Australia: Solar costs could rise 50% if RET cut

29. August 2014 | Applications & Installations, Financial & Legal Affairs, Global PV markets, Industry & Suppliers, Markets & Trends | By:  Ian Clover

Householders could be hit with increased system costs if Australia's government winds back the Renewable Energy Target.

Commercial installation, Australia.

Any cut to the RET could extend payback periods for residential solar from a typical five to eight years.

Following yesterday's news that the Warburton Panel – handpicked by Australian Prime Minister Tony Abbott – has advised Australia's government to strip back its Renewable Energy Target (RET), solar experts have said that any cut to the RET is likely to increase the cost of solar systems by as much as half.

In reviewing the RET, the panel has suggested that there is a "strong case for winding back the small-scale renewable energy scheme" after it found that Australia's booming rooftop solar sector generated 6,400 GW hours of electricity last year – well above the RET’s original target of 4,000 GW hours by 2020.

Although the final green light is not expected for a few weeks, renewable energy supporters in Australia have urged would-be solar customers to "put their orders in now", warning of a potential 50% price hike should the RET – as widely expected – be cut.

The Clean Energy Council's policy manager, Darren Gladman, told the Sydney Morning Herald that potential solar customers should not delay, adding that the window to apply for current rates is likely to be "very narrow if previous policy changes are any guide".

Solar retailer Sungevity calculate that the cost of a typical 2 kW PV system will rise from AUS$5,000 to AUS$7,500 if the small-scale renewable energy scheme is scrapped, extending the payback period from five to eight years.

Having been split in 2011 between a large-scale component and an open-ended program for households and small businesses, the RET has been instrumental in bolstering Australia's small-scale solar sector.

Currently, there are 1.3 million Australian households with a solar system fitted, aiding the country's overall installed capacity of 3 GW. In 2013, 800 MW of rooftop PV was added, and that figure could reach 750 MW this year, even amid the uncertainty cause by PM Abbott's apparent eagerness to strip back the RET.

Uncertainty causing instability
The Warburton Panel is largely expected to push for the RET to be cut. Its chief panelist is renowned climate skeptic Dick Warburton, former chairman of petroleum company Caltex. The panel admits that any withdrawal of support is likely to damage the industry, pouring a dose of dampening uncertainty over a sector that has enjoyed unprecedented growth.

"Modeling indicates that repeal of the RET scheme would have an immediate effect of reducing the install rates of rooftop PV by at least 30%, and the number of solar water heaters by around 16%,” said the panel report.

"However, by the early 2020s, the rate of small-scale solar PV systems installed each year would recover at a rate similar to that if the scheme was left in place."

Bloomberg New Energy Finance (BNEF) at least agree that the longer-term recovery is likely, but base their findings on the not-unreasonable expectation that solar panel prices will continue to tumble while electricity prices continue to rise. "The end of support will almost certainly create a boom then a bust," said BNEF lead analyst Kobad Bhavnagri. "Every policy change does."

Bhavnagri has questioned the panel's recommendations of allowing large-scale renewable energy plants to set one-year targets, allowing firms to bid for 50% of any growth in capacity.

"It is very hard to see how one-year extensions would give you any certainty. It is totally unworkable," he said.

In the first half of 2014, investment in Australia's large-scale solar and wind industries fell to AUS$58 million – the lowest figure for ten years. This shortfall in financing and interest was a result of the industry catching wind of the government’s intended cutbacks on renewable energy. In 2013, by contrast, the sectors attracted investment of more than AUS$2.6 billion.

Financial risk
The Clean Energy Council's Kane Thornton has remarked that a lowered RET will put more than 21,000 jobs at risk and could cause massive financial damage. "It is inconceivable that the review could objectively recommend slashing the RET when its own economic modeling showed this would lead to higher power bills in the long run, while at the same time smashing billions of dollars of investment," said Thornton.

Opponents to the proposal have begun to make more vociferous claims over the past few days. The Palmer United Party has said that it would block any change this side of the next election, while the chief executive of the Australian Industry Group, Innes Willox, has called for a deal that "safeguards the interests of energy users".

Solar remains a much-loved energy source among the Australian public, said the Australian Solar Council, which also announced that it plans to target marginal Coalition electorates at the next election.

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