On Monday a little company named ReNu Energy announced that it was putting solar photovoltaic panels on the rooftops of four shopping centres owned by SCA Property.
RNE will own and operate the solar plant and sell the power to the retailers in the centres. Cost, $4.3 million; annual cash return to RNE’s investors, $700,000, or 16 per cent. The four centres, starting with the Griffith Plaza, will become 11 if all goes well.
Every shopping centre owner in the country is now being approached by firms like RNE wanting to put solar on the roof for “behind the meter” deals, where the power is consumed within the centre. In its statement on Monday RNE said retirement villages and office buildings are also attractive to both debt and equity funders.
This is happening simply because solar photovoltaic (PV) has come down in price, and the average price of electricity in the eastern states, produced by the coal generators, has been $100 per megawatt hour for the past few months. That’s killing businesses that rely on electricity, and is roughly twice the price of the power from solar, which is just the cost of financing the plant, since the power itself is free.
…In The Australian the other day, Graham Richardson said he hoped I was wrong that a flood of renewable energy investment would spell the end of coal. He’s in good company, and not just about that.
A lot of people, myself included, had hoped that newspapers wouldn’t be disrupted by the internet, but it happened — and now there’s a Senate inquiry impotently looking into the future of journalism.
Nice work, Alan and quite right. And it’s only going to accelerate. We’re only a few years short of the renewable energy “killer app” when batteries will be added to those solar panels shopping centres along with everyone else will exit the grid en masse. Not only that, MB numbers suggest that grid level renewables plus storage will be cheaper than coal inside five years:
There is a range of different outcomes we could see for prices.
Two base case scenarios are solar+battery costs fall at 10% per year for the next five years, another at 20%.
In the last 5 years costs have fallen around 20% per year. Given how low solar costs are, the more important assumption is battery prices.
Rooftop Solar
I have deliberately left Rooftop Solar out of the above table, as they are less comparable than you would think. Roof-top solar has costs of around $0.14 which is much higher than the costs above.
But that is not important. Rooftop solar is not competing with a coal plant, or even with utility solar.
Rooftop solar is competing with grid power + grid infrastructure. It is an important distinction.
I don’t care whether my rooftop solar produces cheaper than the local coal-fired power station, I care whether it produces at a cheaper rate than I pay for power – and it does:
The issue is that panels produce power during the day when everyone else’s panels are also producing power, and so unless I use it myself to offset the above charge, I get paid a fraction of what the power company will charge my neighbour for using my spare electricity. Also, the peak rate (in the evening) for time of day pricing is much higher than during the day.
At $0.44 for partial shifting (which is basically generating enough power to get you through the evening peak), having some batteries is very close to being profitable for anyone on time of day charges. A lot of this price comes from the discount rate, so if you are prepared to accept a lower return (and lock in electricity prices) then partial shifting can be worth it at current prices.
But batteries aren’t yet a “no brainer” cheaper option.
Looking at the 10% cost reduction and 20% cost reduction scenarios again:
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Rather than celebrate this market triumph, the loon pond response is bizarre. As we know, it’s desperately seeking to build new coal power plants with public money, has blamed renewable power for everything from blackouts to the death of Elvis and today it launches broadsides against the RET, via Judith Sloan:
Let’s be clear: the RET spins off a carbon tax. Anyone who says we don’t have a carbon tax doesn’t understand economics. It is an outright subsidy of a huge magnitude to renewable energy.
It sidelines other much more efficient forms of power generation, such as gas and new coal-fired plants, both of which have much lower emissions than our ageing coal-fired power stations. It accelerates the closure of existing coal-fired power stations.
And if that isn’t bad enough, there is no charge on renewable energy for the negative costs it imposes on the grid, both in terms of stability and reliability.
If Hunt had understood these things, he would have realised that the higher the proportion of electricity generated by renewable energy, the greater are these risks.
Most countries with substantial renewable electricity generation have limited its penetration to well below our target of 23 per cent. And these are countries — think Denmark and Germany — that can import cheap electricity from neighbours when it’s needed. Australia cannot.
The [Finkel] review is unlikely to recommend, nor is the government willing to countenance, the abolition of the RET, attractive as that may seem to energy market rationalists.
It should, however, help us recognise that putting most of the burden on the electricity grid to deliver Australia’s promised carbon emissions reduction was a ghastly mistake. It has neither assisted the reduction of carbon emissions nor encouraged the development of new technology.
Even Ross Garnaut, the Rudd government’s professor of choice, called for it to be phased out. The RET “does not necessarily encourage the lowest cost means of reducing emissions”, he wrote in 2011, “nor does it encourage innovation: it favours the lowest cost established technologies that are eligible within the scheme”,
…The review also presents the opportunity to end the sacred treatment of wind and solar and to share subsidies, if subsidies there must be, with low-emission thermal energy production such as gas and clean coal. It would not fix the gas shortage but at least it would give the owners of mothballed gas plants a little more confidence of a return on investment.
If common sense is allowed to intrude, we will no longer pay subsidies of about $85 a megawatt hour for the fitful supply of unstable energy using subprime technology of windmills.
…What could go wrong? After all, Alan Kohler assured us in his column in The Weekend Australian that wind and solar are at the point of becoming cheaper than coal and gas, and batteries are just around the corner. We are about to see a flood of renewable investment that will spell the end of coal.
A clear-headed readjustment of the RET will allow us to test that somewhat brave assumption. Oh, and help us keep the lights on.
The RET is inefficient, yes. A carbon price would be much better. But the loons killed that off so the RET is still better than nothing given it at least prices the implicit subsidy to dirty power while boosting competition for it.
But that’s really all a by the by. The key point highlighted by Kolher is that these days the carbon mitigation argument has moved well passed policy anyway. It’s now driven by market pricing on two fronts. The cost of dirty power is rising as carbon externalities are priced into risk assessments by markets and alternative energy R&D is driving massive price falls for clean technology.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
