2018 saw unprecedented growth in Australia’s PV industry: The amount of solar PV installed in the first seven months of the year alone exceeded the total PV capacity installed in the whole of 2017. Ambitious government renewable energy targets and incentives have fuelled this growth and whilst the industry is expected to continue to expand, recent political developments have led to some question marks about the future of the sector.
Australia’s overall energy market is regulated by the Australian Energy Regulator (AER) and operated by the Australian Energy Market Operator (AEMO). The AER is responsible for the enforcement of regulation and market monitoring in respect of electricity and gas networks, including the National Electricity Market (NEM), which is made up of generators, transmission network service providers, distribution network service providers, electricity retailers and end-users. The Australian Energy Market Commission sets the rules to ensure the market delivers efficient, reliable and safe energy for electricity and gas consumers and provides independent advice to policy makers.
The AER is responsible for approving revenue in respect of electricity transmission services and aims to allow households and businesses to access the energy they need at the lowest possible cost. AEMO is responsible for selecting the lowest cost generation to run through the NEM’s transmission networks. AEMO is also the National Transmission Planner, and is responsible for the annual National Transmission Network Development Plan, which provides an independent strategic plan offering nationally consistent information about transmission capabilities, congestion and investment options for a range of plausible market development scenarios.
Australia’s Renewable Energy Target (RET) encourages investment in both large-scale renewable power stations and small-scale installations such as household solar panels. It aims to create 33,000GWh of additional renewable generation by 2020.
Large-scale investment is incentivised through a scheme that allows eligible, renewable generators to create large-scale certificates (LGCs) for each MWh of power generated. Wholesale purchasers of electricity buy these LGCs to meet their renewable energy obligations thus prices are set by the market. LGCs can only be created for renewable electricity generated above the accredited power station’s 1997 renewable energy baseline which is determined by the regulator when the station is accredited. The Clean Energy Regulator is tasked with regulating this process by validating the LGCs, which must subsequently be registered in the Renewable Energy Certificate registry.
This framework – combined with Australia’s impressive levels of irradiance – has led to such significant levels of investment in the past few years that the RET will now be met ahead of schedule. However, with the recent demise of the National Energy Guarantee – a policy that would have imposed an obligation on electricity retailers to meet certain carbon emission targets – and the closing of the RET in 2020, the question is will investment in large-scale PV continue to the same extent?
In the absence of federal policy, the state and territory governments are leading the charge. Despite the lack of federal government involvement, the fact remains that Australia’s energy system is inefficient and its predominantly coal-based generators are aging and will have to be replaced over the coming decades. New low cost electricity generation is urgently required, and utility-scale solar (and wind) alongside storage appears to be the cheapest potential source of new power generation.
Most states agree that emissions need to be at net zero by 2050 and with their ambitious yet achievable targets, states and territories are very much paving the way for renewables. The Australian Capital Territory implemented the first reverse-auction, a strategy which has subsequently been adopted by the Victorian and Queensland Governments.
Australian industry is also increasingly turning to renewables, demonstrated by a growing trend of industry players signing up to long-term contracts for renewable power in most cases bypassing traditional retailers. It is estimated that half of the 2020 RET could be delivered by corporate-backed solar and wind PPAs.
AEMO’s Integrated System Plan 2018 report predicts the change in the Energy mix between 2018, and 2040. The report states “By 2040 under the Neutral scenario, the energy production from retired coal-fired generation is projected to be replaced with about 28GW of large-scale solar generation and nearly 10.5GW of wind generation (in addition to the 4.5GW already installed), complemented by over 17GW of new and existing storage capacity.”
So, with the NEG being dead, has this halted the PV boom in Australia, or is it just getting started?
If you would like to find out more about asset manager and advisory services QE can offer in respect of the Australian PV market, please contact Joanna Leigh, our Head of Asset Management, Australia, via the enquiries section of our website.
This article is written and edited by Shirine Azzi. She can be contacted at: firstname.lastname@example.org
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