ARENA solar – now what?

ARENA solar – now what?

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ARENA’s announcement today of the twelve successful bidders under their $100M solar grant process reveals some interesting information about the state of large-scale solar projects in Australia.

An investment of $92M by ARENA to enable over $1B in power generation investment is an outstanding result, and one that is far better than was initially expected. This is an average of 8.7% grant funding, or 9.5% when the two Canadian Solar projects (5%) are omitted.

Solar panel and inverter prices continue to fall in line with product efficiency and manufacturing productivity improvements. If the impact of exchange rate movements from USD parity to today’s current values are considered, there has been a price reduction of around 25% in the past three years.

The three lowest capital cost projects averaged $1.91/watt. The remaining nine had an average capital cost of $2.30/watt. So how does this compare with overseas prices? It’s difficult to tell, as often prices are reported without context of whether it is the installed cost, and with or without developer costs and margin. But hardware costs are around $1.30/watt AUD so even allowing for higher labour rates in Australia there’s still quite a gap. A significant benefit from the ARENA program will be knowledge gained by construction contractors that solar farms aren’t risky or too hard. Competition and productivity should realise significant gains. On a side note, one project I was involved with had a 3:1 disparity between construction costs from local versus experienced international contractors.

Looking at the spread of locations, sizes and costs (and again omitting the Canadian Solar projects) would indicate larger is better, but not hugely better (Neoen’s 25MW project in Griffith is less than 10% more expensive per watt than Origin’s 110MW project in Darling Downs. And with 11 out of 12 in north-east Australia, and none in Victoria or South Australia, you’d have to conclude the electricity offtake support in those states played a significant role.

(I keep omitting the Canadian Solar projects as they are the lowest in cost, reflecting the advantages of direct-from-the-factory pricing and project development knowledge picked up from their purchase of Recurrent Energy a couple of years ago).

So as these projects are built, what next?

As noted above, hardware costs should continue to fall (in USD). Likewise, construction costs should fall more into line with European and US rates. These factors¬†may be sufficient to bridge the gap to where projects are naturally economic without grant funding but there is a real risk that having come so close that future funding is halted leaving a small but significant “valley of death” to cross.

Similarly, local financiers will gain significant knowledge as they assist funding the $1B asset pool, and this should help reduce perceptions of risk for future projects.

The projects that missed out may be well placed to refine their projects and rebid into future rounds (if there are any) or to take advantages of lower future prices in hardware, construction and finance. Some will no doubt transfer their attention to the Victorian scheme for 5600MW of wind and solar.

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