Australia's Solar House of Cards

At a recent industry meeting in Melbourne, reports emerged that the closure of the Victorian FIT will be announced “in the coming weeks.” If true, our ”solar house of cards” in Australia continues to look incredibly precarious.

In summary, Western Australia (WA) stopped its scheme, the Australian Capital Territory (ACT) stopped a few weeks before that, South Australia (SA) announced a September end date, and New South Wales (NSW) stopped its scheme dead in May. Only Queensland (QLD) remains unscathed. For now.

And on top of this, the Federal STC scheme wound back its multiplier from July and the price crashed to a low of $16 only a few weeks ago, before rebounding slightly.

But what does it all mean?

Is it terminal, or simply a nasty cyclic effect that our industry can survive?

Certainly for anyone with REC exposure, stock, staff and or investment plans, it's really bad news and as we have seen, companies can and do collapse under such trying circumstances. So it's serious and is likely to be terminal for more companies.

The economic proposition of PV drives buying behaviour above and beyond any other factor and this convergence of circumstances has changed the economic proposition from a payback around 2-3 years to 12 years plus, on average.

It is fascinating to note that while our Governments “shake the table” on our solar house of cards, seemingly oblivious to the implications, a similar trend is being observed globally with PV stocks.

Renewable Energy World posted a story recently that suggested the industry is suffering both structural and cyclic effects, and Australia seems to be caught in the same mire.

Structurally,  we share very low barriers to entry and high leveraging (through explosive growth, declining product cost, foriegn exchange risk and REC exposure). Add in FIT exposure and we are effectively left with a stuctural collapse.

Additionally, we also share the same Cyclic effects being displayed globally. Predominatly political, the “pendulum of favour” has clearly swung away from solar in recent times, like a drunk neighbour flailing around our solar house of cards.

In Australia, State budgets are in trouble, electricity cost increases and carbon pressure. When combined with slow-to-market solar programs that are poorly monitored, panic sets in, schemes get axed and our industry becomes the fall guy.

International analysts also speculate that “the political pendulum (is) swinging to the extreme detriment of renewable energy due to disinformation.” We’ve certainly seen evidence of this down under with solar being blamed (incorrectly) for the rising cost of electricity, (spuriously) for being “another deadly pink bats fiasco” and even “a complete waste of taxpayers money in terms of a carbon abatement measure” by the majority of media.

Clearly, the policy makers are panicked, nervous and clinging to the steam age as a safe haven and they have some very large and powerful allies. It's like our drunk friend retiring to the couch in a mumbling mess with half our pack of cards in his back pocket and then threatening to “call his mates” if we go near him.

A case in point is WA. With this recent announcement, the Energy Minister proudly stated that they were committed to ongoing industry support through their Renewable Energy Buy Back Scheme, which pays $0.07c per kWh for exported energy. This, they proclaim is based on the wholesale cost of generation and thus, the only true and fair value attributable to solar. Nonsense.

However, several things give me hope that this is not terminal.

Firstly, political cyclic effects are like a pendulum. I have witnessed our industry swinging from favour to poison before and the pendulum will swing back. Our challenge is to define what’s needed in order to give it a little nudge.

Secondly, the structural issues need to evolve, and slowly but surely this is happening. SBS TV ran a story on the energy market this week and highlighted the almost unanimous desire to reform our electricity sector, which will help renewables and distributed generation. And, NSW announced a review by IPART into the true value of solar. So, the debate is emerging, albeit slowly, on the critical structural issues that also need reform.

Right now, we need interim measures to avoid a complete collapse of our solar house of cards. South Australia managed to do it with a post FIT proposal that is measured, but at least provides a forward pathway, and Victoria is talking along the same lines.

Dangerous? Yes. Terminal? I’m optimistic that solar is just so good that the answer will be no, and we will prevail in time.