Is Solar Uptake Poised to Surge on Plunging Costs? 1

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Tuesday, October 22nd, 2013
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While leading industry figures say the solar market is set to surge on the back of sustained reductions in unit costs, in Australia the fate of the sector could still depend on incentives provided by government.

No less august an authority than Jon Wellinghoff, chairman of the US Federal Energy Regulatory Commission, recently said the sharp decline in costs for solar is set to transform energy markets around the globe.

“Solar is growing so fast it is going to overtake everything,” said Wellinghoff in a recent interview with Greentech Media.

He predicted that solar will become the leading renewable energy source in the US due to its ease of installation as well as declining costs, with wind and other forms of clean energy playing ancillary roles.

“At its present growth rate, solar will overtake wind in about ten years,” he said. “It is going to be the dominant player. Everybody’s roof is out there.”

Much of the decline in costs is the result of China’s drive to develop its domestic solar PV industry. Government support, as well as the economies of scale and supply chain benefits achieved due to the scope and concentration of China’s industry, have served to sharply reduce the international cost of solar PV equipment, to the immense chagrin of competitors from industrialized countries.

These declining solar PV costs particularly favor the Australian market given the country’s rich climate resources and abundance of space.

Australia already enjoys a significant cost advantage at the international level. The Tracking the Sun report, a comprehensive account of falling solar PV prices during the period from 1998 to 2012 released by the US Department of Energy’s Lawrence Berkeley National Labs, found that Australia is one of the cheapest countries in the world for installation of photovoltaic technology.

The report found that Australia was the cheapest country for the installed price of small residential PV systems with the exception of Germany, and that it was a whopping 50 per cent cheaper than France, Japan or the US.

This is an especially impressive result given that analysts impute cheap installed prices to reductions in “soft costs,” which encompass the cost of obtaining approvals and finance as well as related infrastructure. These soft costs tend to be far lower in larger markets like Germany and Italy due to economies of scale.

Recent experience has indicated, however, that the ongoing trend of declining costs may not be sufficient alone to spur increased uptake of solar PV, and that the government may still need to foster the sector’s development with incentives such as feed-in traffis

In Queensland – where the popular moniker of the “Sunshine state” demonstrates its high suitability for solar energy – the closure of the 44-cent-per-kilowatt-hour feed-in tariffs may have already had a severe impact on the local photovoltaics sector. Installation data from the Clean Energy Regulator implies that a distinct decline in installations since July as a result of the reduction of the feed-in tariff from 44 cents per kilowatt hour to just eight cents.

This could bode poorly for solar installations in the near term down in South Australia, where the cut-off for applications for the state’s full 25.8 cent feed-in tariff ended on September 30, 2013.

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  1. Justin Salt

    Are there mandatory plans for all new houses in Australia to come fitted with solar? Surely there is scope for this now if costs continue to drop.