On-site solar will remain cheaper than electricity from the grid.

 

Investing in behind-the-meter solar generation is a no-regret move, if you agree with in the fundamentals described below. In times of high uncertainty and complexity it’s a good idea to return to fundamentals. For assessing the economics of behind-the-meter solar generation, there are three main factors to look at:

 

1. The retail electricity price

Due to old coal capacity reaching the end of its technical lifetime, there will be a need for new electricity generation capacity from 2021/2022. This capacity is likely to be gas due to its natural fit with the system requirements – high reliability, lower emissions and flexibility of generation to meet demand. The boom in LNG has linked domestic gas prices to higher international gas prices. To recover the costs of a new gas power plant investment, electricity prices will rise further.

 

2. The levelised cost of solar generation

The technology cost will continue to decrease due to economies of scale and additional efficiency gains. Kobad Bhavnagri (Bloomberg New Energy Finance) stated that “by 2032 new solar should outcompete incumbent coal” at the Australian Clean Energy Summit 2017. More detail can be found in his presentation, titled ‘Australia’s shift to base-cost renewables’ (see slide 10).

 

3. The support scheme for renewables

This seems to be the factor with the highest level of uncertainty. However, it is important to note that price risk is limited until the end of 2020, due to market price signals (forward trading of LGCs). Beyond 2020, uncertainty increases. This is reflected in the graphic below, showing the indicative range between the expected case and worst case.

 

Grid Versus Onsite solar costs

Impact of high prices

chart-energy-crisis

Over the two years to September 2017, the price of electricity more than doubled, and further increases are expected in 2018. For larger businesses, this equates to millions of dollars each year.

 

Energy security is an additional risk for businesses, with blackouts predicted in some states in 2017 and 2018.

 

While all businesses need energy to operate, some that are deeply affected – for example, agribusinesses and supermarkets that rely on cold storage to prevent products spoiling.

 

Energy cost and risk may have increased, but the cost of energy efficient technologies has dropped – while performance and quality has improved.

 

*Source: Energy Action Price Index September 2017