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Australia readies for big solar boom as PV costs continue fall

Australia is poised to experience its biggest ever boom in large-scale solar construction over the next year as a range of international market factors and local policy incentives take hold.

A number of factors are pointing to a major investment push to large-scale solar, a boom that has been a long time in the making but is now ticking nearly all the investment boxes.

On the international market, this includes the continued fall in solar manufacturing costs, and an expected surplus of manufacturing capacity in coming years that will force manufacturers to slash margins, driving prices down further.

Locally, the situation in Australia is being enhanced by the continued high price of large-scale renewable energy certificates, the imminent results of a major solar tender by the Australian Renewable Energy Agency, and the growing appetite for solar investments by financiers and equity investors.

Last week, the world’s biggest solar manufacturers all agreed that the market will be facing another round of over-supply in the next year as major investment in more capacity – from the likes of JinkoSolar, Trina and Canadian, the three biggest manufacturers – are completed.

Bloomberg last week noted that capacity will jump 18 per cent this year, and the major companies are flagging that not only are the costs of manufacturing coming down, but the major companies will likely have to reduce their margins as they protect market share.

“Chinese solar manufacturers now face tougher competition due to a supply capacity increase and a decrease in market demand,” Yingli Green Energy Vice President and Chief Climate Officer Jingfeng Xiong said during a call Tuesday with analysts.

Bloomberg noted that demand for solar is continuing to rise, but that growth is slowing. Global installations this year may reach about 67GW, up 27 per cent from last year, according to Bloomberg New Energy Finance. In 2017, it’s expected to increase by 25 per cent, and in 2018 it will rise another 23 per cent.

But the fall in manufacturing costs – estimated by the major manufacturers at around 10 to 15 per cent a year – and the cut in margins in the international market, will also play into the Australian sector, which is poised to experience a watershed moment in coming weeks.

The ARENA tender, to be announced in the next fortnight, is expected to be a catalyst for more than $1 billion in investment in the next 12 months, and possibly much, much more.

arena solar map

Already, its tender process has elicited significant price reductions, and because the cost of utility-solar has fallen faster than expected, around half of the 20 short-listed projects (see map above) could get funding from the $100 million pool. Some of those projects will get additional assistance from the Queensland and NSW governments.

That should trigger around 400MW of large-scale solar developments alone. But it will also act as a trigger point for other developments.

Many large-scale solar projects have been on hold pending the outcome of the tender. One of the ironies of the ARENA initiative is that it will give the industry a massive shove forward, but it has meant that in the past year, projects have been on hold as they jockey for funding, and others await the result.

But costs have come down, even without much construction activity (apart from those projects funded by either ARENA or the ACT government’s revere auction series).

The competitive nature of tendering, let alone building, has seen the offers to ARENA fall significantly.  This view is echoed by the observations of ACT environment and energy minister Simon Corbell, who says the recent tender for large scale renewable energy showed that large scale solar was competitive with wind energy.

There is also a growing appetite for projects that will circumnavigate the capital strike of the major utilities, who have written very few power purchase agreements, and go “merchant”, and sell the output on the spot market.

They are able to do this because of the growing interest of financiers, particularly from Europe where they have experience in the utility-scale solar market, the emergence of solar investment funds.

LGC prices are also high, trading around $80/MWh. That is because, says Miles George, the head of Infigen Energy and chairman of the Clean Energy Council, because it is still difficult to obtain contracts from obligated parties (the big utilities).

Source: RenewEconomy

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