Successful Solar Strategies (2009) – Executive Summary
This is the Executive Summary of the Successful Solar Strategies report that assisted many businesses transition from reliance on rebates into powerful solar energy companies less concerned about the low REC price.
Analysis shows that the REC market is hugely oversupplied. At the time of writing, there were 5 million more RECs on the market than will be needed in 2009, the balance of which co uld be used against 2010’s and quite possibly 2011’s REC Requirements. The additional supply of RECs from the National Solar Schools Program and the backlog of Solar Home and Communities installations could further add to 2010’s REC oversupply, but still be dwarfed by Solar Hot Water’s dominance of the REC market. Modelling demonstrates the oversupply situation particularly affects PV because the solar multiplier means that fewer PV systems are needed to meet the RET than would occur without the multiplier. The situation does not appear to improve much until 2012, a year in which the solar multiplier decreases by 20%.
These factors point to a low REC price for the years ahead, which when combined with REC price volatility and the disproportionate market power wielded by the retailers over small REC suppliers suggest that it is strongly in the interest of the solar power industry to increase its independence from RECs. This report presents supporting evidence of the factors that could contribute to a low REC price, and an analysis of the impact that this might have upon solar power businesses. It also presents strategies for countering the risks posed by RECs, and a number of methods that solar power businesses could employ to increase market share whilst reducing exposure to REC prices.
It is demonstrated that larger installations have greater independence from REC prices, as well as other benefits to retailers and customers alike. Larger systems tend to be more profitable for installation companies, and their typically greater amount of export power can significantly reduce their payback in states that have net Feed-in Tariffs (FiTs). This also results in a larger internal rate of return (IRR) for business customers with low daytime power consumption.
As reflected in the following graphs, it is demonstrated that:
• A 2 kW system typically pays for itself more quickly than a 1.5 kW system for average Australian households in states with net Feed-in Tariffs due to the significantly greater amount of export power. Typical payback improves further still for 5 and 10 kW systems.
• Favourable IRRs of up to 15% are achievable with large systems that export a lot of power in states with FiTs
• Customers that miss out on the 50% tax break for small businesses might forfeit 3% of their IRR.
• The FiT rate and duration have a significant impact upon IRR – although Victoria’s FiT is limited to 5 kW systems, its IRR is up to 3% greater than a South Australian 10 kW system if the same percentage of power is export.
• The determinable revenue provided by ACT’s gross Feed-in Tariff produces outcomes that could exceed 10% IRR. Higher IRRs are achievable in NSW if low-use electricity customers can be identified.
The report also shows that:
• In Zone 4 Victoria, IRRs of 7% are achievable either through a 75% exporting system before the tax break finishes, or a 100% exporting system after the conclusion of the tax break. However the cap upon the Victorian FiT is fast approaching.
• Even in Victoria a positive return on investment is possible without RECs or the tax break and with more expensive panels and conservative performance estimates.
The report also identifies target markets that may have low electricity consumption, large roofs, and be eligible for the FiT – and thus be prime candidates for high IRR. Also contained are other suitable target markets for bulk installation, in which costs might be minimized through efficiencies of scale. Possible techniques solar power businesses may consider for increasing sales are also presented.