ARENA CEO Ivor Frischknecht’s presentation at the Australian Solar Council Solar 2015 Exhibition and Conference held in Melbourne

Posted on Jul 9 2015 - 8:05am by John Peters
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THE GLOBAL MOVE TO RENEWABLES

Large scale solar in Australia has come a long way in the last couple of years, and is likely to be competitive with wind by the end of this decade, if not before

Large scale solar in Australia has come a long way in the last couple of years, and is likely to be competitive with wind by the end of this decade, if not before

The global move to renewables is accelerating.

The world is stepping up its renewable energy efforts and building on the momentum created over the last decade.

In the 10 years since 2004, the number of countries to set renewable energy targets has risen to 144 – that’s an increase of almost 100.[1]

The EU is on track to meet its 20 per cent renewable target in 2020[2] and last October, agreed on a new target to raise its renewable energy share to 27 per cent by 2030.[3]

In California, a US State with which we have much in common, RE is on track to achieve a 33 per cent target by 2020 and Governor Jerry Brown has pledged an ambitious target of 50 per cent renewable energy by 2030.

China has committed to achieve 20 per cent of its energy from renewable sources by 2030, and is proceeding towards its new target at a formidable pace.

That target equates to an additional 500-600 GW of capacity, which is about 12 times the size of the National Electricity Market.

Or to think of it in terms of renewable energy, the entire world installed 760 GW of renewable capacity between 2004 and 2013. So China alone will do almost that much again in half the time!

But why am I telling you facts to support a narrative that many of you already know?

It is because, as Christine Milne put it earlier, we are in an energy revolution.

To be more specific, the accelerating uptake of renewable energy will continue until our energy systems are transformed.

Today I’m going to share with you some of what we can do, what ARENA can do, to make that transition as quick and as painless as possible.

But first some local history to show you how far we have come in Australia.

HYDRO, WIND & SOLAR IN AUSTRALIA

In Australia, we cracked the renewables door open back in 1883 when a remote tin mining operation at Mount Bischoff in Tasmania got its electricity from a hydro scheme.[4]

Almost a century later, in 1974, the Snowy Mountains hydro scheme was completed. It took 25 years to build and created jobs for more than 100,000 people in the process.

Compared to countries with higher rainfall, Australia’s hydroelectric potential is small and has been largely tapped.

In 2013, Australia’s 120 hydroelectric power stations accounted for 8 per cent of its total energy generation but this fluctuates year to year based on rainfall.

This is expected to fall to 3.5 per cent by 2030 due to drier conditions and the emergence of more competitive renewable technologies.[5]

Australia’s first wind farm was near Salmon Beach near Esperance in Western Australia.

The 360KW wind farm operated for 15 years from 1987.

Today, Australia has some of the world’s best wind resources and at the end of 2013 had 1639 wind turbines spread across 68 wind farms.[6]

Just over a week ago wind power generation in Australia reached a new record, peaking just below 3000 MW in the National Electricity Market for the first time.[7]

And a few days later – over a particularly windy weekend – we topped the record again, this time reaching 3200 MW.[8]

Wind energy currently accounts for almost 4 per cent of Australia’s electricity generation.[9]

I know this is a solar conference, but we need to keep in mind that wind is currently our cheapest source of renewable energy.

Wind technology is more commercially advanced than large scale solar in Australia, in part because the Large Scale Renewable Energy Target (RET) supports the deployment of only the cheapest assets, which today happens to be wind.

Comparatively speaking, big solar is still in its infancy in Australia.

The 10 MW Greenough River Solar Farm in Western Australia was completed in 2012 and is the first large scale solar farm in Australia.

Large scale solar in Australia has come a long way in the last couple of years, and is likely to be competitive with wind by the end of this decade, if not before.

As you would be only too aware, it costs more to do something the first few times—to gain experience, establish supply chains and drive down the cost of capital.

ARENA: DEVELOPING THE NEXT GENERATION OF RENEWABLE ENERGY SOLUTIONS

That’s where an organisation like ARENA fits in.

The Australian Renewable Energy Agency has been around since the middle of 2012 and is achieving great results.

Our overarching goal is to reduce the cost and increase the use of renewable energy in Australia.

So far, we have committed $1.1 billion in more than 230 projects across the innovation chain, from early stage research to large-scale projects on the brink of commercialisation.

Every project we fund has to have a pathway to being fully commercial.

And we always look for at least matched funding and encourage co-investment from sources other than the federal government.

Each dollar of ARENA funding has leveraged approximately two dollars of funding from other sources.

It’s been an interesting 12 months for ARENA.

You may recall that in the 2014 Budget the Government announced its intention to abolish ARENA and roll its functions into the Department of Industry.

That hasn’t happened and ARENA is well and truly open for business.

We are in the process of assessing 116 applications seeking $1.4 billion ARENA funding for projects worth $4.5 billion.

We have a steady flow of applications but are always on the look out for high quality investment opportunities.

We take a technology neutral approach to investment with a view to advancing cost competitive renewable energy technologies and supporting those projects most likely to succeed.

The result of that approach is that a majority of the projects ARENA supports are solar and most of the funding goes into solar.

Now back to large scale solar and what we can do to make it more competitive in Australia.

If you were to do a comparison between a large scale wind farm and a large scale solar farm using an optimised cost structure, you would discover the finance costs are different.

This is not the case overseas so why should it be the case in Australia?

The reason why it is the case in Australia at the moment is because Australian investors simply haven’t done it very often; they don’t know what they don’t know including what could go wrong.

There are some differences in technology costs; solar is still a bit more expensive than wind but the gap is closing fast.

More importantly, we need to take a closer look at local factors and work out what we can do to bring those costs down.

Contingency margins are bigger when a construction firm is doing something for the very first time.

Development costs are higher for a solar project that hasn’t been done very often versus a wind project which has.

The supply chain is less mature and therefore more expensive.

All of these costs will come down over the course of a few projects.

This is where ARENA has a vital role to play; by supporting first and early projects we are helping to drive down costs and hastening commercialisation.

NEXT STEPS FOR SOLAR IN AUSTRALIA

Solar has the advantage of being able to be built at almost any scale – from road signs to residential rooftops to utility-sized power plants.

Australia is already the clear leader when it comes to residential rooftop solar.

There is no other country that comes close to our level of penetration (at about 15 per cent nationally and more than 20 per cent in Queensland and South Australia).

In order for the uptake to continue as penetration levels rise, the customer value proposition needs to keep getting better.

We can no longer rely merely on module prices going down.

Solar installation costs are now dominated by local costs – no longer the modules and inverters.

So, the point is this: 40 per cent of the cost is not controllable by us and is going to come down anyway.

To bring forward cheaper solar, we would do better to focus on the remaining 60 per cent, which is more likely to be in our control.

So let’s drill down into that 60 per cent and compare it to what is going on in Germany.

Germany doesn’t have as much residential solar PV as Australia but they do it much more efficiently than we do.

In terms of customer acquisition, while we are on par with Germany, I think we could do a lot more.

I recently moved house and got automated and instant quotes by filling in an online form – there’s potential there, using customer self assessment for residential solar PV quotes rather than multiple interactions and site visits.

Germany does a better job of pre-packaging offsite and using automation on-site. For example, instead of needing teams of people, they use hoists and pulleys so that it can be done by one person.

There are other points of comparison which show Germany coming out ahead of Australia despite only having a small fraction of the number of residential rooftop systems that we have.

I’d like to inspire the installers among you to aggressively attack and try to reduce each cost.

That’s what’s needed to continue real cost reduction.

In case you need more evidence that cost reductions are possible, I ask you to consider the average price disparity across Australia’s capital cities.

Canberrans pay 20-30 per cent more on average than those lucky enough to live in Perth.

Of course, in addition to reducing cost, the value of the installation can be increased by increasing system efficiency.

Last year, ARENA provided $21.5 million to 12 solar research and development (R&D) projects, some of which are focused on dramatically improving cell efficiency.

Currently we have an open R&D round focused on reducing balance of systems costs, among other things.

SOLAR STORAGE

Cost effective storage of rooftop solar stands to be a real game changer in terms of value for customers.

For those who don’t benefit from generous feed-in tariffs, the value of solar generated energy can increase from 5 to 8 cents per kilowatt hour, to 25 cents or more.

Based on the announcement of Reposit Power and Tesla last week, the economics look at least very interesting.

It won’t be long before storage becomes a compelling proposition, given current tariff structures.

There is no question consumers see storage as the next “big thing”, given how much interest the Tesla Powerwall announcement generated.

The International Renewable Energy Agency predicts the global market for battery storage will grow from $US220 million in 2014 to $US18 billion by 2023.[10]

Given our high penetration of residential rooftops, there is an excellent chance that Australia will be a leader in residential storage systems.

It is a telling sign that energy companies are starting to scramble to try to find services that we want to continue to buy from them.

Although this could lead to some speed bumps for the residential and small commercial solar and storage industry as electricity tariffs become more cost reflective, it won’t stop the rollout, and consumers will benefit along the way.

ARENA is already supporting a number of projects in this space.

I already mentioned Reposit, which acts as an intermediary between households, retailers, network companies and the wholesale electricity market to effectively allow households to provide value to the energy market and get paid for that.

On the other side of the country, ARENA is supporting energy retailer Synergy to test a ‘community storage’ model at a new Lend Lease residential development in Alkimos Beach, Western Australia.

It’s a different business model with a similar aim: to use storage to provide services to consumers, and demonstrate how we can reduce grid connection costs at the same time.

ARENA is also supporting work on new business models that will help facilitate the integration of renewables and grids; and funding some fantastic concentrating solar projects.

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