Think the weather is unpredictable? Try accurately forecasting Australian photovoltaic (PV) installations. You’ll be confounded by ever-shifting government programs, oscillating consumer sentiment, interactions in international policy affecting price, an exchange rate influenced by Chinese growth, the strength of the mining industry, and the interest rate.
You’ll still be left pondering whether El Niño-Southern Oscillation-driven rainfall will restrict available installation days. In short, you’ll have to come to terms with the same things the solar industry has been dealing with for years.
A solar rollercoaster
Faced with these seismic vacillations, forecasting PV installations out ten, 20, or even 40 years is a tough gig. Some methods include using a dart board, crystal ball, or just thinking of a number and doubling it (and quadrupling it again). Sadly, such methods would clearly be more accurate than those employed within the Federal Government’s Draft Energy White Paper (DEWP), which forecast that solar power (combined PV and concentrated thermal) would comprise 0.8–0.9 per cent of Australia’s energy mix by 2030, and 3.2–3.3 per cent by 2050.
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Translated into installed capacity, these indicate at most 1.9 gigawatts (GW) of PV by 2030 and 9.2 GW of PV by 2050, but in all likelihood these numbers also encompass solar thermal power. Considering that well over 1.4 GW of solar PV is already installed and the Clean Energy Regulator expects another 1.3 GW of small-scale PV over the next three years, it appears that Federal Treasury’s forecast will be met 27 years early.
Forecasting might be challenging, but the DEWP should remember that solar installations will continue so long as the sun rises in the east.
Fortunately, Treasury doesn’t live in Romania, where the government proposed to fine fortune-tellers for inaccurate predictions. The implications of overlooking PV’s contribution to Australia’s energy mix could be far worse than a gypsy’s curse. Already, PV’s merit-order effect is impacting electricity prices in Germany, where spot prices are now lower in the daytime than in the evening, and AGL Energy has confirmed the existence of the merit-order effect in Australia.
The impacts go far beyond affecting the business models of fossil fuel generators; they create broad-ranging issues for energy market operation – a topic outlined in SunWiz’s submission to the DEWP. By overlooking solar power’s game-changing impact, the DEWP will leave government and industry unprepared for an inevitable market transformation, resulting in pain and missed opportunities.
Thankfully, the Australian Energy Market Operator (AEMO) has its eyes open. AEMO had the insight to recognise that solar power systems had contributed to lower-than-anticipated energy consumption in 2012, the foresight to consider the impacts this may have upon the Australian energy market, and the wisdom to engage solar experts in producing a ten-year PV forecast.
SunWiz and Solar Business Services were commissioned to extend their five-year Australian PV Market Forecast and identify the amount of capacity ‘hidden’ behind consumer meters that would be connected to the National Electricity Market (NEM).
In recognition of the many variables, three scenarios were modelled – slow, moderate, and rapid uptake. Every scenario shows that PV can be expected to make a remarkable contribution to the Australian energy mix.
The results of a solar PV forecast for AEMO for the years 2012-22 show that cumulative installed PV capacity will reach at least 6 GW by 2022 under a slow uptake scenario, and as much as 18 GW under a rapid uptake scenario. By 2022, deployment of PV could result in PV contributing to at least 9 per cent of Australia’s predicted generation capacity, and potentially over 20 per cent.
Such deployment would mean PV makes up 36–100 per cent of forecast growth in generation capacity over the coming ten years. As a result, PV could contribute 2.0–4.5 per cent of AEMO’s forecast NEM electrical energy (as distinct from capacity) generation by the end of the decade, and this excludes energy generation from solar farms.
Considerations and predictions
These forecast scenarios represent a range of outcomes, but it’s quite possible that they end up being conservative. Installations are already on track to exceed the rapid uptake scenario forecast for 2012, and the Australian PV industry has a history of exceeding expectations over and over again.
Though significant annual fluctuation is expected in installations, the scenarios average a compound annual growth rate of 10–20 per cent, which was the industry’s average growth rate prior to the solar ‘explosion’. Thus the forecast scenarios present a credible, balanced counter-argument to Treasury’s oversight, while leaving plenty of room for upside.
However, some feedback loops could also affect deployment, which present issues for the industry to consider. Deployment at such levels is spurred by residential socket parity. A PV system that doesn’t export power could be considered a zero-cost abatement measure once it becomes profitable in its own right.
The forecast sees 23–36 per cent of owner-occupied dwellings hosting a PV system by 2020 – such penetration making it more difficult to sell PV. Targeting marketing of PV systems to the most suitable regions and demographics using such tools as Solar Hot Spots will become increasingly important.
In spite of this, market saturation is far off. Though many expect wholesale parity within this decade, sometime before this happens the market value of exports from distributed solar (loss-adjusted and time-of-export weighted) will be greater than the cost of solar energy. Exporting power will then become profitable, which will unlock the next wave of installations: upgrades to existing systems. Cause for celebration, for residential market saturation, is far off – there is plenty of roof space left to fill.
Herein lays another danger: with sufficient solar power on the grid, the merit order effect will drive down the value of daytime generation, which could negatively impact the business models of solar farms that expected a premium for daytime generation. Meanwhile, an already-stressed distribution network will be further challenged by people filling their roof with PV. As such, long-term growth of the PV market will be constrained by the development of affordable energy storage and the industry’s ability to install on commercial premises.
A revolution is brewing, but while the market will grow overall, individual segments will take backward steps, catching many out. The companies that successfully ride the waves of the Australian solar tsunami will be those that strategically anticipate where to put their resources, and use market intelligence and digital tools to transform their businesses.
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