Inside the solar power revolution at Australia’s electricity giants

Power me up

Boosted by funding initiatives and diminishing costs, Australia’s large-scale solar industry is looking to a better future.

Within the next decade, solar energy is predicted to be the world’s cheapest source of power. This is prompting a boom in utility-scale solar projects across the globe. China is leading the way – its Gobi Desert region has more than five gigawatts (GW) of photovoltaic panels catching the sun’s powerful rays.

But the country that gets more sun than any other is lagging well behind. Australia is a leader in household solar power, with about 15 per cent of all dwellings having photovoltaic (PV) panels on their roofs.

When it comes to the development of a large-scale solar market, however, Australia has been slow off the mark. It currently sits outside the top 20 utility-scale solar-producing countries, with a mere 240 megawatts (MW) of solar plants either built or nearing completion. To put this in perspective, more than 26,000MW of utility-scale solar projects are under development in the US alone.

A dearth of government incentives for investment, coupled with years of policy ambiguity around the Renewable Energy Target scheme, has stymied the market for large-scale solar projects in Australia. But as the cost of solar continues to decline and projects such as AGL’s 102MW solar plant in central New South Wales indicate potential for the industry, this may be about to change.

“The more the Rio Tintos of the world say, ‘yep, we tried it, it worked’, that’s what’s going to really drive it forward.” Jack Curtis, First Solar

Plummeting price of solar

Highly regarded Australian economist and author of the 2008 and 2011 Garnaut Climate Change Review, Ross Garnaut, says solar power will have a transformative impact on the electricity industry.

“It’s pretty clear since the G7 meeting in Germany in July last year and the more recent UN Climate Conference in Paris that we are heading towards a world of zero-emissions electricity,” he says.

“The question is, what is the cheapest way of doing this? Certainly one consequence of the increased deployment of large-scale solar in the rest of the world is that costs have come down a lot. And the good news is the cost of battery storage is coming down spectacularly.” 

Canadian Solar, which has utility-scale solar developments in Australia, including the 95MW Oakey project in south-west Queensland, predicts that within five years, the cost of large-scale solar will fall by half from current levels to A$75 per megawatt-hour (MWh). In comparison, the cost of coal without a carbon price is currently A$85-A$100 per MWh, while the cost of wind is A$90 per MWh.

Ivor Frischknecht, chief executive of the Australian Renewable Energy Agency (ARENA), says that the price of silicon solar cells, which account for about 30 per cent of utility-scale solar costs, has dropped dramatically – largely thanks to a glut of solar cell manufacturing in China.

“We can see large-scale solar being cheaper than wind in some locations within four to five years,” he says. “We expect solar to dominate in the north of Australia and then, over time, it will be more and more competitive against wind further south.”

“It’s pretty clear … that we are heading towards a world of zero-emissions electricity.” Ross Garnaut

Generating growth

A valley of solar panels stretches over Geogeum Island, in Goheung, South Korea, where the Geogeum Solar Park company has invested in a 40MW power plant.The recently announced A$350 million funding initiatives by ARENA and the Clean Energy Finance Corporation (CEFC) are predicted to boost the country’s utility-scale solar market.

ARENA received 28,000MW worth of applications in its latest funding round and has already provided millions of dollars in grants for projects such as Rio Tinto’s 1.7MW
Weipa Mine solar project in Queensland’s Western Cape York Peninsula and AGL’s two solar plants in New South Wales.

AGL’s plants – one in Nyngan and the other in Broken Hill – are predicted to produce about 360,000MWh of electricity each year, which is enough to meet the needs of about 50,000 average homes in New South Wales. With a total capital expenditure of about A$440,000, the two plants employed up to 400 people during peak construction.

“They marked the birth of the large-scale solar industry in Australia and demonstrate that our local industries have the capability to deliver large-scale solar PV projects on time and on budget,” says Sarah McLeod, general manager gas and renewables generation at AGL.

Origin Energy will also be operating a utility-scale solar plant, signalling further momentum in the Australian solar market. Origin won a tender last year to operate a 3MW solar array on the 25,000 sqm roof of the old Mitsubishi factory in the Adelaide suburb of Tonsley. It is expected to generate enough electricity to power up to 770 homes a year and to save 2430 tonnes of carbon emissions annually.

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Rio Tinto’s Weipa mine project is another sign of Australia’s increasing confidence in utility-scale solar. The first commercial plant in the country to use an off-grid mix of diesel and solar, it is expected to produce an average of 2800 MWh of electricity per year, which the mining giant will buy through a 15-year Power Purchase Agreement. 

Jack Curtis, regional manager Asia Pacific at First Solar, says that while the current solar penetration rate of the Weipa site is between 20-30 per cent, in time it will reach 60-70 per cent without disrupting the electricity supply to the bauxite mine, processing facilities and township. 

“What it will demonstrate through operational exposure for Rio Tinto – and for other companies like them – is that solar can offset more and more of that diesel generation and more and more of that diesel cost,” he says.

Weipa’s solar input is expected to save 600,000 litres of diesel each year and reduce the mine’s annual greenhouse gas emissions by around 1600 tonnes, which is the equivalent of removing about 700 cars from the road.

Curtis believes business plays a key role in building a bright future for solar power in Australia. “The more the Rio Tintos of the world say, ‘Yep, we tried it, it worked’, that’s what’s going to really drive it forward.”

“We expect solar to dominate in the north of Australia …” Ivor Frischknecht, Australian Renewable Energy Agency

Attracting investors to solar

Financing will play a key role in the development of a utility-scale solar market in Australia. First Solar’s Jack Curtis says developments such as AGL’s solar plants and Rio Tinto’s Weipa Mine solar project are a good indication for the market.

“This asset class is more mature in markets like the US and has proven to be extremely attractive to both debt and equity,” he says.

“The appetite for large-scale solar has really taken off there over the past four to five years, and we’re seeing people investing at levels that are very similar to a broader infrastructure asset, like toll roads or airports. Essentially, it’s just a 25-year annuity stream.”

Curtis prefers funding models that closely resemble those in the private sector. He says that while solar feed-in tariffs can be effective, they can distort the funding structure.

“Up-front capital expenditure grants, which ARENA [Australian Renewable Energy Agency] has historically deployed, can be easily integrated into a capital structure without distorting how the rest of the structure would be put together,” he says. 

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“What you don’t want is a financial structure that is not going to be replicated once the government support goes away and the private sector has to rejig how it’s been put together. It’s very typical of any non-recourse project finance transaction.”

Leading the way on innovation

China, the world’s biggest electricity consumer, represents the largest market for utility-scale solar, with a cumulative capacity of 11.87GW. Its National Energy Administration aims to install a 100GW solar power capacity by 2020. The Gobi Desert, in Gansu province, is proving to be the hotspot, with more than 5GW of utility-scale solar projects installed in 2014. 

The US follows closely behind China, with a cumulative solar capacity of 10.5GW. The 579MW Solar Star PV power station, which spreads over 13 square kilometres near Rosamond, California, is currently the world’s largest. 

South Korea is also a fast-growing market. From having just three photovoltaic (PV) power plants in 2004, the country is now ranked among the top 10 installers of PV systems in the world. 

In Chile, solar power is already the cheapest source of electricity. In Japan, the market for renewables has strengthened significantly since the nuclear energy disaster in Fukushima in 2011. Private equity firms Adenium Energy Capital and Hudson Clean Energy Partners recently teamed up for a US$300 million investment in solar projects in the land of the rising sun.

Storage projects fuel a new industry

While declining costs of utility-scale solar will help transform the electricity industry, cheaper lithium-ion batteries will have an impact, too. Used for storing solar energy when demand is low and releasing it during peak times, the batteries help stabilise the energy grid and reduce the reliance on coal-fired power. 

The average utility-scale batteries cost about US$700 per kilowatt-hour (kWh); however, the prices are decreasing with growing demand. A report by consulting firm Frost & Sullivan predicts utility-scale grid-connected battery storage will grow to 12GW by 2024, while annual revenues will reach US$8.4 billion. 

Hydro pump storage is another option. While Australia has limited capacity for additional on-river storage, a market for off-river storage is emerging. ASX-listed Genex Power plans to convert an abandoned Queensland goldmine into one of the country’s biggest solar and pumped hydroelectric storage plants. The old Kidston Gold Mine, north-west of Townsville, has large adjacent pits that will act as the upper and lower reservoirs for the storage scheme.

Geoff Swier, director of Farrier Swier Consulting and a member of ARENA’s advisory panel, says storage projects such as Kidston mark the beginnings of a new industry around renewables.

“I’d still call it a relatively immature part of the market,” he says, “but I’m an optimist about the way markets can develop.” 

“One consequence of the increased deployment of large-scale solar in the rest of the world is that costs have come down a lot.” Ross Garnaud 

This article is from the March issue of INTHEBLACK.

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March 2016
March 2016

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