From one-in-five rooftops, to four, three and, at some point in the future, ubiquitous PV. The trajectory of distributed solar in Australia is becoming clear, with a record 2017 setting the stage for a strong future. But what’s behind the rooftop solar boom?
pv magazine Australia asked a couple of the leading installers and an analyst to find out.
It’s the economics, stupid: It’s news to no-one that power prices in Australia are high. According to late 2016 analysis from researcher Dylan McConnell retail electricity prices in Australia are around 50% higher than in the U.S. – on a purchase power parity (PPP) basis. More aptly, however, McConnell notes that since 2008 Australian prices have increased markedly in comparison to the U.S., and presumably other comparable markets.
This trend continued in 2017, with many retailers passing on further hikes, on the back of surging wholesale prices. This longer-term trend coupled with the 2017 shock, has provided sufficient incentive, economic, psychological or otherwise, for households and businesses to pull the trigger on installing a rooftop PV system.
Additionally, the federal STC subsidy provides a powerful economic incentive for residential systems and commercial and industrial arrays up to 100 kW in size. “It is a significant factor as it is approximately 30% of the customer’s purchase price in Queensland,” says Joe Springer, the Business Development Manager Director at Springers Solar. “Remove it [the STC subsidy] and the market would significantly slow down, very likely wiping out a lot of the bottom end.”
Sunwiz’s Warwick Johnston adds that small scale technology certificates (STCs) play a role in maintaining installation quality, as to qualify the PV modules and inverter must be Clean Energy Council certified. Additionally, the STC regulations require that the installation and other components must meet relevant standards.
In terms of residential PV pricing and end-customer cost, Australia remains highly competitive. Installation prices for the current standard system size of 5 kW stand at $1.12 as of January 2018 according to Solar Choice – which has been tracking costs via its installer network survey since 2012. Early 2018 pricing is likely not significantly below this average, as 2017 saw little of the significant component cost reductions that had been a feature of previous years.
Current residential PV system paybacks are “brilliant”, according Sunwiz’s Johnston, which he partly attributes to the “high” feed in tariffs available in some states. Reports are that some paybacks are as low as 2-3 years, which is truly astounding. ROIs can be as strong as 20-30% in Queensland, adds Springer.
Forecasting PV component system prices is a difficult business, with demand fluctuations on a global scale often volatile and tricky to predict. As such, it’s almost impossible to know whether big system price reductions are in store for 2018. However, there is little doubt that the economics of a rooftop PV in Australian towns and suburbs is such that it is an entirely mainstream technology. And beyond the bottom line, there are other important drivers of demand.
Arrival of battery storage: While there has been strong interest from householders in installing battery storage alongside a rooftop PV system, 2017 was the year in which it arrived at any significant scale. Australia is already an important storage market for LG Chem, Tesla, sonnen and Enphase, and a host of new European and Asian suppliers either entered the market in 2017 or will do so this year.
“Batteries have become a big talking point and are doing a lot of marketing for us,” says Springer. “Residential system sizes have increased with all the battery talk as people prepare for future battery installations – even up to 10kW.” He adds that a lot of people were waiting for battery prices to come down before installing a PV system and that they are now moving.
Natural Solar CEO Chris Williams echoes these remarks, saying there was a desire of some households to use the electrons produced by their rooftop PV system, rather than feed into the grid. “People have been thinking, ‘why would I buy a solar system when I can’t use the electricity when I’m at work during the day?’”
Sydney-based Natural Solar has been heavily pushing battery storage in its communications, and claims to be the largest installer of battery systems in Australia in 2017. It reports that residential solar+storage systems can be as low as 5-6 years, under the right tariff and power usage circumstances, and with a suitable rooftop and conducive irradiation.
Solar+storage is increasingly being seen by consumers as a “complete system for energy control and empowerment,” according to Sunwiz’s Johnston. He notes that the majority of storage systems are going in alongside new or expanded solar systems.
While Sunwiz’s price tracking reveals that battery storage pricing is “pretty stable” at present, Natural Solar points to lithium ion battery chemistry tracking a learning curve similar to that of solar last decade.
“The reduction in pricing we are seeing in the manufacturing of batteries mirrors the price drop of polysilicon, the product used to manufacture solar panels,” late last decade, “which was the catalyst for the solar boom,” Williams notes.
Upsize, upgrade: The growth of residential, and increasingly commercial, rooftop solar penetration in various states makes the Australian market makes it an intriguing case study internationally, and one that is closely tracked by observers. However, households upgrading or revamping their current rooftop system is also a fast-growing driver of demand.
“Of Natural Solar customers, we are seeing 45% of all systems we are installing retrofitting to existing solar systems,” says Williams. “This growth has been dramatic in Australia, with the demand for retrofit solar systems more than doubling in the past two years.”
He continues, that the availability of technologically-advanced and increasingly cost competitive residential battery storage systems is also causing households to take a look and upgrade their existing solar system.
Sunwiz’s Johnston describes the retrofit market as representing an “unrepresented” but “big opportunity”, and he adds that the ROI on a new solar+storage system is superior to simply adding a battery to an existing solar array.
Queensland’s Springer says that this is also true of many of his customers, where a system size increase makes sense once a battery comes into play. However, he notes that retrofits can be “a pain” as they can involve removing and replacing older modules and components.
C&I to go “Boonta”: Joe Springer is unequivocal in his forecast for larger rooftop solar systems in 2018 – known widely as the C&I segment. Springer says: “This segment will go ‘Boonta’”.
“The number of [C&I] enquiries already for January for us is incredible,” expands Springer. “The number of tenders for 2018 for huge amounts of solar for councils and government buildings is super exciting. We are certain that the C&I share of the market will be what drives us to exceed last year’s totals.”
Indeed, some of the mid-2017 retail price hikes flowed through more directly to commercial customers than it did to residential. This was due to the increase being tied to wholesale price increases and the hike coinciding with some larger commercial power consumers being offered new multi-year supply deals.
Sunwiz expects that the C&I segment will continue to increase its share of the rooftop market in 2018, driven by the coalescence of rising electricity prices, falling PV system costs, and the expanding capabilities of solar retailers and installers in executing larger projects.
However, it’s not all smooth sailing for the segment. Sunwiz notes, in accordance with AEMC forecasts, that in some states wholesale prices are set to decline in the medium term, potentially depressing demand. There are also other inhibiting factors, such as potentially complex connection agreements, resulting in longer sales cycles.
In particular, Western Australian installers have been protesting against onerous grid connection processes demanded by Western Power, pushing out project timelines and adding cost.
The demand for larger storage systems may pick up, argues Natural Solar, as anxiety over potential blackouts increases from commercial customers. “Businesses looking to offset the risk of ever increasing blackouts is also a core drive for strong battery interest,” says Williams.
Electricity high profile debate: Informing and linking all four of these key rooftop market segment drivers in 2018 is the high profile of electricity and energy within Australia’s business and political discourse. In 2017, it seemed that debates about electricity supply, stability and policy were never far from the headlines, and there are few signs of that changing this year.
“While there has been a great deal of conversation and discussion on energy security and improving grid stability, we are faced with continued unreliability,” says Natural Solar’s Chris Williams. “This unreliability, unpredictability and lack of security when it comes to access to and the cost of power is one area forcing businesses and consumers alike to take the power into their own hands and explore renewable energy solutions.”
There is no doubt that the mothballing of a number of aging coal generators has put the NEM under considerable stress this summer. A new development has been the unreliable performance of some of the exiting fossil-fuel generators, which is perhaps becoming better understood due to increased public scrutiny.
Federal Government inaction and, at times, paralysis in the face of a fast-moving energy landscape is only making the public perception of electricity supply in Australia worse. Political point scoring about ‘expensive and unreliable” renewables may very well be viewed as a notable ‘own goal’ for the federal coalition in years to come.
Very likely, the high-profile energy debate is generating leads for solar installers – and they, and the technology, is well positioned to deliver.
“There is an increased concern that the government is not doing enough about energy security and they [end users] now need to take it into their own hands,” says Joe Springer. “Everyone is talking about renewables, ‘the grid’, baseload power, batteries, solar and the energy market. People are even discussing with me the difference in pricing per MWh from gas fired power plants, coal plants, and renewables.”
Australia’s rooftop segment is likely to surpass the 2017 installation record this year. Joe Springer thinks the record is set to be “smashed”. If this occurs, the C&I segment will play a very large role, including systems larger than 100 kW, which are not covered by the STC subsidy and statistics. The arrival of residential battery storage at scale is also providing a positive feedback loop, leading to revamped and expanded systems sizes, and new households adopting solar and making use of their home-grown power.
This article was updated on 23/1/2018 to reflect 5 kW system prices as of January 2018, as tracked by Solar Choice.