has been clear to all that either smaller scale projects, or differing mechanisms such as reverse auctions, could have produced a much different result. Hopefully, ARENA has absorbed those lessons.

Hark, a solar PPA is signed

Given that the Solar Dawn project – and the Moree Solar project before it – failed to get power purchase agreements from any utilities or energy retailers, we thought it would be useful to show that PPAs for solar do actually exist. Well, there is at least one that we know of, apart from the internal one written by two AGL subsidiaries for the flagships PV project. We can’t show the actual document, because that was commercial in confidence, but the photo below shows the signing of the PPA signed by Silex Systems CEO Dr Michael Goldsworthy and Diamond Energy chief Tony Sennitt last Thursday.

The details of the PPA to take power from Silex’ 600kW concentrated solar PV testing facility were not revealed, but we do understand that it was somewhere between Silex’ estimates of its current levellised cost of energy (15c-20c/kWh), and where it thinks it will be in a few years’ time (around 10c/kWh). Which is information enough to tell us that Diamond has at least recognised the daytime value of the solar power and paid beyond the normal wholesale market average.

Sennitt told RenewEconomy after the signing that such a deal would not have been worth the trouble for a large retailer, but Diamond now has a growing portfolio of green-only PPAs that it uses to service its customer base of several thousand businesses. “It’s meaningful for our business, but for (larger utilities) it would be just a hassle,” he said. Still, progress all the same.

Will the government get the message on solar PV?

The Federal Government is still trying to get its mind around the impact and potential of solar PV, and failing miserably. In a revealing interview with the AFR on the weekend, Climate Change Minister Greg Combet said “What is important in the transformation of the energy sector is large-scale renewable energy,” and then suggested that the small scale renewable scheme could be wound up, an issue he took up later when describing the abatement costs of solar PV subsidies as more than $400/tonne.

There’s a couple of problems here. First of all, it ignores the forecasts of the Australian Energy Market Operator, which predicts that that rooftop solar in Australia could be producing 28,000 gigawatt hours of electricity by 2031, not far short of the 41,000 gigawatt hours to be produced by large scale renewables by that date. Private forecasts, suggest that level within a decade. And the significance is that most households would care little about where the grid-connected electricity comes from by that time, because it is the rooftop solar that will be delivering their own cost savings, even without subsidies at that time. In turn, that is delivering abatement at a “negative cost” – unlocking some $30 billion in emissions-reducing technology, and delivering energy savings to households.

It is strange that the politicians on either side have failed to seize the importance of this. The public certainly have, which is why inquiries to solar installers are at record levels. And what was the top ranking story on News Ltd’s Adelaide Now website on the day that the carbon tax was introduced? A story about how solar could reduce energy costs by half. An heroic prediction maybe, but it’s captured the interest of the public, if not the political class. It’s seems an obvious message to sell for the Clean Energy Future.

Why Japan is the land of the rising sun

The world’s third biggest economy is tipped to emerge as the world’s third biggest solar PV market, courtesy of the generous feed in tariffs (40 yen/kWh) announced by the government last month. Solar PV is one of the three pillars of Japan’s new energy policy, along with gas and energy efficiency. It aims to have 28GW of solar PV installed by 2020 (from 1.3GW at the end of 2011), which means its market size will rise at least five fold to a run-rate of at least 4GW a year in the next 18 months.

Deutsche Bank made some interesting observations about why solar will appeal in Japan. Firstly, there is the strong anti-nuclear sentiment among consumers. Secondly, there is the attractive returns for non-residential solar systems. Japan’s balance of system costs are currently rated at around $3.50/watt, but this is tipped to fall sharply to as low as $1.90/W within 18 months.

That will be delivering internal rates of returns for solar PV investors of at least 15 per cent, Deutsche Bank estimates. This could occur even with a 20 per cent reduction in the FiTs. This compares to bond yields in the low single digits. The main impediments to the maket? Finding enough land and electrical engineers to meet demand. Still, Softbank this week announced it will build Japan’s largest solar PV plant to date, a 111MW facility in Hokkaido. It will be built a full year before Australia’s first plant of similar scale is completed.