Australian Flood Waters Cause Trickle of Solar Funding to Dry Up

Yesterday’s Flood Response Strategy announcement by Australian Prime Minister Julia Gillard has eroded yet another layer of government support for the solar industry; a seemingly perverse response to a climate-induced event. Supporters of James Lovelock have pointed to the closure by of Australian ports and coal mines by the floods as evidence of Gaia’s involvement. However, the environment may be forced to swallow a bitter pill as cuts to solar programs of $495m were announced, alongside the closing of other key environmental initiatives before they had a chance to produce results.

Floods are an inescapable part of the Australian climate, due to an ‘El Nino'-influenced weather cycle that causes oscillation between flood and drought. But this year's floods were notable, both for their distribution and for their reach. The entire eastern side of the country received wild weather at some point, and late last year the flooding had already affected an area the combined size of France and Germany.

However, when rain activities further intensified, an ‘inland Tsunami' cut through towns on its way to Queensland’s capital city, Brisbane, where its major river inundated 21,000 homes and disrupted countless businesses. Though perhaps not comparable to the devastation caused by other flooding events around the world, three-quarters of Queensland have been declared a disaster zone, and meanwhile residents of Victoria remain on the lookout for the impending rise in river levels.

To fund reconstruction the federal government announced budget cuts and increased taxes so as to reach a promised budget surplus by 2012-13. Unfortunately (and sadly ironically), much of the budget cuts came from environmental programs rather than from cutting subsidies to fossil fuels.

The government may be cutting these ‘complementary measures’ in anticipation of the carbon price it is slowly working towards, but in acting to thwart early-stage industry development measures, it runs the risk of implementing a carbon price without accompanying technologies to achieve cuts in emissions. Meanwhile, emissions abatements are further delayed, with little certainty that a carbon price will be politically achievable in a hung parliament, and also effective if achieved.

Cuts were made to the Solar Flagships (PDF), Solar Homes and Communities Plan, and the Solar Hot Water Rebate (Renewable Energy Bonus Scheme) but, fortunately for the Australian solar industry, the impact on solar jobs and projects will probably not be dire. The removal of funding for these programs does not substantially curtail the vast majority of current installations, though this is not the first time that the Solar Flagships have been affected by funding re-assignment. The floods will have a three-fold impact: direct, indirect, and sovereign – with the indirect economic impact probably the greatest impact in the short term.

Firstly, some solar power systems were directly affected by the flooding. Floodwaters covered some inverters and isolation switches, with industry associations taking quick action to advise people of the potentially lethal risk of approaching submerged DC equipment. Fortunately no lives were harmed in this way, and only a few systems were affected.

The greatest impact upon the solar industry may come from the indirect effects of the flooding. The disaster recovery will involve activity to rebuild infrastructure, which will mean that electricians will be in high demand. This may subsequently push up the cost of solar installations, and affect inflation and interest rates for the nation as a whole.

Solar installations may also slow down across the nation, not only because there are electricians migrate to higher-paying flood-relief jobs but also because the Queensland electricity distributers (who install the import/export power meters) have been reassigned to flood-related safety activities.

While targeting environmental measures for funding cuts may be poetically unjust and imply much about the government’s approach to climate change, the actual impact upon Australian solar installations will be minor. For example, $85 million has been cut out of the residual amount remaining for the Solar Homes and Communities Program.

However, installations under this program concluded midway last year. This funding cut suggests a release of unused remaining set-aside funding, rather than a real reduction in installation levels. Funding reductions for solar hot water also seem to be a response to lower than expected levels of demand.

The major impact has actually been for the Solar Flagship Projects whose funding has been deferred once again. At this stage it’s not clear if this will affect the seven contestants for two 150-250 MW projects in the first round of the program. There is significant concern as to whether the second round of projects will eventuate at this rate, and one first-round bidder (Acciona) withdrew, unwilling to have capital tied up for so long in a project application.

Whilst this is not good news for the industry, the Solar Flagships program is increasingly being seen as a mediocre industry development support measure. Because it supports only two to four projects at the upper end of utility scale installations, the program lacks a broad spread of smaller projects that can sustain an industry once the utility-scale installations are completed.

At least for small-scale solar power, the current levels of government support don’t change. Solar Credits, which offer a $6,200 discount on a 1.5kW system, are a revenue-neutral cross-subsidy paid by all electricity consumers.

However, with the government seemingly unwilling to face down large polluters when implementing mining taxes and carbon prices, one wonders whether the flood of funding supporting consumption of fossil fuels will ever dry out. Hopefully the environmental sector soon grows large enough to be able to withstand such funding droughts, and to start to have some lasting influence upon the political climate.