Market opportunities in the solar sector

Demand for electricity is remaining constant in the long term. However, solar energy is becoming more competitive and is likely to significantly increase its share in the electricity grid.

By Heiko Stumpf | Sydney

Solar power is now becoming more viable to replace Australia’s ageing coal-fired power plants.

Now that the targets of the Renewable Energy Target (RET) will likely be met as early as 2020, the market for open-site systems (photovoltaics, PV) needs to manage without a national subsidy framework in place. According to the expectations of energy analysts at Rystad Energy, around 2 gigawatts will be installed in this market segment in 2020. In the medium term, the market potential is estimated at an annual increase of 1 to 2 gigawatts.

Structural changes in the Australian National Electricity Market (NEM), the east coast power grid, is proving to be the main drivers of this growth. With an installed capacity of 23 gigawatts, the energy mix in the NEM is strongly influenced by coal-fired power plants. According to a forecast by the Australian Energy Market Operator (AEMO), around 15 gigawatts of this will be taken off the grid by 2040 as plants become obsolete due to age.

High construction and operating costs, as well as falling generation prices for solar and wind power, make new investments in coal-fired power plants unlikely. High gas prices on the east coast are also discouraging investment in gas-fired power plants. In order to replace the old coal-fired power plants, AEMO forecasts that capacities of around 34 gigawatts will have to be added from renewable sources.

Large-scale PV systems are becoming more competitive.

According to calculations by the national research institute Commonwealth Scientific and Industrial Research Council (CSIRO), the electricity generation costs for large-scale PV systems currently average around 46 Australian dollars per megawatt hour. This means a cost advantage of about 25 percent compared to wind power and between 50 and 60 percent compared to coal and gas.

By 2050, the electricity production costs for large-scale PV systems are expected to almost halve, while a decline in the range of about 20 percent is expected for wind power.

The installed PV capacities in the NEM (excluding roof-mounted PV systems) are currently around 3.8 gigawatts. According to the central scenario of AEMO, there could be an increase to around 21 gigawatts by 2040. Wind power is expected to grow from 7.5 to 25 gigawatts by 2040.

According to the Step Change scenario, which simulates an early shutdown of almost all coal-fired power plants by 2040, an installed solar capacity of 30 gigawatts would be required. Wind power would increase to a capacity of 36 gigawatts.

There is already a huge project pipeline for large-scale PV systems. According to data from AEMO, the NEM related solar and wind projects in the planning phase have a total capacity of around 27 gigawatts.

A future investment focus will be on the planned Renewable Energy Zones (REZs) in the state of New South Wales (NSW), which allow improved grid connection. The first to be built are the REZ Central-West (3 gigawatts) and the REZ New England (8 gigawatts) plants. An expression of interest procedure for the REZ Central-West has triggered a huge rush from investors.

Export projects and off-grid systems offer some opportunities in Australia.

In addition to systems to feed into the NEM, a market for projects focusing on exports is also developing. One example is the Sun Cable Project in the Northern Territory. The mega project includes a 10-gigawatt solar farm, which will supply electricity to Singapore via a submarine cable. There are a number of other projects in connection with the planned export of green hydrogen using solar and wind generated power as a feed source. These include the Asian Renewable Energy Hub in Western Australia (WA) with a potential solar capacity of 2 gigawatts.

In the off-grid area, the mining industry in particular is fostering an increasing number of renewable projects. Large mining companies are setting themselves ambitious climate change targets. Fortescue Metals wants to become carbon neutral by 2040; BHP and Rio Tinto want to follow suit by 2050. To this end, diesel generators are to be replaced by clean sources. For example, Fortescue wants to create PV capacity of 150 megawatts for their iron ore mine in Western Australia as part of the Pilbara Generation Project.

A quarter of households in Australia currently have a solar system mounted on the roof.

The installation of PV roof systems (up to 100 kilowatts) reached a new record of 2.2 gigawatts in 2019 (an increase of 34 percent over the previous year). The total installed capacity has thus already reached around 10 gigawatts. Home systems accounted for the lion’s share in 2019 with around 1.8 gigawatts. On a national level, 2.3 million households have already installed their own solar modules. The average size of new roof mounted solar systems in 2019 was 7.7 kilowatts.

According to forecasts prepared for the Clean Energy Regulator (CER), new installations could reach around 2.1 gigawatts in 2020 and decline to 1.7 gigawatts in 2022.

The gradual phasing out of the Small-Scale Renewable Energy Scheme (SRES) will have an impact on the expected cooling of market dynamics and demand. The scheme allocates a certain amount of Small-Scale Technology Certificates (STC) to each PV rooftop system based on the total power generation expected during the operating period. The certificates are sold to electricity suppliers, who must prove that they hold a certain amount of STC certificates at the CER.

In practice, the SRES acts like a price reduction, as the solar traders take over the sale of the certificates and deduct the proceeds from the price of a solar system in advance. As the subsidy expires in 2030, the number of certificates allocated to new installations is steadily decreasing.

Nevertheless, the total installed capacity for roof systems is expected to grow to around 26 gigawatts by 2030.

In addition to the SRES, there are still additional subsidy programs of some states. For example, Victoria awards financial grants ($1,850) and interest-free loans through the Solar Panel Rebate. New South Wales helps low-income households to purchase solar modules and offers interest-free loans for solar systems with battery storage.

Article (in German) by Heiko Stumpf, GTAI.

Translation by 2M Language Services.

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