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Is the Australian Solar Market Slipping as Tariffs Recede?

Australia Solar and Tariffs

After years of booming growth in solar, Australia is encountering problems familiar to Germany’s solar-rich — some say too-rich — energy market.

Reversals in government policy on carbon reduction and renewable energy targets have made for some serious solar retrenchment in the country.

The most recent signs come from the Australian state of Queensland, which on Monday announced it was phasing out its solar feed-in tariff of 8 cents per kilowatt-hour after June 30. It’s the final blow to a FIT regime that’s started out offering 44 cents per kilowatt-hour in 2009.

Queensland, like the rest of the country, has seen significant increases in retail energy prices, including fixed charges to cover grid infrastructure and other utility costs that nearly doubled last year, rising from 28.8 cents to 55.2 cents per day. These increases are a direct result of the costs regional utilities Energex and Ergon Energy are bearing to pay solar power producers under the feed-in tariff.

According to a March 2013 analysis (PDF) from the Queensland Competitive Authority, these two utilities will incur $2.9 billion in FIT costs through 2028. That’s going to lead to average increases in state residents’ electricity bills, rising from $67 per year in 2013-2014 to about $276 per year by 2015-2016.

Thinly populated Queensland is on the rough edge of a grid imbalance that’s showing its effects across the country. Australia’s solar PV fleet has grown from less than 10 megawatts in 2005 to about 3.2 gigawatts as of February, according to the Australian PV Institute. But based on the latest market data from Australian Energy Market Operator (AMEO), the country’s energy management entity, the 500 megawatts of solar PV connected between January and October last year was down nearly 30 percent from the amount of PV installed in the same period in 2012.

That tracks with the decline in incentives for customer-owned PV. Queensland’s decision to drop its FIT follows the 2011 rollback of New South Wales’ program, after that far more populous state’s government determined the costs were too hefty and its initial goal of 300 megawatts of installations had been reached. Other Australian states have scaled back their FITs, and while retail electricity providers in the country’s deregulated energy market can and do offer their own FIT schemes, it’s unclear whether they’ll pick up the slack.

According to recently released analysis from research firms SunWiz and SolarBusinessServices, this year’s residential PV installations are expected to decline against last year. And while the prospects for commercial or utility-scale solar may be more promising, it’s a tiny sliver of residential PV’s scale. AMEO’s most recent data puts this scale of solar generation at only 2 megawatts of existing capacity, with another 146 megawatts of “committed” capacity set to be built, and 639 megawatts of “proposed” projects that may or may not come to fruition. (That doesn’t include the states of Western Australia and Northern Territory, which aren’t part of Australia’s integrated energy market.)

Australia’s energy market dynamics reflect the disruptive influence of unprecedented amounts of solar coming onto a grid that’s seen far less growth in demand than expected over the past several years. While the economic recession has played its part in this imbalance, the increase in customer-sited solar power is a key driver as well: solar-equipped customers don’t buy as much grid power, after all.

Meanwhile, the same growing solar PV fleet that’s been depressing energy demand has been undercutting energy market prices for coal- and gas-fired power plants. That has, ironically, pushed wholesale energy prices to new lows, even as utilities raise retail rates to cover their losses.

Last month, utility EnergyAustralia reported a 2013 loss of $350 million, driven by plunging profits and a $445 million writeoff in value for its coal and gas-fired generators. That’s good reason for it and other utilities to seek a revision to Australia’s Renewable Energy Target, which calls for the country to generate 20 percent of its power from clean sources by 2020. Australia’s new coalition government, which came to power after September elections, has already announced its hopes to overturn the country’s carbon tax, and last month announced it would “review” the Renewable Energy Target as well.

While Germany’s Energiewende soldiers on, Australia’s green energy transition may be on its way backward.

Photo Credit: Australian Solar and Tariffs/shutterstock

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Jeff St. John's picture

Thank Jeff for the Post!

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Nathan Wilson's picture
Nathan Wilson on Mar 27, 2014 4:36 am GMT

How can a place so sunny have such a disfunctional solar policy?  

If they had kept the pace slow and steady, and focused on much more affordable utility scale sustainable energy, they could have kept the electricity cost under control, avoided more fossil fuel use, more fairly distributed the costs, deployed more energy storage, and maintained a healthier energy industry.

Can we finally have an adult conversation about how, even when wholesale grid parity is reached, the total cost of the electrical system does not go down when solar is added, if you don’t need the new generation?  Replacing power from plants that are already paid for, or already built is never going to be cost effective in a fossil fuel producing country with little or no carbon taxes.


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