Yet, while further dramatic cost reductions are expected in coming years, the coincident wind-back of federal and state solar subsidies has left the Australian solar industry in a precarious position. In spite of this, opportunity remains for strategic solar companies to successfully maintain leading positions in preparation for an impending solar revolution.

Since 1997, Australian photovoltaic (PV) system prices ranged between $10–14/Watt (W), averaging $12/W. According to an Australian PV Association industry survey, PV in Australia 2010, the average system price has halved in 2010 to $6/W. The 2011 pre-subsidy price of 1.5 kilowatt (kW) solar power systems remains close to $6/W, although economies of scale in inverters and installation means that the price of 5 kW systems is already below $5/W .

The $4/W barrier is expected to be reached by 2014 for larger systems and in 2020 for smaller systems. This is significant because it corresponds with conditions in which solar power will then be generated at costs corresponding to those of regular consumer electricity tariffs. The exact timing of this ‘grid parity’ occurrence depends upon relative prices of retail electricity and solar installations. History shows that consumer solar demand is massive given favourable financial return, so solar becoming a mainstream energy choice is inevitable, though there are still many obstacles to clear first.

Rising sun, falling subsidy

Just as government support facilitated solar industry growth and its recent boom, the retraction of government support threatens to undermine the, potentially wasting much of the industry development that has been achieved to date. Whereas both the Solar Homes and Communities Program and Solar Credits initiatives initially discounted system costs by approximately 67 per cent, the federal subsidy has been minimised by an early reduction in the solar multiplier combined with a small-scale technology certificate (STC) price at less than half the originally intended value of $40.

Combined, these factors have seen the Federal Government’s upfront support levels drop by 70 per cent in the space of 4 months. Customers that may have paid as little as $2,800 for a 1.5 kW system now face the prospect of paying more than twice this amount. Rather than a predictably smooth transition, solar policy has proven unable to respond adequately to changing market dynamics, especially in light of significant state and Federal government policy interactions.

Impact

The impact of federal and state government solar funding cutbacks has been dramatic. Whereas a payback in less than eight years was easily achievable for most solar applicants in February 2011 (see Figure 1), the subsequent drastic reduction in STC and feed-in tariffs value means that one might now be lucky to obtain sub-ten year payback, at least without drastic reductions in input costs . Even ensuring solar generation receives the same price as the standard retail tariff doesn’t provide any reasonable payback, at least until the STC price recovers (see Figures 2).

Interestingly, the reduced STC value means that economies of scale for larger systems balance the distortive influence of the 1.5 kW-focused solar multiplier. Though some of the market will opt for larger systems to achieve greater reductions in electricity bills, the economics of PV have changed such that the sub-$3,000 systems that might have been paid from householders’ disposable incomes have become much less feasible. Such outcomes could reduce installations by 65–75 per cent, according to economic consulting firm ACIL Tasman’s modelling for the South Australian government.

The way forward

Perhaps only prolonging the pain, hope remains for a brief reprieve. Most analysts predict that PV panel prices will fall substantially in the second half of 2011, as recently-constructed Chinese manufacturing capacity comes online, and Australian wholesale competition for a declining market intensifies. Panel prices from manufacturers with less than three years operating experience had already hit $US1.30 ($AU1.21) in June, which exerts pressure upon pre-established players.

Discusssions at the Intersolar Conference in Germany suggested prices would decline from €1.68 ($AU2.27) in the second quarter to €1.30 ($AU1.76) in the third quarter for European panels and $USD1.72 ($AU1.60) to $USD1.40 ($AU1.30) in the same time-frame for long-established Chinese panels. A further 3 per cent decline is expected by December, before a 6–8 per cent annual price trajectory resumes. However, even such dramatic decreases look unlikely to prop up the Australian PV industry.

Strategies

With the solar gold rush now in its dwindling days, market exits are expected – both voluntary and due to insolvency. It has become a waiting game for many, with plenty holding onto STCs in the hope of a price recovery, though some degree of attrition is unavoidable. Strategic solar companies are more likely to survive by identifying innovative ways to package and deliver solar power, with resources targeted towards servicing more favourable markets.

For example, SunWiz has analysed recently-released postcode-level installation data to identify solar hot spots – locations and demographics with more favourable solar uptake and larger system sizes. Analysis of solar hot spots for individual solar companies may be able to identify more profitable target markets that can assist in navigating the market turbulence that lies ahead, and bridge the gulf between yesterday’s solar economics and those in the grid-parity future.

Warwick Johnston is Manager of SunWiz, a boutique solar consultancy providing market intelligence and outsourced engineering to solar businesses. Read more about solar hot spots, PV market insights, and STC market updates at www.sunwiz.com.au Warwick is also Vice-President of the Solar Energy Industries Association of Australia (SEIA), sits on the PV Directorate of the Clean Energy Council and holds a position on the Rapid Response Team of the Australian PV Association (APVA).