A number of factors are pointing to a major investment push to large-scale solar, a boom that has been a long time in the making but is now ticking nearly all the investment boxes.
On the international market, this includes the continued fall in solar manufacturing costs, and an expected surplus of manufacturing capacity in coming years that will force manufacturers to slash margins, driving prices down further.
Locally, the situation in Australia is being enhanced by the continued high price of large-scale renewable energy certificates, the imminent results of a major solar tender by the Australian Renewable Energy Agency, and the growing appetite for solar investments by financiers and equity investors.
Last week, the worlds biggest solar manufacturers all agreed that the market will be facing another round of over-supply in the next year as major investment in more capacity from the likes of JinkoSolar, Trina and Canadian, the three biggest manufacturers are completed.
Bloomberg last week noted that capacity will jump 18 per cent this year, and the major companies are flagging that not only are the costs of manufacturing coming down, but the major companies will likely have to reduce their margins as they protect market share.
Chinese solar manufacturers now face tougher competition due to a supply capacity increase and a decrease in market demand, Yingli Green Energy Vice President and Chief Climate Officer Jingfeng Xiong said during a call Tuesday with analysts.
Bloomberg noted that demand for solar is continuing to rise, but that growth is slowing. Global installations this year may reach about 67GW, up 27 per cent from last year, according to Bloomberg New Energy Finance. In 2017, its expected to increase by 25 per cent, and in 2018 it will rise another 23 per cent.
But the fall in manufacturing costs estimated by the major manufacturers at around 10 to 15 per cent a year and the cut in margins in the international market, will also play into the Australian sector, which is poised to experience a watershed moment in coming weeks.
The ARENA tender, to be announced in the next fortnight, is expected to be a catalyst for more than $1 billion in investment in the next 12 months, and possibly much, much more.
Already, its tender process has elicited significant price reductions, and because the cost of utility-solar has fallen faster than expected, around half of the 20 short-listed projects (see map above) could get funding from the $100 million pool. Some of those projects will get additional assistance from the Queensland and NSW governments.
That should trigger around 400MW of large-scale solar developments alone. But it will also act as a trigger point for other developments.
Many large-scale solar projects have been on hold pending the outcome of the tender. One of the ironies of the ARENA initiative is that it will give the industry a massive shove forward, but it has meant that in the past year, projects have been on hold as they jockey for funding, and others await the result.
But costs have come down, even without much construction activity (apart from those projects funded by either ARENA or the ACT governments revere auction series).
The competitive nature of tendering, let alone building, has seen the offers to ARENA fall significantly. This view is echoed by the observations of ACT environment and energy minister Simon Corbell, who says the recent tender for large scale renewable energy showed that large scale solar was competitive with wind energy.
There is also a growing appetite for projects that will circumnavigate the capital strike of the major utilities, who have written very few power purchase agreements, and go merchant, and sell the output on the spot market.
They are able to do this because of the growing interest of financiers, particularly from Europe where they have experience in the utility-scale solar market, the emergence of solar investment funds.
LGC prices are also high, trading around $80/MWh. That is because, says Miles George, the head of Infigen Energy and chairman of the Clean Energy Council, because it is still difficult to obtain contracts from obligated parties (the big utilities).
George agrees that more projects will go merchant and the attraction of solar is also being enhanced by the prospect of marrying wind farms and solar farms.
This penchant to go merchant was highlighted by news late last week that Perth-based Sun Brilliance has decided to upsize its Cunderdin solar project from 25MW to 100MW, and will go merchant to take advantage of high electricity prices, high REC prices, and growing interest from bankers and equity investors.
Jack Curtis, the local head of First Solar, says he expects the ARENA tender to be a watershed moment for big solar in Australia.
I think it could be the biggest tipping point in the industry weve seen, Curtis told RenewEconomy. He says the tender has brought about multiple projects and multiple participants banks, equity investors, off take partners, manufacturers and installers.
It has localised those capabilities and brought many of the learnings internationally to Australia remembering that Australias solar boom to date has been in rooftop solar, while it has trailed much of the world in big solar.s.
ARENA doe not get enough credit for the work it done to drive down the cost. The broader market does not have a sufficient appreciation for that, Curtis says.
JinkoSolar, the Chinese-based manufacturer that has become the biggest in the world, and the largest supplier to the Australian market, agrees that the outlook in strong in Australia.
No doubt that due to the delayed RET review, over the past few years most major projects just dried up and vanished from the Australian landscape, a spokesman for the company in Australia said by email.
The result being many companies just downsized or withdrew from the market. Thankfully the Australian Government has now settled on a target so there is some certainty around a renewable future.
Jinko anticipates that during the few years at least, there will be a bright future for large-scale solar farm construction around the country and that the industry will be in growth mode with many more employment opportunities for Australians.
(It should be noted that the large-scale solar round is not affected by proposed budget cuts from the Coalition that may yet be supported by labor. That is likely to impact any future rounds, such as for large-scale solar thermal and storage, which would also be a major disappointment).
This article was originally published on Renew Economy. It was reproduced with permission.