End the boom-and-bust FiT cycle for solar

Mark Group Australia Chief Executive Rob Grant.

Mark Group Australia Chief Executive Rob Grant.

Recent reductions in government-sponsored feed-in tariffs for solar energy have been a step in the right direction. The economics of a solar-powered home or business are so compelling that feed-in tariffs should be removed altogether to prevent boom-and-bust cycles in the solar industry.

The decision by the Victorian Government to reduce the state feed-in tariff (FiT) from 25 cents per kilowatt hour (kWh) to zero, while artfully portraying a mandatory 8 cents per kWh payment by retailers as an 8 cent FiT, was widely condemned by the Australian solar industry.

Following a similar decision made by the Queensland Government in July 2012, many in the industry are asking how they will survive this latest announcement. It is almost certain that there will be casualties among retailers and installers, and industry players who encourage consumers to put the largest system possible on their roof in order to maximise FiT revenue will be forced to rethink their business model.

The industry has grown on the back of generous state government FiTs. Many companies and individuals argue that the payback period is so enticing, it becomes common sense to become a home generator, putting as much back to the grid as possible. In doing so, they pay scant regard to the core and ongoing benefit of solar photovoltaic (PV): it reduces reliance on grid-sourced power and removes a significant proportion of power costs for the next 25 years. Such has been the focus on FiTs, consumers have come to believe that they are why you invest in solar PV. That era has ended, and those who do not adapt will perish.

Recent months have brought three significant changes to the solar landscape.

The electricity ‘gentailer’ has woken up to the clear and present danger that PV represents to its business. It will use its substantial lobbying clout to destroy, frustrate or slow the growth of a serious potential threat to revenue streams, while maintaining a public posture of support for, and investment in, clean energy.

The election of conservative governments in New South Wales and Queensland has coincided with a dramatic reduction in state revenues, forcing a new kind of fiscal discipline and any opportunity to cut expenditure. Generous and unfunded FiTs fit this category, and represent a convenient political scapegoat in the campaign against the profligate waste of previous Labor Party governments.

The Queensland Competition Authority has issued a report suggesting that consideration be given to a mandatory gross FiT in Queensland of approximately 8 cents per kWh. This recommendation means that all power generated would be first sold to the grid at
8 cents per kWh, and then sold back to the system owner at between 25–40 cents per kWh.

I cannot think of a more anti-competitive action. To remove the right of an individual to generate and use their own power, and mandate that they sell this asset to a nominated retailer to be resold to them at three to four times the price, beggars belief. That is not competition; it is subsidy, and industry protection. If this becomes a widespread and accepted view, then it will be the most retrograde step in industry policy terms since the 1950s.

These events change the game significantly, and in an industry that has known nothing but change, we must adapt again to the shifting sands of government policy. Therefore, what is the likely outcome of these most recent FiT changes in Queensland and Victoria?

Firstly, the ‘buy a PV system because it will generate revenue for you’ sales pitch is dead. Any retailer who tries to sell a system based on FiT payback will face an uphill battle. What will matter now is right-sized systems for the needs and usage patterns of consumers.

There is no longer an incentive to oversize a PV system in most markets around Australia, but instead a significant incentive to install a system that accurately matches consumption during daylight hours and to shift usage patterns to reflect that. This is unless the Queensland Competition Authority has its way; in which case, there is zero incentive to buy PV at all.

Recent changes will also put an end to the outrageous and ineffective practice of some retailers oversizing inverters while erroneously selling this as a ‘benefit’. If there is no point in adding more capacity later, why use a larger inverter, particularly when it restricts the performance of the system?

While many lament the passing of the generous state FiT regimes, it must be said that it will be a more rational market without this distortion. In New South Wales, where the government has optimistically provided guidance to retailers of a FiT of 7.7–12 cents per kWh, all major retailers pay less than this, and some even pay nothing. Realistically, why would they pay anything other than a token sum if it is not mandatory?

In spite of this, the New South Wales market has started to recover from the collapse of the state’s FiT last year. This is because the average consumer wants to take control of their household budget, and they will do almost anything to limit their exposure to spiralling electricity costs. They no longer need an inflated FiT to justify the purchase decision.

There is still a viable and growing market for residential solar PV. It is a reasonably priced and competitive retail market, and it forms a valuable part of achieving the Renewable Energy Target (RET) for very little cost. It is critical that solar PV continues to receive support via the RET and the Small-scale Technology Certificate market. This provides very efficient up-front capital cost support and remains the last component of subsidy that the PV industry receives.

In fact, given that modelling suggests that an appropriate FiT is about double what now prevails in most states, it could be argued that the solar PV industry has a government mandated handicap. To remove a capital subsidy while limiting the operating revenue potential to below true value is malicious, and the RET must stay.

What both state and federal governments must understand is that constant and often irrational change in clean energy policy, without industry consultation, has now placed Australia in the category of countries that carry a sovereign risk for investors. Why would any foreign company invest here when the very policies upon which they base their investment decisions have been proven to change overnight – or, in the case of New South Wales, retrospectively?

What we can’t tolerate is the withdrawal of support for clean energy while at the same time providing covert subsidies and protection for the entrenched (and often government-owned) fossil fuel energy providers.

Like most new and emerging industries, we will face stiff competition from entrenched incumbents; this is no surprise, and it is healthy that we compete on our merits. What is surprising is that governments at all levels are quick to be seen to penalise, handicap and frustrate the development of a technology that shows such promise and is so widely approved of by the public, while they embrace, subsidise and invest in the dinosaur that is the fossil fuel-based energy.

There is little prospect of turning back the tide that is renewable energy. The market always wins; we just need a fair and open market.

Rob Grant established Mark Group Australia in 2009, the Group’s first operations outside of the United Kingdom, and has led the Australian business from start-up to annual revenue of more than $100 million. In that time, Mr Grant has also led Mark Group’s acquisition of New Zealand’s Right House Limited. Before Mark Group, Mr Grant worked with CSR Limited and its subsidiary Rinker Group for nine years in roles in general management, marketing and sales. Prior to that, Mr Grant was the Chief Executive of Metromix Pty Ltd.

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