Home > Economics - General, Environment > Learning from mistakes, not repeating them

Learning from mistakes, not repeating them

November 1st, 2010

The policy skills of the NSW Labor government were graphically illustrated by Kristina Keneally’s recent announcement that the scheme offering a 60c/kWh feed-in tariff to anyone who installed solar panels on their roof had attracted far more demand than the government had budgeted for, and that the price would therefore be cut back to 20c/kWh (roughly the delivered price of coal-fired electricity). This pattern has been repeated with a string of schemes in Australia and overseas in recent years. The reason is simple, as can be seen from the graph below.

The retail price of solar modules has fallen by about 30 per cent in the past few years, after several years of stability as the industry developed its own sources of silicon supply. (Before about 2003, the silicon needs of the solar industry were supplied by cheap offcuts from the [then] much larger semiconductor industry.) Add to that the appreciation of the Australian dollar and you have a huge cost reduction, so that an offer that seemed marginally appealing when the plans were being developed rapidly became a no-brainer.

There’s every reason to expect this trend to continue. Despite fluctuations in particular countries caused by episodes like this one, demand is growing rapidly, and bringing with it scale economies and induced innovation at every stage in the production process. Annual solar PV installations have risen from around 1 GW (capacity) in the early 2000s, to an estimated 10GW for 2010, and growth remains rapid. [1]

On the other hand, at current costs, home-based solar PV is still a high-cost option. My suggestion would be to estimate the likely price of electricity under the kind of carbon price needed to achieve a serious reduction in emissions, calculated the implied electricity price for coal-fired power, and set the solar feed-in price at that level. A rough estimate would be: 20c kWh likely price without a carbon price, $100/tonne CO2 = 10c/kWh, so feed-in price = 30c/kWh. At that price, early adopters would be paying more than the cost of the grid option, so only those willing to make some sacrifice would sign up. From the viewpoint of suppliers, the price as I’ve calculated it is the relevant long-run marginal cost, so it’s just a downpayment on a comprehensive carbon price.

fn1. For comparison, new wind installations were 37.5 GW capacity in 2009, nuclear additions for 2010 so far have totalled about 4GW, and construction initiation totalled about 10 GW – source IAEA. Taking account of the higher capacity factor for nuclear, I’d estimate the net additions of nuclear and solar PV were about equal. Considering the likely construction times for nuclear plants, and observed growth for solar, it seems likely that solar will be a larger net source than nuclear over the next decade. However, I don’t want yet another slanging match on this topic. All discussion of nuclear, pro or anti, should go to the relevant sandpit. I’ll open another if necessary.

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  1. Chris Warren
    November 4th, 2010 at 13:04 | #1

    @Fran Barlow

    You may have to subsidise.

    The long-run costs are in Mobbs’ book (he had to replace an expensive inverter).

    No issue here at all.

    I see no fake issues.

  2. Chris Warren
    November 4th, 2010 at 13:07 | #2

    Fran Barlow :@Fran Barlow
    Also Chris, would you outline approximately how many square metres of PV on rooves would be needed to replace the fossil component of the grid?
    Ta …

    Already cited – 50 sq metres per household is more than enough.

    No issue here.

  3. BilB
    November 4th, 2010 at 18:32 | #3

    328 million square metres for GenIIPV, and 234 million square metres for the CSIRO heliostat tower concept. I don’t have enough performance information for conventional PV.

  4. Ronald Brak
    November 4th, 2010 at 19:43 | #4

    So with marginal grazing land going for about $15 a hectare, the wealth of the average Australian household can buy enough land to power Australia with solar energy.

  5. Chris O’Neill
    November 4th, 2010 at 19:49 | #5

    @Ronald Brak

    (at) $15 a hectare, the wealth of the average Australian household can buy enough land to power Australia with solar energy.

    I think the land cost is a tiny fraction of the total cost of a solar power station.

  6. Ken Fabos
    November 4th, 2010 at 21:14 | #6

    There are advantages to adding solar to existing structures in lowering the footprint as well as producing power closer to where it’s used but they obviously need to be balanced against more insolation and economies of scale for solar farms. How low can the price of PV go? I know of predictions of module prices of under $1 per watt (presumably peak output) in the next couple of years, something that seemed overly optimistic even a few years ago. Forecasts of 92% growth in PV production in one year (this year) does indicate that it is ramping up at a remarkable rate. A long way to go of course and it does seem that different kinds of solar can suit different climatic situations; I wouldn’t want to bet on any particular type as I think we’re still a long way from seeing the technology reach maturity. And of course solar thermal for low grade heat is already good value in many parts of Australia.

    Storage (as well as a more versatile grid) does matter – I have been aware of flow batteries, which have been around a long time; as long as the grid is primarily supplied by steady base load from fossil fuels they won’t be in great demand and so far they haven’t seen huge uptake. But there are some examples. On the remote area power front the preference is still for the (relatively) cheap initial costs of lead acid, despite them being not well suited to that application and it’s disappointing that the manufacturers of flow batteries haven’t aggressively focused on that market. It would be a good testbed for reducing reliance on fossil fuel backup (diesel and petrol for RAPS). We could see homes and businesses taking responsibility for their own uninteruptable power supply under the kinds of variable pricing that Pr Quiggin has talked about. Large scale storage in general has been an area lagging behind – mostly not need before, hardly needed now and mostly the future demand is considered hypothetical, and for those who dislike the costs of redundancy, something we’d rather not be forced to have to build and pay for.

  7. Adam
    November 5th, 2010 at 13:52 | #7

    Live in NSW: looked at my electricity bill (from Energy Australia) after the govt announcement and I’m already paying 23.5c/kWH. I guess the NSW government is still trying to pretend they are supporting a solar scheme whilst effectively making it not worthwhile for consumers

  8. BilB
    November 5th, 2010 at 14:28 | #8

    And there is no carbon tax yet, Adam. That bill has nothing to do with the state government, to be fair. That is all independently operated.

  9. Adam
    November 5th, 2010 at 17:05 | #9

    @BilB

    Appreciate your point re. carbon tax – I was rather noting that a reduction in the gross tariff from 60c to 20c is an effective killing of the scheme without making a specific announcement. I guess though that the cost-effectiveness of PV will continue to increase if the projections of continued electricity prices come through even without a carbon tax.

  10. Ronald Brak
    November 5th, 2010 at 23:34 | #10

    At 23.5 cents a kilowatt-hour, it may be possible for larger scale point of use PV to pay for itself in sunnier parts of NSW. Not for households, but for organizations with large flat roofs where economies of scale and ease of installation considerably reduce the cost. This should especially be the case if these organizations pay spot prices for electricity, as the highest prices are usually on hot cloudless summer days. I suspect that with spot pricing PV could pay for itself in a town such as Moree which averages 9.1 hours of sunshine a day. While there isn’t a huge amount of flat roof space in Moree, there is a fair bit of open land nearby that could be used. It’s possible that rather than building individual residential installations, locals in high sunshine areas could band together and build a single larger, lower cost PV installation for their mutual benefit, but I’m not sure how easy it would be to do this at the moment.

  11. hix
    November 7th, 2010 at 14:15 | #11

    No point to threat solar so preferential over other means to do reduce environmental damage. Maybe solar panels will be efficient someday, but that day wont come any earlier with such huge solar industrialist and suburban homeowners welfare. At a low populated Those 20 cent would still be enough to produce alll electricity with windmills.

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