At least one half of the government’s Solar Flagships program is alive and well. While Canberra awaits news to see whether the $1.2 billion Solar Dawn project has managed to tie up its financing requirements, it has been able to push ahead with the solar PV section of the scheme and halve its costs in doing so.
That might sound like good planning. But it’s not. Although Canberra can be virtually certain that AGL, in partnership with First Solar, will get the job done, it will be at the cost of another delay, just at a time when Australia and other governments, according to the IEA, should be pressing ahead with as much speed as possible.
Solar Flagships is an idea full of good intentions, but it is grandiose and cumbersome. While other countries such as India and South Africa – not to mention China, US and a bunch of other European countries – will have well over than 1 gigawatt of large-scale solar PV built within the next two years, the AGL facilities at Nyngan (106MW) and Broken Hill (53MW) will have barely started construction. As Anthony Fowler, the head of merchant energy at AGL Energy, told RenewEconomy this morning, the solar plant will be subject to the same pressures as its other renewable projects – and that is mostly about the surplus in renewable energy certificates.
So while the need for community liason and planning permission will cause a delay, Fowler says the RECs market remains oversupplied, and AGL – which is also building the 440MW Macarthur wind farm in Victoria – will not be needing many more till 2015, when this project is due to complete construction. Under the original Moree Solar proposal, at least 30MW was expected to come on stream by 2013. Indeed, it seems that the ACT Solar Auction, which will allocate at least 40MW of solar PV capacity, will have projects up and running well before then. Solar Flagships, it seems, will have to fall in line with the Renewable Energy Target.
Here’s some other things we can learn from this decision ….
Solar PV costs keep falling
While the 150MW Moree Solar project was going to cost $923 million, this project will cost just $450 million. That translates into $2.80/MW A/C, with all development costs included, such as substations, land acquisitions etc. That means that both the federal government and the NSW government save money, providing $130 million and $65 million respectively, versus $306 million and $120 million previously. AGL provides $260 million from its cash reserves, the ones bolstered, as managing director Michael Fraser has pointed out, by the cash flows from the newly acquired Loy Yang A brown coal generator.
The bidding for this project was based on anticipated costs of solar PV in 2014/15, as is commonly the practice. Jack Curtis from First Solar says the AGL project translates roughly to $180/MWh without subsidies, the ballpark range for Australia (solar rich WA is slightly cheaper). Curtis says his company estimates that to be competitive with wind, its costs need to be in the $100–$140/MWh range. “While currently we are proposing projects in 2012 that can be delivered in 2014/2015 without subsidies at around 180/MWh, we are credibly targeting being able to propose projects in 2015 that can be delivered in 2016/2017 and beyond without subsidies at $100 – $140/MWh.”
AGL’s Fowler agrees that solar PV will be able to compete “head-on” with wind between the middle and the end of the decade, and the company will be guided by costs. “We are quite technology ambivalent,” he said. “We will install the cheapest cost that we can. Solar PV does require incremental subsidies now, but at some point this decade that won’t be the case.”
It’s a buyer’s market
As the speaker of the House of Representatives would say, the big utilities have the “call”. It was a courageous, possibly naive decision to have independent power producers selected to build a facility that relies almost entirely on one of its rivals to provide a power purchase agreement. It would be a little like expecting Tony Abbott to support a carbon price – not because it’s not a good idea, but because he has a narrow constituency to cater too. The Department of Energy appears to have underestimated the power of the utilities.
One of the reasons the Moree Solar project did not go ahead was because it couldn’t get a PPA. It’s not clear whether the government was not convinced of the ability of Pacific Hydro to establish its own energy retailer to write its own PPA, or whether it got beaten on cost. Certainly, the government has made it clear that after the first round of bids, it had little appetite for risk, of any sort.
As for the PPA, AGL Energy simply wrote one to itself, between two of its divisions – the merchant and the trading group. Fowler says it is what they would expect to pay a third-party development but details were not revealed – although given First Solar’s cost guidance, a PPA around $100-$140/MWh would not seem unlikely. Fowler said the company did take into account the increased value of solar PV because it delivered in daytime hours, and because the projects are west of the main load centres (helping match peak demand). He said AGL’s investment fitted the standard criteria for the company of delivering a return (IRR) of at least 12 per cent. There were no plans to sell the project, however, once completed (as many of its wind farms have been).
Broken Hill renewable hub?
As noted climate sceptic and long-time Broken Hill resident Ian Plimer sits in his favourite bar regaling his mates with ripping science yarns, he may be surprised at how much of his electricity will be provided by the wind and solar technologies he rails against. AGL intends to build the 1000MW Singleton wind farm near Broken Hill, as well as the 53MW component of the solar farm. Fowler says the current transmission links could allow for around 250MW of wind at the most, and the solar farm, which is why most is being built at Nyngan, with slightly weaker solar resources (26 per cent capacity factor versus 27 per cent at Broken Hill).
Fowler says wind and solar will complement each other nicely, one blowing mostly at night, and the other shining during the day. He said it was difficult to imagine the area handling more than 1000MW of wind even with an upgrade, but the amount of solar was limited only by the amount of land, and there is a lot of that. Which means that CEFC chairwoman Jillian Broadbent finds an interesting proposal land on her desk when she and her CEO begin work next July.
First Solar is delighted. The US company that ranks as the world’s biggest solar PV manufacturer, has so far cornered the market in Australia with its thin-film panels – building the first utility-scale solar PV project in Australia, the 10MW Greenough River project, and now landing this contract. It is also one of the favourites for the ACT solar auction, where it is teaming up with ACT Actew for a 20MW project.
There will be 1.4 million modules installed over 460 hectares at Nyngan and 700,000 at Broken Hill – the equivalent of 187 Melbourne Cricket Grounds in total. (Moree Solar was to install 640,000 panels, which it said was the equivalent of 600 football stadiums – must have been rugby or soccer). All the modules for Nyngan and Broken Hill will be manufactured in Malaysia.
The losers will have to regroup. Moree Solar project leader FRV is involved in the ACT auction, but the consortium still hopes to salvage something from Moree. One avenue may be the Australian Renewable Energy Agency, into which the remaining $1.5 billion of Solar Flagships funding has ostensibly been placed. Whether this means a second round of the program (hopefully, with smaller, more rapidly deployable projects) remains to be seen. Perhaps they could do an ACT-style auction.