Australia: Bridging policies for large-scale solar kicking in

What’s the status of the Solar Flagships projects currently and the timeline for completion?

We were recently selected, with our partner [Australian utility] AGL Energy, as the preferred proponent for the photovoltaic component of Flagships program. We’re now in the process of completing some of the development milestones with a view to reaching financial close at some towards the end of this year / beginning of next year. Construction will start in 2014 with a targeted completion date towards the end of 2015.

What are details of the plants?

There are two projects, both of them are in New South Wales. One is a 106-megawatt (MW) site, that will be in Nyngan and the other is a 53-MW project in Broken Hill. So in total there will be 159 MW of photovoltaic capacity that we will be installing for AGL.

And how does the cooperation with AGL work?

We essentially will be entering into an EPC contract with AGL. AGL has the responsibility to develop the sites, to secure the interconnection, to receive all the necessary permitting and planning approvals. Under that EPC contract, we essentially will build the two plants on a fixed price basis. We’re essentially responsible for doing everything up to, but not including, the substation. And then we’ll also maintain both the projects for AGL for a period of up to five years

How will the projects be funded?

The total government-funding amount is something in the order of AUD196 million, the Federal Government is contributing AUD130 million, with the NSW State Government contributing the balance. The total project value for both plants is AUD450 million, which is going to be financed by AGL directly, so they won’t be accessing project finance. AGL will provide the PPA for both the plants.

The market for large-scale photovoltaics in Australia has been slow to develop, why is this the case?

I think the lack of utility scale solar in Australia has been attributable to a number of things. Firstly, there’s a lack of awareness of where the price of utility-scale solar has really gotten. So a lot of the market and industry data that used to be broadly disseminated in the market was quoting module and system prices that were four or five years out of date. And I think the other part of it is, in most of the markets we participate in – including the historic markets like Europe and the U.S. – and even in the emerging markets that we’re starting to focus on, there has always been some sort of policy bridge that we’re utilizing in the near term. And most of the policy framework in Australia has been focused on the distributed level.

What we’re now beginning to see now is the recognition that utility-scale solar is the cheapest way to deliver a kilowatt-hour of electricity, so governments are encouraging programs at a state level. For example, Western Australia recently contributed AUD20 million towards the first utility-scale solar power plant in Australia, which is a 10-MW plant that we’re constructing for Verve Energy and GE Energy Financial Services. The Australian Capital Territory is currently assessing the first round of a 210-MW utility scale program, which has been implemented under a reverse auction mechanism. Then the Solar Flagships program, while obviously taking a bit longer to get to the end result, is really the first attempt to validate utility-scale solar at a large scale.

That’s really the main problem, people just haven’t seen it yet and you can show people as many slides of utility-scale plants in Europe or in North America, but at the end of the day, every market wants to see it in their back garden before the private sector really starts to get onboard.

Does there need to be some regulatory changes as well, in terms of a fully privatized electricity market and utilities? I understand the term used in Australia for some utilities is "gentailers" – where a utility owns the power plant, the distribution infrastructure and is also the retailer of electricity.

I think that the market structure certainly contributes to the paradigm that we see playing out in the renewable space. I think that the challenge is that the market structure is what it is at this stage, there’s been some recent criticism leveled at the three major "gentailers", TRUenergy, Origin and AGL about their dominance of the market. But at the end of the day, that’s how any market plays our over time. You deregulate it, you make it competitive. You’ll usually see three or four players become the dominant market participants.

I think what Australia has lacked to date has really been some effective bridging policy for utility-scale solar. There is a renewable energy target in Australia, which is a national target of 20 percent renewables by 2020, and the assumption for a long time has been that wind will comprise the significant majority of that market. However over the past six to twelve months, with the price of solar coming down so dramatically, you’re starting to see a real shift in the thinking of typical wind developers or the "gentaillers", who see a cross-over point in the price of solar and wind, so you’re starting to see that dynamic play out.

There have also been a couple of programs announced recently that are really looking to bridge that three to four year gap for utility-scale solar adoption. Round two of the Solar Flagships funding has been rolled into the new program called ARENA, which is now a AUD3.2 billion program to fund large-scale renewables, a meaningful percentage of which is going to be directed towards utility scale solar. The legislation for the Clean Energy Finance Corporation has passed the Senate in Australia. That’s a AUD10 billion fund looking to do the same thing, which is find some way to bridge the commercialization gap for technologies like utility-scale solar for the next three or four years.

So I think we’re at a promising time for the market where the first plant is getting built, there’s visibility to subsequent plants being constructed in the next year or two and the Federal Government is putting in place policies that will bridge that gap for the next three or four years while the solar industry is doing its job of bringing down pricing to a point where it makes it much more attractive.

Do you think the political support will hold firm in the face of public opinion, which can be quite fickle on this subject. The new conservative Queensland Government has scrapped support for Solar Flagships and another smaller-scale photovoltaic power plant. Could we see the same on a Federal level or with some of these other initiatives?

It’s obviously no secret that the Federal Coalition [currently in opposition] has a different view on the level of support that renewables warrants. They are obviously very vocal about repealing the carbon-tax legislation, which comes into effect next week. They’ve also indicated that they would wind back any structures around ARENA or the Clean Energy Finance Corporation, but they have reaffirmed their commitment to the renewable energy target, which is the main driver of renewable demand. They certainly do see a bit of an evolution in technologies like solar and I think our discussions with the Coalition are quite encouraging.

I think the industry has bought itself a lot more credibility recently, where until the end of 2011 there was a view that the solar industry was the perennial beggar for handouts without being able to provide any clarity as to when it would stop asking for subsidy support. So the message we try to promote is that solar is at a price point now where there is a very credible path to no longer requiring subsidies in the not-so-distant future.

We’re willing to step up to an obligation which is, if the government helps drive technology adoption amongst the private sector, to bridge a relatively smaller economic gap in the next three or four years, if we don’t continue to do our job in bringing pricing down, we’re happy for solar to relegated to a niche technology again. And I think that’s something that the solar industry has been fairly slack in making a commitment to, we’ve never been able to give a strong indication as to when the grid-parity holy grail could be attained. And I think governments have, quite understandably, become quite tired of giving handouts without knowing when that will no longer be necessary.