Germany is often cited as the king in solar, but its reign may soon be over. Driven by public and government support in the form of healthy feed-in tariffs, Germany is the proud owner of nearly one out of every three installed solar panels in the world. Germany has sustained this leadership for over a decade, and does it with balance of system costs a whopping 75 percent lower than for equivalent systems in the U.S. Now, however, German leadership in the solar industry is being challenged on multiple fronts.
Not surprisingly, with China’s voracious appetite for energy—fueled by that nation’s rapid industrialization and urbanization, and buoyed by China’s status as the world seat of solar module manufacturing—German solar adoption may pass the torch to China for new installed PV capacity. Solarbuzz NPD projects that China will install more than 22 gigawatts of solar in 2013, definitively becoming the world’s leader in PV adoption. But China isn’t the only one challenging German dominance.
Australia, seldom talked about in the solar industry, is currently going toe to toe with Germany on another solar metric that’s equally important to installed capacity: PV system pricing. And remarkably, Australia achieves this distinction with a scant 2.5 gigawatts of installed PV capacity nationwide (by comparison, Germany had installed nearly 10 times that by the end of 2011). Australia’s low-cost rooftop solar environment underscores the solar leadership role that Australia may have in the years to come.
Dropping system prices
Just how low are Australian PV system prices? Solar Choice, a company that operates out of Sydney, has the answer to that question. And how do they know? Because PV installers tell them.
Acting as an intermediary between PV installers and customers (much like energysage and SolarList in the United States), Solar Choice has detailed knowledge of system prices throughout Australia. With Solar Choice’s price information from its network of 115 qualified installers, PV customers can log on to the SolarChoice website and get near-instant quotes from multiple installers in their area.
Based on data and insight from SolarChoice analyst James Martin, the cost of a 3 kW PV system in Australia hovers around $2.20 USD/W. Backing out federal-level Australian subsidies, unsubsidized prices are in the ballpark of $2.85 USD/W.
This is worth repeating. Australian PV system prices for medium-sized residential projects are currently at $2.85 per Watt. Based on the latest price estimates from GTM Research, average residential prices in the U.S. are $5.00 USD/W. Last year, Lawrence Berkeley Lab reported German PV system prices at $3 USD/W. More recently, Germany’s Solar Energy Association claimed that German PV systems prices have declined to $2.28 USD/W. This highlights the fierce cost competition between Germany and Australia.
Australia’s low prices, however, are even more impressive when we look at the makeup of its PV installations. Driven by its incentive structure, the majority of Australian solar systems are sized at 1.5 kW or below. Industry common sense dictates that larger systems are cheaper because fixed costs can be spread across more Watts. Australia is clearly bucking this trend.
How do they get these prices so low?
There are several possible reasons for the rock-bottom prices in Australia.
First, Australian installers are more aggressively taking advantage of module oversupply, especially the abundance of lower-tiered (based on perceived quality) modules. By using some of the cheapest Chinese modules and inverters on the market, some Australian installers have priced PV systems as low as $1.56 USD/Watt. Yet, this use of lower quality components is not the full explanation, particularly since recent downward installation price trends have continued despite a strengthening shift towards high-quality, higher cost, tier-one modules.
Second, the Australian market might have seen the smaller 1.5 kW residential systems as an advantage rather than an obstacle to overcome. The small system sizes allow for more standardized approaches, enabling installers to complete jobs more quickly and efficiently, resulting in a learning curve that Germany and other countries were only able to attain at much higher installed PV capacities.
Other potential contributing factors in this advantage could be lower wage rates and reduced permitting requirements. These and other cost lessons are nuggets of insight that need to be mined from the land down under.
What are the implications of Australia becoming a world leader in solar?
These costs will set Australia up as a solar market that is poised for continued growth and leadership. Even with the disappearance of generous state-level feed-in tariffs, the market fundamentals of solar energy are very strong in most areas of the country. Australia has great sunshine, attractive market conditions (low capital costs and a long-term carbon pricing market), and the country has a very high cost of electricity, which currently stands at an average rate of more than 27 cents/kWh (AUD).
In fact, a Bloomberg New Energy Finance press release from earlier this year noted that unsubsidized renewable energy in Australia is already cheaper than electricity from both new-build coal- and gas-fired generation. The levelized cost of energy for a new wind farm came in at $80/MWh (AUD), compared to $143/MWh and $116/MWh for coal and gas, respectively. Even without a carbon price, wind energy is 14% cheaper than new coal and 18% cheaper than new gas. Further, utility-scale solar PV is expected to follow suit, forecast to beat coal and natural gas by 2020 with carbon prices factored in.
Australia added around 2 GW of solar PV in the last two years—and more than 90% of this solar is in the residential market. This is impressive on multiple levels, and there are signs that this is only the beginning. One recent report projects that the solar PV market in Australia will likely grow two to three times by 2017, reaching 10 GW of installed capacity. In some communities, 90% of single-family residential rooftops are already covered with PV systems, and regional penetration rates between 50 and 75% are entirely possible.
Such aggressive growth in Australia’s solar PV market is strengthened by strong support from the nation’s citizens. A recent AMR Research survey found that 87% of Australians want “more action by all sectors, including government, to make Australia a top-10 global producer of renewable energy.” In response, the Australian government has soundly set the stage for further clean energy innovation by establishing a carbon pricing system as well as a nationwide target to get at least 20% of the country’s electricity from renewable sources by 2020. This renewable energy target is especially noteworthy given its emphasis on solar and wind; worldwide non-hydro renewables only comprised about 5% of electricity generation in 2011, according to REN21’s “Renewables 2012 Global Status Report.”
Together We Stand
With Australia’s drive toward high solar penetrations, there’s an opportunity to spread best practices on cost reductions, utility operations (Australia is seeing how its solar PV generation has dramatically softened peak demands during the day), and business model choices (Australia has its own debate about the pros and cons of a feed-in-tariff vs. net energy metering).
The U.S. government, for one, recognizes Australia’s solar strides, and has already begun cementing our two countries’ common goals around solar energy by funding R&D collaboration between leading labs in both countries. However, we at RMI believe we can and should grow this partnership beyond the lab setting. Through our SIMPLE BoS project, we are comparing cost insights in key solar areas around the world, such as in Australia. If you are interested in what we find, engage with us directly at SIMPLE@rmi.org.
In a world where cost is king, Australia is proving that it can be a unique model for continued solar adoption. If it is successful, Australia will be a powerful leader and partner in ushering in a cleaner and more distributed electricity system all around the world.