Monday, 7 June 2010

The gold rush on our rooftops

Business Spectator
Wednesday 2/6/2010 Page: 1

Last year it was solar hot water systems and heat pumps that flooded the market for renewable energy certificates; this year it is rooftop solar photovoltaic power systems. According to an analysis from broking house Wilson HTM, nearly two thirds of the 2.1 million RECs issued during May (a monthly record) came from solar PV, due mostly to the generous gross feed-in tariffs in NSW and a burst of interest from Queensland.

Indeed, from virtually nothing three years ago, when just 15MW of solar power was installed in the country, Australia now has a $1 billion a year solar PV industry that is growing at a phenomenal rate. In January, Wilson HTM analyst Jenny Cosgrove predicted some 69MW of solar energy would be installed in Australia in 2010. Last month, she lifted that prediction to 100MW and already believes that will undershoot the final tally. Other industry insiders predict it could be as high as 130-150MW.

All this is having a marked impact on the price of RECs, Australia's most significant environmental market. The flood of certificates created in May has forced the price of RECs down by nearly 20% in the past month, from around $45 to $38. "There now seems little doubt that due to solar PV, the REC market will be oversupplied in 2010, as it was in 2009," Cosgrove says.

The weakness is exacerbated by market apprehension about the passage of the revised Renewable Energy Target legislation through the Senate. That legislation is designed to separate small scale solar from large scale installations: a successful passage would offer stability to the RECS price, but failure would see RECS slump to even lower levels than the $28 plumbed last year – and would force the postponement of several billion dollars of wind farm investments.

The rush to rooftop solar is not hard to understand. In NSW, the gross feed in tariff of 66c per kW hour means that a $3000 investment into a 6kW rooftop solar package - already greatly reduced by the RECs scheme and a 40% slump in module costs in the last 18 months as the as the global industry gains economies of scale - can be repaid in little over two years.

That slump in module prices - and predictions that they could fall a similar amount over the next two years - is also making people realise that solar PV - even without tariffs - could turn out to be a useful hedge against rising energy prices. If you include up front capital costs, solar PV over its lifetime already produces energy well below peak costs now offered by some energy retailers, and solar just happens to produce most energy at the same time as peak production. A smart household would use the grid as a baseload back-up and for cheaper energy in low peak periods at night.

Solar PV is forecast to hit 'grid parity' in some European countries and US states within the next year or two. A recent report by US-based GTM Research estimates that global demand for PV will reach 11.2GW in 2010, a rise of 58% over last year. Germany will account for nearly half that, before demand falls as the rate of feed-in tariffs declines, but it is expected to remain the largest national market for another three years, by which time five countries are expected to install 1000MW per year.

A bigger question for Australia is that if effective feed-in tariff, or another broad based market mechanism, can be so successful in creating a gold rush in the small scale PV market, should similar mechanisms, possibly extending to tax incentives of loan guarantees, be deployed in areas where Australia has the opportunity to establish global leadership, such as solar thermal or geothermal, where the pace of development into new technologies is not really being accelerated by the various flagship programs and one-off grants. As for solar PV, the rush to install panels on household rooftops is not extending to the vast areas offered by business and industrial locations.

Some in the solar industry are suggesting a system of capped feed in tariffs like that proposed in India to help meet their ambitious targets of 22GW of solar power by 2022. Having a cap, it is said, encourages innovation and cost effective projects, and might avoid the boom/bust cycle that has marked the industry in other countries as feed-in tariffs are introduced and then cut according to the political cycle.