STC change ‘perfect storm’ for rooftop PV

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Changes to the STC system could result in the ‘perfect storm’ for rooftop solar, warn solar developers.

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Solar developers are warning that changes to the small-scale technology certificate (STC) system could result in the ‘perfect storm’ for rooftop solar, stopping the industry in its tracks. Some in the Australian solar industry believe that STCs are under threat if the RET becomes watered down in the review.

While it is far too early to know precisely what the result of the RET review announced this week by the Federal Government will mean for rooftop solar developers, there are concerns that residential rooftop PV arrays and sub-100kW commercial installations will no longer generate STCs. In effect, the move would see rooftop solar being exempted from the STC system and subsidy free.

Under this situation payback times for rooftop solar could be pushed out and commercial solar may become a very difficult sell. Currently commercial solar is already facing a number of challenges adding significantly to the cost of a commercial rooftop installation.

Given this, solar developers are warning that a change to the STC system could be disastrous.

“There is a pretty significant dark cloud hanging over the industry,” said Aidan Jenkins, Managing Director of West Australian solar company Infinite Energy. Jenkins reports that while the industry has handled big reductions in FITs in the past, from $0.47/kWh down to $0.8/kWh in WA, and reductions of the STC multiplier, current PV component pricing and weakening Australian dollar have combined to remove solar developers’ ability to cope with the removal of government support.

“We don’t have those cushions that the industry fell back on when the STC multiplier cuts happened in the past,” explains Jenkins. “What we have now is potentially going back to a situation where solar PV for residential customers could become uneconomic, and where that happens you will find the industry almost wiped out overnight.”

Amplifying concerns is that a removal of STCs from rooftop solar could hit the industry precisely at the market segment showing the most promising growth at present. Currently commercial rooftop customers, for whom a sub-100kW installation would be ideal, are turning to PV as a way to cope with high retail electricity prices. There are fears that if the STC discount is dissolved, this market could stall.

“There is an opportunity for the government to bring the entire PV industry to a screaming halt if they remove the STC discount,” said Ingenero’s National Sales Manager, Patrick Greene. “That’s because it is the sub-100kW market that is really buoyant and where the opportunity is.”

Making things worse, electricity retailers are increasingly introducing electricity contracts with significantly increased fixed costs, set against a reduce kiloWatt-hour rate, to small or middle-sized commercial customers. Ingenero’s Greene said: “That impacts very greatly on the economic viability of a solar system.”

There is little doubt that a subsidy-free landscape for solar would be preferred by solar industry, finally bringing to an end arguments that PV is a subsidy-driven market.

“In a lot of ways I agree with the sentiment,” said Ian Milne, the Business Manager for Avant Solar. “I don’t think that now is the time for that because the general buyer has this mindset that ‘if I’m not getting any help, there’s nothing in it for me, then why do it?'”

Avant’s Milne said that in WA at least, electricity is currently subsidised for households. While cost-reflective pricing would see electricity prices of $0.30 to $0.32/kWh for homeowners, currently they pay around $0.25 to $0.26/kWh.

Infinite Energy’s Aidan Jenkins agreed that public perception of solar may take a hit if STCs no longer apply to PV: “There is a perception in the market that when government support is no longer there, that PV is no longer viable.”

Changing that perception could become a priority for the rooftop solar industry in the coming months and with some expecting the RET review to move forward with some alacrity, the clock may be ticking.

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7 Comments
  1. Andrew Thaler 5 years ago

    Subsidy free solar is a fundamental desire of the wider community and government. Surely that can be achieved if we have a ‘floor’ price to purchase the solar electricity. [which I agree could be argued to be a subsidy]
    With ‘wholesale power prices’ for electricity derived from conventional fuels (coal) in the 4 to 6c/kWhr range and general domestic (eastern seaboard) retail prices over 20c/kWhr there is surely some room there for a floor price to be established.

    Nett schemes currently purchase the excess electricity back from a site at 6c/kwhr- can this be a suitable price to facilitate solar installation and production across a range of scales- domestic and commercial?

    How are we going to account for differential production between generator types if we lose the LGC market mechanism, which also appears more likely these days.??

    IMO there has to be a difference in the price as conventional electricity has higher environmental impact costs that are not incorporated into it’s sale price- and there needs to be something to address this fundamental issue. Conventional electricity IS subsidised by not accounting for it’s full cost to the community.

    And yes, I have a direct interest, I am currently, right now, seeking a customer for approx. 477kW of existing solar PV in NSW. Any ideas?

    • Chris Fraser 5 years ago

      The FiT has been regulated by Government. Generally this would be an anti-deregulation and conservative Government that has energy sector lobbyists trying to get their ear. We need to think outside the square and stop making it so easy for them to control us and our desire for PV by giving us blatantly shite FiTs all the time.
      Perhaps the FiT for rooftop PV needs to be ‘floating’ relative to the 5 minute wholesale dispatch price. This would create more motivation for PV owners to apply efficiency measures in their house and export all they could especially on high demand days when energy has a high AEMO price. The risk of not being efficient – or generally of not wanting to be market participants – is then shared by PV investors.

    • Andrew Thaler 5 years ago

      I’m now considering becoming an “Exempt Small Generation Aggregator” and sell direct into the pool and receive spot- which presently fluctuates in the $50-$60 range; and I create the LGC’s on top.. which is reasonable. Anyone out there interested in following this and helping me negotiate this path… please get in contact. It is not straight forward and I am struggling with it. It appears to be the only present solution as most retailers are just not interested in talking to me about purchasing the electricity and there is zero on-site consumption at one of the sites (407kW PV no load).
      I can see how hard this is now… how much of a shit-fight will this become when all the NSW 60c GFIT generators get bumped off 1st Jan 2018.???

  2. juxx0r 5 years ago

    The real problem is mathematical illiteracy.

    For subsidised solar i get 9.1c/kWh LCOE, for unsubsidised i get 13.0c/kWh. Unsubsidised gives a NPV of $4,639 against a capital cost of $6,500 for a 3kW system. This gives a internal rate of return of 12% with an escalation rate of Zero. Increase the escalation rate for the cost of electricity to only 2% and suddenly your NPV is higher than your costs at $7,254 and your IRR is 15%. This is all calculated with a financed capital cost at 5.14%, which just happens to be my mortgage rate.

    What this means is that if you have a mortgage, and can afford to pay your power bill then you will be able to pay off your mortgage faster with solar than without.

    What needs to happen is that solar providers need to team up with mortgage brokers to get the message out there. Problem solved.

    With subsidised solar obviously it’s even better, but this is not the end of the world.

  3. riley222 5 years ago

    “There is an opportunity for the government to bring the entire PV industry to a screaming halt if they remove the STC discount,” said Ingenero’s National Sales Manager, Patrick Greene. “That’s because it is the sub-100kW market that is really buoyant and where the opportunity is.”
    Thats the idea, to stomp on anything that may upset the established players, to cut down or preferably eliminate any additional generation other than that which suits the existing generators. They (and their lobbyists) have the governments ear so don’t expect a good outcome for either large or small scale renewables.
    The decisions are already made, its just a matter of getting the excuses in place to implement them.

  4. Motorshack 5 years ago

    I suspect that juxx0r’s comment about mathematical illiteracy is a very big factor here. A large fraction of the population can barely balance a check-book, or cannot do it at all, so they are in no position to make a serious analysis of the tradeoffs in rooftop solar. That leaves them vulnerable to whatever simple-minded summaries they read in the press, which in turn means that they might well think rooftop solar is not a good deal in the absence of obvious subsidies, even though it probably is.

    I might add that mathematical literacy has only a rough correlation with overall level of education. For example, there are plenty of lawyers (including one who once represented my ex-wife) who can barely do the simplest arithmetic, despite being quite expert in the law. So, that creates the opportunity for all sorts of credible-seeming people to pontificate on the subject, even when they have little or no mathematical ability to back up their assertions.

    If I were in the business of selling rooftop solar I would stop acting like Gollum about to lose his precious ring, and start focusing on the actual merits of unsubsidized solar PV. Not only is there a case to be made for unsubsidized solar, but that approach would also end their vulnerability to policy changes once and for all.

    In the end the question is not whether rooftop solar will continue to grow – it will – but is rather only a matter of how fast it will grow. So, it is hard to see any existential threat to the industry.

    • taiyoo 5 years ago

      Quite right – changing the way people traditionally assess investments has been the challenge of selling solar. High up front costs but a long life and negligible on-going costs make solar a fantastic long-term investment. But most Australians have been trained to think in terms of break even points and payback periods – the quicker the better – not lifetime LCOE and IRR. The tragedy is, in many cases, particularly for small-medium enterprise, RET assisted commercial solar (the <100kW sweet spot) now comes in under the traditional 5-year break even point requirement. The battle with classically trained accountants and financial controllers is now being won on their own terms. Without the RET we lose that battle and have to rely on their long-term vision – in the current economic climate this is pretty much non-existent. Don't kid yourself, losing the RET will badly damage the renewable industry.

      Your final paragraph is wrong – the rate of new installations has gone backwards since the peak of 2011.

      I wonder what will happen to the $40,000,000 worth of STC still in the clearing house if the RET is dismantled….

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