Australia's Residential Renewables Market to 2021: Take-off or Tumble? - A Private Report for Research Clients - Energeia
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Australia’s Residential Renewables Market to
2021: Take-off or Tumble?
A Private Report for Research Clients
© Energeia (2011)1.0 Overview Demand for microrenewable generation – residential distributed solar PV, solar hot water and wind – has taken off in Australia on the back of generous government subsidies, falling system prices and the increasing retail cost of electricity. Energeia’s analysis shows the near-total withdrawal of government support over the next 3 years will see demand tumble down just as quickly. In this exclusive Private Report for our Strategic Research Clients, Energeia examines the emerging microrenewables industry in Australia. The report analyses the market’s policy drivers to date, key customer segments, product and services mix and competitive playing field to gain insight into the long-term outlook. Energeia’s ten year outlook covers total market investment, final costs to the end consumer, total capacity installed, average size per installation and total energy generated. The vast majority of current demand for microrenewables is for roof-mounted solar PV systems, followed by solar hot water. Microwind turbine technology is not yet sufficiently mature to be useful in urban or suburban environments. This is reflected in the minimal demand for this technology. New solar PV segments such as BIPV are beginning to emerge, which have the potential to see every building in the country become a source of distributed renewable generation. BIPV therefore represents a major long-term opportunity that should not be underestimated. The near-term impact of the removal of government support on the microrenewables industry will be profound. By 2014, Energeia sees the residential solar PV market contracting 80% from its peak in 2010. A reshaped, highly competitive solar PV market is expected to emerge from 2014 in NSW, when the underlying cost of residential solar PV systems will be cheaper than retail electricity prices. QLD and VIC will follow in 2015 and 2017, respectively. Crossing this threshold will have enormous implications for today’s centralised electricity supply industry. By 2021, Energeia expects residential solar PV systems will be installed on 8% of rooftops and take- up will be significantly higher for new and remodelled premises. With an estimated 1.6 GW of installed capacity, residential solar PV generation will supply around one third of local consumption requirements, reducing retail energy sales by $1.8 billion per annum. The demand for centralised wholesale generation will be reduced commensurately, particularly peaking units. Not all solar PV generation will be able to be consumed locally, requiring networks to provide a pathway to market. Reaching this level of market penetration will require new approaches by electricity distribution networks to manage the associated technical issues. Energeia’s research has identified cases where clusters of solar PV systems on common low voltage line are disconnecting themselves during times of peak solar generation due to over-voltage conditions. If not addressed through a smarter grid, this situation has the potential to lead to significant power quality issues and prevent a growing number of residential solar PV owners from seeing a return on their investment. The decentralised microrenewables industry and the centralised renewable and fossil fuel generation industries are locked in a zero sum game. With rising retail electricity prices, falling system costs, and the potential growth in microwind, the microrenewables industry appears set to gain the upper hand longer-term. Today’s electricity retailers and generators must move more strongly into the decentralised renewables market, or face an uncertain future and the possible desertion of investors. Take-off or Tumble: Australia’s Residential Renewables Market to 2021 © Energeia (2011) Page 1 of 10
Contents 1.0 Overview 1 Contents 2 Figures 3 2.0 Introduction 4 2.1 Report Scope 4 2.2 Definition and Structure 4 3.0 Policy and Regulation 6 3.1 International 6 3.2 Federal 7 3.3 State 10 4.0 Demand 13 4.1 Customer Segments 13 4.2 Drivers and Barriers 14 4.3 Solar PV 15 4.4 Solar HW 15 4.5 Microwind 16 5.0 Products and Services 18 5.1 Solar PV 18 5.2 Solar Hot Water 22 5.3 Microwind 25 6.0 Supply Chain 29 6.1 Supply and Installation 29 6.2 Suppliers, Manufacturers and Importers 32 6.3 STC Traders 33 7.0 Outlook 35 7.1 Pricing 35 7.2 Policy and Regulation 38 7.3 Demand 40 7.4 Products and Services 47 7.5 Supply Chain 50 8.0 Glossary 51 Take-off or Tumble: Australia’s Residential Renewables Market to 2021 © Energeia (2011) Page 2 of 10
Figures Figure 1 – Industry Structure 4 Figure 2 – Global Comparison of Microrenewable Support Mechanisms 6 Figure 3 – Australia’s Renewable Energy Target, 2010-2030 7 Figure 4 – Differences in Deemed STC Credits by Capital City 8 Figure 5 – Renewable Energy Certificate Prices, 2008-2010 8 Figure 6 – Federal Microrenewable Energy Incentive Programs 9 Figure 7 – Solar Credits Multiplier 9 Figure 8 – State Feed-in Tariffs 11 Figure 9 – Comparison Gross vs Net FiTs by State 11 Figure 10 – Demographics of Solar PV Purchasers 14 Figure 11 – Demand Drivers for Microrenewables 14 Figure 12 – Barriers to the Uptake of Microrenewables 14 Figure 13 – Cumulative Installed PV Systems in Australia, 2001-2010 15 Figure 14 – Cumulative Installed Solar HW Systems, 2001-Oct 2010 16 Figure 15 – Percentage of Households Using Solar HW in 2008 16 Figure 16 – PV Global Market Share, 2009 19 Figure 17 – A Comparison of PV Technologies 19 Figure 18 – Retail Price of Typical
2.0 Introduction
Despite being endowed with plentiful solar and wind resources, Australia’s
microrenewable market has historically lagged behind peer nations as a result
of a relative lack of government support. This has changed in the last few
years as successive state and federal governments have implemented
favourable policy frameworks to stimulate industry growth.
Demand for residential solar PV surged by 100% in 2010, leading to supply chain challenges for the
industry, a competitive response from electricity retailers, bottlenecks in distribution network
connection processes and power quality issues. While the current pace of growth is unsustainable,
and the 66% reduction in the NSW FiT highlighted the likely policy response if it were to continue,
microrenewable generation is clearly the first distributed energy resource to take-off in Australia. The
long-term implications for electricity retailers, networks and generators will be profound.
2.1 Report Scope
This report is part of Energeia’s strategic intelligence service covering Energy Technology, which
focuses on the emerging energy technologies that will power the Customer of the Future.
This report limits itself to the residential, sub-10kW microrenewables market. This is in keeping with
the main focus of the strategic intelligence service on residential and small business customers, which
represent over one third of all energy consumption in Australia and about half its peak demand. Off-
grid systems are out of scope, as are the industry’s manufacturing supply chains.
Energeia’s analysis of renewable technologies for utility, commercial and industrial customers is
included in our strategic intelligence service covering Energy Sustainability.
2.2 Definition and Structure
The microrenewables industry in Australia is still in its infancy. It has a relatively decentralised
structure, which is still evolving. The structure shown in Figure 1 captures the industry’s extended
value chain from policymakers to post-sales service and maintenance. Components outlined in dotted
white highlight latent or emerging sub-segments identified by Energeia during its investigation.
Figure 1 – Industry Structure
Solar / Wind Equipment Suppliers
ENERGY
Electricity
kWh
MANAGEMENT
Inverter
Solar Energy Retailers
Modules / SYSTEM
Management
Customers
Turbine System
Independent
Retailers
Field Services
REC
Installation
Property
Developers
Post-sales Service
Source: Energeia
Take-off or Tumble: Australia’s Residential Renewables Market to 2021
© Energeia (2011)
Page 4 of 10Energeia defines the main renewable industry segments as follows:
System – Microrenewable generation systems typically consist of solar modules or turbines
and equipment for rooftop installation and integration into either the premise’s electricity or
hot-water network. Solar PV and micro-wind systems typically include an inverter.
Field Services – Installers and post-sales service companies may be independent or work
directly for system suppliers. In order for a system to qualify for Small-scale Technology
Certificates (STCs), the installer must be accredited by the Clean Energy Council (CEC).
Suppliers – Microrenewable generation systems are supplied by energy retailers,
independent retailers and increasingly by building developers. There are currently few
examples of developers offering pre-installed solar PV systems on new dwellings.
Customers – Residential and small business customers sit at the centre of the
microrenewable generation value chain and are its main focus.
Energy and STCs – Following installation, the microrenewable system generates both energy
and STCs. Depending on whether it is a net or gross feed-in system, the energy flows into the
premises or the grid, and STCs may be traded by agents.
Take-off or Tumble: Australia’s Residential Renewables Market to 2021
© Energeia (2011)
Page 5 of 103.0 Policy and Regulation
All microrenewables currently depend on government support to compete with
cheaper alternatives. Australia’s microrenewable policy and regulatory
framework is dynamic as policymakers and regulators continuously rebalance
policy settings and regulations to find the right balance between federal and
state funding, level of subsidy and industry oversight.
The following sections review and assess the Australian and international policy and regulatory
frameworks currently underpinning the market for microrenewables. Energeia’s analysis of
international and Australian policy settings and regulations has found:
There is a strong, global trend towards FiTs to stimulate market growth.
Aggressive FiT policies often lead to a cycle of boom and bust for the market.
Australia’s policy framework is among the most comprehensive, if not generous.
The rise of state FiTs is partially offsetting the decline in Federal funding, except in NSW.
While further adjustments to state based FiT programs could have a significant impact on the market
in the near-term, Energeia expects the influence of Australia’s policy framework to gradually taper off
over the next two years as FiT programs reach their limit and their role in rising retail electricity prices
becomes a more pressing political issue.
3.1 International
Energeia’s review of international policy frameworks has identified a common set of best practice
demand side and supply side options being used to stimulate market growth:
a mandatory target to provide certainty of demand for supply side investment,
a rebate to partially offset the higher upfront costs of microrenewable technologies, and
a FiT to improve the attractiveness of the investment and provide price certainty.
Figure 2 compares the policy frameworks of leading international markets to that of Australia. Our
analysis shows that while the USA has the most comprehensive support framework, Australia’s is well
developed relative to its peer nations. The average international FiT price is $.50/kWh and the
average renewable generation target in 2020 is 29%. In both cases, Energeia notes a wide range of
value around the mean.
Figure 2 – Global Comparison of Microrenewable Support Mechanisms
AUS CAN GER SPA FRA UK ITA SWE USA
Consumer Rebates √ √ √ √ √ √ √ √
Tax Credits √ √ √ √
Building Codes √ √ √ √ √
FiT $/kW 0.2-0.6 0.59 0.37 0.43 0.56 0.74 0.52 - 0.07 (CA)
Mandatory Targets (2020) 20% 35% 30% 20% 30% 17% 49% 33% (CA)
Source: Energeia
FiTs, mandatory renewable targets and rebates are the most prevalent demand-side incentives.
However, a significant number of the leading countries also feature tax credits for microrenewable
investment or have building codes that encourage solar hot-water in place of more carbon intensive
electric water heating.
Take-off or Tumble: Australia’s Residential Renewables Market to 2021
© Energeia (2011)
Page 6 of 103.1.1 International Trends
One of the key trends to emerge over the last year has been government slashing of over-generous
FiT rates without notice to prevent overpaying when system prices fall (as happened in NSW, Spain
and France) or causing price rises due to constraints in the supply of system capacity. In many cases
this triggered a rush to install prior to the cut-off date, leading to major peaks and troughs in demand.
This trend is driving increasing uncertainty around government incentive schemes in Europe, with
France now suspending feed-in tariffs for new >3kW solar PV installations. In December 2010, the
Spanish government approved a 35% cut to incentives until 2013 for wind projects covered by the
2007 subsidy regime. Germany and Italy have both initiated a review of their own schemes.
3.2 Federal
The Federal policy framework features a mandatory target, a subsidy scheme and a range of
consumer rebates. The Federal policy framework has until very recently been the only government
support for microrenewables in Australia and is funded entirely by taxpayers. Over time, the funding
burden has been shifted back on to electricity consumers through the Renewable Energy Target
(RET) and state based FiTs, funded by through higher network prices. Federal support for
microrenewables peaked in 2007 and is scheduled to fall off over the next five years.
3.2.1 Mandatory Targets
In August 2009, the Government implemented the RET scheme, which stipulated that 20% of
Australia’s electricity supply must come from renewable sources by 2020. The RET expanded on the
Government’s previous 10% Mandatory Renewable Energy Target (MRET), which began in 2001.
Figure 3 presents Australia’s renewable energy target over time.
Figure 3 – Australia’s Renewable Energy Target, 2010-2030
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
2010 2015 2020 2025 2030
Annual Target (GWh)
Source: Office of the Renewable Energy Regulator
The RET scheme was separated into two parts in January 2011 – the Small-scale Renewable Energy
Scheme (SRES) and the Large-scale Renewable Energy Target (LRET). The share of the SRES has
been set at roughly 9% of the 20% total target, with the remaining 91% allocated to the LRET.
However, the SRES cap is only notional, and the government is able to increase it in the future.
Take-off or Tumble: Australia’s Residential Renewables Market to 2021
© Energeia (2011)
Page 7 of 104.0 Glossary This report uses the following abbreviations: ACT Australian Capital Territory AEMC Australian Energy Market Commission AEMO Australian Energy Market Operator AER Australian Energy Regulator AIMRO Advanced Interval Meter Roll-Out AMI Advanced Metering Infrastructure AU Australia CHP Combined Heat and Power COAG Council of Australian Governments CPRS Carbon Pollution Reduction Scheme DER Distributed Energy Resources DOE Department of Energy EA EnergyAustralia EMS Energy Management System ENA Energy Network Association EPRI Electrical Power Research Institute ERAA Energy Retailers Association of Australia ESAA Energy Supply Association of Australia EU European Union FERC Federal Energy Regulatory Commission HAN Home Area Network IEC International Electrotechnical Commission IED Intelligent Electronic Devices IEEE Institute of Electrical and Electronics Engineers IP Internet Protocol IT Information Technology kW Kilo Watt kWh Kilo Watt Hour LAN Local Area Network LV Low Voltage MCE Ministerial Council on Energy MW Mega Watt NEEI National Energy Efficiency Initiative NERC North American Electric Reliability Council NSMP National Smart Metering Program NSW New South Wales NZ New Zealand PHEV Plug-in Hybrid Electric Vehicle PMO Program Management Office PV Photo Voltaic QLD Queensland R&D Research and Development REC Renewable Energy Certificates RET Renewable Energy Target SA South Australia SAIDI System Average Interruption Duration SCO Standing Committee of Officials SNC Smart Network Committee STPIS Service Target Performance Incentive Scheme TAS Tasmania VIC Victoria WA Western Australia WACC Weighted Average Cost of Capital WAMS Wide Area Measurement Systems WAN Wide Area Network WAPC Weighted Average Price Cap Take-off or Tumble: Australia’s Residential Renewables Market to 2021 © Energeia (2011) Page 8 of 10
Energeia
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