How the market for solar & storage will be impacted by Australian governments'​ electricity market interventions

The Australian governments (state and federal) have announced a set of electricity market interventions that seek to reduce the increase in electricity prices in the coming couple of years. Left unchanged, the high global price for coal and gas ultimately flow through to local electricity and gas prices, resulting in further economic pain.

Here’s our brief analysis of how this will affect the Australian market for solar & storage.

The Interventions

The interventions announced by the governments include:

  • Capping the wholesale price of coal and gas. This should result in lower priced electricity than would otherwise be the case.
  • Rebates on electricity bills for many consumers. This will further reduce electricity bills.
  • A Capacity Investment Scheme. This should incentivise the deployment of large-scale storage.

Their impact upon the solar & storage market

The Short-Term

  1. All of this front-page news about electricity prices should result in more interest from consumers. Expect an increase in leads for a brief period
  2. People will feel reassured that there will be some rebate on their electricity bills. They may defer any action to see what happens next.
  3. Electricity prices will still rise, just not as high as they otherwise would. People will still be getting bill shock. Those that already expressed interest in solar energy are likely to return, this time with purchasing intent. Be ready to close deals.

The challenge for the moment is the price of solar & storage is rising just as fast as Australian electricity prices. There is greater demand in Europe (where energy prices have quadrupled) and in the USA (which also has the Inflation Reduction Act providing direct subsidies for PV & storage). All of this is pushing up PV prices, meanwhile EVs are doing the same for the price of batteries. This means paybacks are currently steady as shown in the image below, sourced from SunWiz’s Luminate platform.

No alt text provided for this image
Payback periods have extended as equipment prices have risen. Recently, payback has stabilised due to rising electricity prices that have kept track with equipment price rises.

So there’s some urgency. Customers that buy solar & storage today can do so at a lower price than if they wait for 6-12 months. In the meantime, they’ll also be getting the benefits of generating their own energy. Plus making more energy available (at lower prices) for those who can’t install solar & storage themselves.

The Medium Term: Storage is the solution

When renewables are generating, wholesale electricity prices are low – and commonly they’re going negative. Coal and gas setting the wholesale price at night is what’s pushing up average electricity prices (i.e. the price consumers pay). Capping the price of those fuel sources will somewhat reduce the price paid by consumers. So too will reducing the percentage of the time that those fuel sources set the prices.

The way to reduce the market power of coal & gas is with more storage – which restricts the amount of time coal & gas can set the wholesale electricity price. More storage does exactly this. More storage also unlocks more renewables, by soaking up energy when renewables are in plentiful supply.

However, it will take some time for the Capacity Investment Scheme to deliver MW into the market. When it does come online, household feed-in tariffs should stabilise, supporting the uptake of more PV.

The Long Term: Gas suppliers digging their own grave

The Australian Petroleum Production & Exploration Association is crying poor, saying “more gas supply is the solution”. This furphy conveniently fails to mention the overwhelming majority of Australian gas is already exported overseas. There is plenty of supply available in Australia, and anything done today to increase supply will take years to come online.

The APPEA also state that gas is needed for renewables to transition. This is true, but fails to mention that there’s already sufficient gas available to support the transition, and battery storage can do most of the heavy lifting to firm renewables without heating the planet.

The APPEA expresses concern that this market intervention could scare off future investment in gas extraction in Australia. Perhaps that’s the truest thing they’ve said today. This would have considerable positive and negative economic implications which are complex and interwoven. What’s clear beyond a doubt is no further gas development will have a major environmental benefit. And higher gas prices means more electrification and more renewable energy.

So, if we’ve already got enough gas on our shores to supply our own needs and support the transition to renewables out to a net-zero 2050, then concern about future investment in new gas extraction is simply putting one’s self-interest ahead of the all other living creatures on the planet.

What’s been overlooked

There is no new direct subsidy for behind-the-meter solar or storage. There should be.

SunWiz believes the government should create an STC adder for appropriately-sized storage systems included in new or recently-installed PV systems. History has shown that the people that respond to subsided energy technologies are the ones that are most impacted by high electricity prices: the battlers.

Electric Vehicles are batteries on wheels. They can store 8x the energy of most household energy storage systems. Those batteries can easily be charged whenever there is high amounts of cheap electricity from renewable energy. The value of that battery is truly unleashed when it can also send power back to the grid when the price is high (i.e. when coal & gas are setting the price).

However, most EVs are currently prevented from exporting to the grid. That should be fixed. When we can unlock the value stored inside an EV for bi-directional charging, then we could really solve this energy crisis.

SunWiz believes the government should fast-track initiatives than enable Electric Vehicles to supply energy to the home and to the grid. This will support the ability of households and businesses to decarbonise transport while also reducing the ability of coal & gas to impose wartime prices upon electricity consumers.

The summary

Front-page news about electricity price rises inevitably increase interest in PV systems for home and businesses. To capitalise on that interest, solar companies should encourage consumers to act swiftly, to secure today’s PV & storage system prices, and encourage businesses to act before the instant tax write off expires at June 2023.

For those wishing to predict the PV market size in 2023, this intervention will act to increase the uptake of PV systems in the first half of 2023, from what they otherwise set to be. A detailed prediction for the outlook for Australian PV in 2023 is provided in SunWiz’s 2023 PV Market Outlook. Contact for more information.