Analysis of NSW FiT changes (2009)
SunWiz distributed this analysis to clients following the announcement of a gross Feed-in Tariff for NSW. Some of the questions posed have been answered since the implementation of the solar bonus scheme legislation and regulation. Further analysis has shown that if a 10% reduction in PV system installed price occurs in each year, the economics of solar power shall continue to be excellent, principally because of the large (63% over 3 years) electricity tariff increases proposed by IPART.
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Since the release of SunWiz’s “Successful Solar Strategies” report, NSW announced a gross Feed-in Tariff. An email notification from SunWiz on 13/11/09 provided distilled the key points of the draft legislation. The passage of legislation makes invalidates some graphs and analysis within the report. This document and the accompanying spreadsheet provides an update of analysis relevant to the NSW gross Feed-in Tariff. It is supplemented by information from the NSW government department responsible for implementing the associated regulation (Provided during the PV directorate by Ellen Kelly, Project Officer, Sustainable Energy from Industry & Investment NSW, Minerals and Energy Division).
The NSW gross Feed-in Tariff was passed by parliament on the 27th November 2009. It is due to commence on the 1/1/09, though certain transitional arrangements apply. To summarise the legislation:
|
Eligible: |
Small electricity consumers ( |
|
Existing Systems: |
receive gross FiT |
|
Duration: |
until 31/12/2016 (not a sliding window) |
|
Transition Day: |
1/7/09 |
|
Distribution boards: |
Receive net FiT until transition day |
|
Cash or Credit: |
Mandated credit on accounts, credit accounts can be paid out in cash at the discretion of the retailer |
Concerns
At this stage there is no clear picture of what will happen to existing or new systems connected to distribution boards.
Until transition day, systems will receive net 60c/kWh FiT.
As the legislation stands, after this date systems connected to distribution boards will not receive the gross FiT, without some solution amenable to the local electricity distributor.
Changing this in legislation this would require political amendment, considered unlikely in the foreseeable future due to the recent change in Premier.
An option exists within the legislation to extend the transitional arrangements. This could be done through regulation, avoiding the need to involve parliament. This may mean systems that could otherwise not receive gross FiT may receive net FiT.
Is 10 kW based on panel or inverter capacity?
The project officer from Sustainable Energy from Industry & Investment was unaware of the difference between panel and inverter capacity. The PV directorate campaigned for recognition of inverter capacity. This issue has not yet been resolved, but the FAQ states: “The capacity limit applies to the entire generator, not just individual components of the generator. The entire generator must fall within the 10 kilowatt capacity limit”, suggesting that the panels must be less than 10 kW too.
Observations and Implications
Small systems prevail
The payback from a 1.5 kW system now clearly outshines that of larger systems. Economies of scale can overcome a 4xREC multiplier to make payback quicker for larger systems, or a $20 REC price with 5x multiplier. However, for the meanwhile 1.5 kW is both highly affordable and the best investment.
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Commercial Cash Crop
The gross Feed-in Tariff means that many businesses that would otherwise have export little daytime power can now profit from installing a solar power system. Targeting niche markets is unnecessary, making your sales job (and that of competitors) easier.
Enter the Competition
Over 2009, NSW represented approximately 19% of Australian installations. As large Queensland and Victorian-based companies find sales drying up, they may focus their sales efforts on NSW. This effect may be tempered somewhat by the inverter and installer shortage and rebate demand backlog.
50 MW Review
The ministerial review is scheduled for 1/7/2012 or when 50 MW of capacity is reached. Here is a calculation of when that may be:
In NSW there was 14 MW of PV installed by end of September 2009; which may mean 16 MW has been installed to date.
NSW’s share of 2009 installations stood at 19%; meaning that another 12 MW might be expected if government estimates of 63,000 system applications was correct.
This would mean 22-24 MW of solar credit PV can be installed before the review is triggered.
If NSW continues to install 1 MW/month, then the review could be triggered within two years, less if installation rates increase due to an influx of sales and installations in the state with Australia’s best feed-in tariff.
Boom and Bust
The fixed seven year term of the feed-in tariff may lead to a boom and bust. Installations that occur in three years time will only have four years of gross FiT revenue. Paybacks for a 1.5 kW system are shown below, assuming today’s system prices, 1520 kWh/year, 1% annual degradation, 3% annual power price increase. The first figure in each column beyond 2012 number represents higher REC multiplier, the second payback number occurs once the payback multiplier reduces.
|
2010 |
2011 |
2012 |
2013 |
2014 |
|
|
RECs (@$30) |
$4650 |
$4650 |
$4650/$3720 |
$3720/2790 |
$2790/$1680 |
|
Payback |
5.3 |
5.3 |
6.3/9.0 |
12.0/14.8 |
17.8/20.5 |
This demonstrates that systems installed after 1 July 2012 (with a REC multiplier of 4 and 5.5 years of gross FiT remaining) suffer greatly, with the situation becoming increasingly worse. Whilst this may be offset by component price decreases, annual decreases of 17-20% are required in order to maintain similar paybacks.
Whilst this highlights the need for businesses to make the most of the opportunity within the next
2-3 years, unless panel system fall by 20% each year, companies may find it increasingly hard to sell systems, especially with the compound effects of REC multiplier reduction and FiT ending. By the same token, increasing scarcity in customers minds may be a good buying motivation in 2012.
Wind Power:
Preliminary analysis indicates that 10 kW wind costs about same as 10 kW PV, but receives only five years of upfront deemed (and multiplied) RECs. Assuming production equivalent to the deemed 19 MWh/year leads to a quicker payback for wind, with a lower environmental footprint lower. However wind is a highly-localised resource with low suitability to urban areas.
Upgrade Now!
If your customer bought a larger inverter in anticipation of a future system upgrade, now might be a sensible time to revisit your customer, perhaps using a sales pitch “never been a better time to upgrade”. The combination of strong Australian dollar, 7 years of gross FiT revenue, and low panel prices make this a great time to upgrade.
Performing upgrades now might also suit your business. Whilst waiting for your next shipment of inverters to arrive, your installers could be kept busy adding panels to existing systems. You should be able to claim additional (non-multiplied) RECs on the system extension.
References:
http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solar-scheme/faq