Australia goes big with PV

King coal is dead, long live PV. Last month, Australia awoke to its fifth Prime Minister in as many years. Minister for Communications and longtime rival Malcolm Turnbull dethroned Tony Abbott on Monday September 14, after successfully challenging for the leadership of the ruling Liberal Party. And in his first remarks after winning the leadership ballot, Turnbull chose language that is familiar to advocates of PV.
“The Australia of the future has to be a nation that is agile, that is innovative, that is creative,” said Turnbull at a late-night press conference. “We cannot be defensive; we cannot future proof ourselves, we have to recognize that the disruption that we see driven by technology, the volatility of change, is our friend.” The shift of rhetoric is dramatic. A little over one year ago, Tony Abbott argued that coal, and implicitly not renewable energy, would be the key for meeting Australia and the world’s energy needs well into the future.
“You can’t have a modern economy without, energy and for now and for the foreseeable future, the foundation of Australia’s energy needs will be coal. The foundation of the world’s energy needs will be coal,” said Abbott, dressed in a high visibility vest and posing with mining equipment. During his tenure, Abbott repeatedly argued that the exploitation and burning of coal for electricity generation would be key to economic development in the Global South, including fast-growing economies such as India. Abbott had also described wind turbines as “visually awful” and his Treasurer Joe Hockey described them as “appalling” and “utterly offensive” on the eyes.

Action against RE

Abbott and his government enacted numerous policies in favor of coal – both in terms of extraction and export, and for power generation domestically. Abbott’s government has scrapped Australia’s world-leading carbon pricing regime, it abolished the Climate Commission, it sought to dismantle the Climate Change Authority, it advocated for and savaged attempts to legally challenge the proposed vast new Galilee Basin coal mine in the northeastern state of Queensland, and it tried to wind up Australian Renewable Energy Agency (ARENA) and Clean Energy Finance Corporation (CEFC). The Abbott government also crucially reviewed and then sought to savagely cut the Renewable Energy Target – it settled on a compromised cut from 41,000 GWh to 33,000 GWh by 2020 – a move that essentially stalled large-scale renewables development for almost three years.
If all of those attempted measures had been successful it is difficult to imagine a future for a large-scale renewable sector in Australia. Fortuitously, Abbott lacked the numbers in the Senate to pass his swath of pro-coal and anti-renewables policies. ARENA and the CEFC were allowed to continue their crucial work, but budgets were cut and investment instructions passed on preventing the funding of rooftop solar and wind farms, while simultaneously requiring higher returns on investment.
Other climate bodies staggered on too, with the Climate Commission attracting private funding and becoming the Climate Council. The Climate Change Authority continued in its work of advising government on action against climate change, although its head and former Reserve Bank chair Bernie Fraser resigned only weeks ago among rumors of his frustrations in dealing with the government.
So what will change under Prime Minister Turnbull? The environment ministry will remain under Greg Hunt, amid an extensive reshuffle of cabinet and ministers. While overseeing the set of policies listed above, Hunt is considered a moderate within the Liberal Party and may have more leverage to support renewables under the new regime.
Hunt’s ministry will also take control of both ARENA and the CEFC, which had formerly been under the auspices of the department of industry and treasurer and finance minister respectively. The signal is being largely interpreted as a sign that Turnbull will abandon Abbott’s attempts to scrap the bodies.
“Obviously under Malcolm Turnbull there is a history of deep, long support for renewable energy,” said environment minister Hunt in an interview with Sky News. It is also understood that the ban on the CEFC investing in wind projects or rooftop PV will be lifted.
These moves, while overall supportive for the renewable sector, may have an ambiguous outcome for solar PV. If the CEFC is allowed to invest in distributed PV, this would largely take the shape of support for leasing programs, which have yet to gain serious traction in the Australian market, despite its high levels of residential PV penetration.
For large-scale PV, the CEFC being allowed to invest in wind farms will mean that big solar projects will no longer enjoy the preferential status they looked likely to occupy with the funding body. It is widely understood that there is a pipeline of many hundreds of MW of wind projects in Australia, which have been stalled due to regulatory uncertainty and difficulties in finding finance. These projects will compete heavily with large-scale solar for generating capacity under the downsized RET.

New support big PV

Even before the Turnbull Prime Ministerial coup things were beginning to look up for large-scale solar in Australia. While the RET has been cut, a clear target is locked in, giving investors some certainty. States and territories, such as Queensland, Victoria and the Australian Capital Territory, are all involved in programs to see solar farms developed, either directly or through state-owned utilities. The CEFC and ARENA have also launched com xAdvertisementplementary programs to support large-scale PV. The two bodies have allocated AU$350 million under two programs to see PV power plants developed. ARENA launched its AU$100 million large-scale solar competitive round that is looking to develop solar projects larger than 5 MW, with grants of up to AU$30 million. The CEFC complemented this with a AU$250 million round of loans of AU$15 million or more for similar big PV projects.
The ARENA program alone targets 200 MW of capacity, with the body having previously supported some of the approximately 211 MW that is operational or under construction at the Broken Hill (53 MW), Nyngan (102 MW), and Moree (56 MW) farm sites. The smaller Royalla (24 MW) and Greenough River (10 MW) projects are the remaining major projects of note.
“The funding round is about unlocking that capability to deploy large-scale solar farms across the nation,” said ARENA CEO Ivor Frischknecht. “This will drive further innovation in the sector and create efficiencies in Australia’s solar PV supply chains.” When the dual programs were announced, they received widespread coverage in the Australian press, leaving CEFC officials swamped with media enquiries. While the program was expected to be well received, the excitement it generated clearly indicates that large-scale solar resonates with the Australian public.
“Australia has huge natural advantages in this area: more sun than almost anywhere else and a solar R&D sector that is the envy of the world,” summarizes ARENA CEO Frischknecht. He added that the goal is to see utility-scale PV compete with wind on cost by 2020. The ARENA project targets projects with a price of around AU$130 – $135/MWh.
“Within Australia to get to that point of AU$130/MWh is a significant milestone,” the CEFC’s Chief Investment Officer Theodore Dow told pv magazine . “It wasn’t that long ago that prices like AU$170/MWh were the norm. The first wave of grants from ARENA helped drive those prices down to AU$130/MWh.” The aim for the new AU$350 million dual programs is to see costs reduced to AU$70 – $90 million. The projects will be selected by mid-2016 and are to be installed in 2017.

Cost profile

Cost reductions for large-scale ground-mounted PV in Australia are likely to come from the establishment of a solar supply chain, economies of scale, and efficiencies in terms of the cost and use of labor. As a market, Australia has demonstrated the capacity for cost reductions, and the residential rooftop space is competitive when compared to European or North American markets.
“One of the answers that the EPCs give as to why utility-scale solar is more expensive in Australia than in places like Germany, Chile or even Dubai, through the DEWA auctions, is that labor is much cheaper in those markets,” explained the CEFC’s Dow. “But if reduced costs can be delivered in other parts of the world, then in Australia surely those costs can be reduced.” Sourcing components produced locally will likely reduce costs, and First Solar tapped local metalworker IXL to produce the mounting systems for its 10 MW Greenough River Solar Farm in 2012, going on to do the same for the far larger Nyngan, Broken Hill and Weipa projects. In terms of labor costs, the developer of the massively ambitious 2 GW Bulli Creek solar farm, Solar Choice, has indicated that robotic installation technology is something that it is looking at (pv magazine 05/15). Solar Choice announced in August that it is partnering with SunEdison on the Bulli Creek project.

PPAs crucial

Reduced costs will undoubtedly allow solar farms to compete with wind and conventional energy sources. However, without a PPA it is hard to see a project going ahead. And new PPAs for a renewable project in Australia are few and far between.
There are a number of reasons for this, including Australia’s relatively small population of around 23 million as well as the small number of utilities in the Australian market. These utilities tend to be relatively vertically integrated, with generation, distribution and retail arms bundled into what has been given the portmanteau name of “gentailer”. The utilities often own fleets of amortized, largely coal-fired power plants, that have become more competitive in the market since the carbon price was removed by the former Abbott government. Thus, when structuring PPAs for large-scale solar, creativity will be required.
State government PV tenders, merchant plants particularly in remote areas, and power prices in the state of Queensland – which are being driven upward by a stream of liquefied natural gas plants coming online – are all opportunities the CEFC has identified for solar projects to sign PPAs.
“The sector will have to get a whole lot more creative in terms of where the PPAs do come from,” says Theodore Dow. “The biggest source of a solution here will be to drive down costs, because if that occurs then investors can be convinced that they will be banking a break-even price.” Dow is confident around 200 – 300 MW of projects will be shovel ready by the latter stages of 2016.
Another emerging opportunity is that Australia’s aging coal-fired generation assets will have to be replaced. The CEFC’s Dow believes that two thirds of Australia’s “power infrastructure backbone” will have to be retired by 2030. In this environment and given cost reductions are achieved, large-scale PV is likely to be far more competitive against new-build power plants than it is today where it competes against a fully amortized coal fleet. CEFC’s Dow also notes that solar may have to compete not with average grid prices, such as around AU$35/MWh, but rather pricing in peak periods, like summer, when prices average closer to $200 – $250/MWh.

CEC welcome

Australia’s Clean Energy Council predicts that large-scale solar will become “a competitive part of Australia’s mainstream energy supply in the second half of this decade.” It is a bold vision but one that appears entirely achievable. The Council itself was quick to welcome the shift in rhetoric coming from the new Prime Minister Turnbull, describing his initial comments as “an important message with deep resonance for the business community broadly, and specifically for Australia’s renewable energy sector.” And messaging counts. Investment needs to be made in a climate of confidence and this is particularly so for large-scale solar, as Australian institutional investors are not yet well-versed in solar. Some commentators have been quick to conclude that Prime Minister Turnbull will have difficulties supporting renewables and climate mitigation policy given the strong conservative faction remaining within his party.
The Guardian Australia’s political commentator Laura Tingle, for one, does not think Turnbull is hamstrung by his party on the issue. “Just removing the shadow of uncertainty that has hung over renewable energy under Abbott and his wind turbine-hating Treasurer, would make a huge difference to the investment climate,” wrote Tingle, just days after the change of Prime Ministership. “The constraining weight of mantras like ‘coal is good for humanity’ has… just been lifted from the backs of the government’s ministers.” xAdvertisement