Multiplying Solar's Problems

Thursday’s government announcement of a further reduction in levels of support for residential solar power has been met by general acceptance from the solar industry. Unfortunately, industry implosion cannot be ruled out as the lower STC multiplier and depressed STC price combine with the end of feed-in tariffs in three states this year.

Regardless, the multiplier reduction is supported as a reasonable medium-term solution by many within the industry. Frustratingly, all acknowledge that it is unlikely to have an impact in the timeframe required, with 28 million STCs to be created by July 2011 but not needed until St Valentine’s Day, 2012.

The best thing the government did today was to provide greater certainty for the market – this translates into lower risk and thus (hopefully) more rational STC prices. Parliamentary Secretary for Climate Change and Energy Efficiency Mark Dreyfus expressed a definite commitment to the scheme; to keeping the clearing house price at $40, to increasing next year’s STC demand to levels that would (eventually) absorb the excess STCs, and to complementary measures. These factors, when combined with a reduction in the excess that will be created at year’s end, have today lifted spot prices higher.

But a rising STC spot price is likely to be driven by sentiment rather than market forces, and it may not be long before the annual STC oversupply again becomes apparent, which would again send the STC price diving at the same time the number of certificates drops by 40 per cent.

It is unfortunate that the government has few adjustment options other than the coarse levers of its multipliers, and that it missed the opportunity to apply the multiplier to 2.5-5kW residential system sizes akin to those deployed in the rest of the world.

Further action may be necessary to stabilise the market and to ensure its continuing function. Once 2011’s STC requirement is surpassed mid-year, liable entities will trade against next year’s liabilities, which the regulator needn’t officially establish prior to 31/3/2012. Forward contracts against liable entities’ Q1 and Q2 (2012) liabilities are used to underwrite sales and business viability of PV retailers, to ensure systems may be profitably installed later this year. Risks associated with these liabilities’ quanta and timing will reduce the price on offer. It is thus important that the regulator (as instructed by the Minister) establish 2012’s STC demand well in advance, conservatively over-estimating (rather than underestimating) STC creation to the end of 2012.

Meanwhile, insufficient attention is being paid to the behaviour of electricity retailers and distributors, who deflect blame to PV for power price rises in an attempt to hide gold-plating of the network and over-inflated retail margins.

In the STC market, PV retailers are dependent upon early STC sale for cash flow, while deep-pocketed liable entities attempt to obtain the lowest possible STC price, safe in the knowledge that they can pass on a $40 price to their customers. Further hurting the STC market by using their market power, liable entities have together deferred 10 per cent of liabilities until the end of the year, and regularly engage in market obfuscation, while quietly obtaining windfall profits from PV power export to the grid. Such actions allow them to gain market share of their own PV sales, which they have recognised as the cheapest way to meet their own STC liabilities (and gain a retail electricity customer along with the deal).

If one thing has been constant in the PV industry internationally and in Australia – other than ever-changing policy – it is the continued underestimation of PV attractiveness to the consumer. The solar industry continues to deliver beyond government expectations in every major market in the world, and Australia is no exception.

It is common to refer to the STC imbalance as ‘over supply’, when equally it could be considered ‘under-demand’. In the first four months of 2011, Australia has already installed at least 200 MW and quite possibly 300 MW, compared to the 358 MW in 210 and approx 80MW in 2009. 28million STCs equates to approximately 300MW, begging the question whether the government wants to truly support the growth of a home-grown PV industry or whether it wishes to pay the environment lip service while continuing to subsidise fossil fuels well into the future.

It seems only Christine Milne, who also addressed the conference, can communicate a vision for the future, demonstrating true leadership in calling for a 100 per cent renewable energy mix. If only all politicians could look above the horizon in their search for power.

This article first appeared at the Climate Spectator on 6 May 2011