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Solar Costs: Good and Getting Better.

March 22, 2012

Most people in Australia probably couldn’t tell you what they pay for electricity,  but they know it’s getting more expensive.  Some have blamed carbon reduction and renewable energy support policies.  The main reason for the price increase, however, is a surge in network infrastructure upgrade spending.  Solar power can help reduce those network costs.

Here in Australia, an international electricity price comparison study sponsored by the Energy Users Association of Australia has kicked up a fuss:  it shows that Australia actually has pretty high retail electricity prices relative to other countries – right up there with European prices, contrary to popular belief.

We reported last week that the New South Wales regulator, IPART, has recently offered their view on a fair and reasonable price that electricity retailers should offer owners of domestic solar PV systems by means of compensation in avoided retail and network costs.  It wasn’t much.

Here’s why:  solar PV is already an economically viable opportunity for Australian households.  This is probably news to many as, even in the industry, many continue to contend that price competitiveness with retail prices is still a few years away.

The IPART finding isn’t necessarily an accurate reflection of a ‘fair’ price, but explains why further benefit wasn’t allocated: solar can be competitive without up-turning the apple-cart (read: vested interests).

Australia has a lot of sun (when La Nina isn’t causing havoc) so solar systems typically hit the higher ends of capacity factor ranges.  There is now substantial competition in retail solar providers, contributing to the implosion in installed costs.  Meanwhile, retail electricity prices have increased massively.  The EUAA-commissioned study suggests prices have risen by 40% in real terms between 2007 and end 2011.

International evidence also points to price parity.  The 2012 Clean Energy Trends report by Clean Edge, issued last week, contains the following telling data and projections on PV installed costs and costs of electricity:

Clean Edge think that installed system costs have declined by 50% between 2007-2011, and will decline by a third again by 2021.

The average electricity retail price now paid by Australian consumers, according to the EUAA report, is $0.25/kWh.  This is likely to increase further in the near term.

We’re already hearing of installed PV costs in Australia close to $2.50 per Watt.

At this cost, investment in solar PV is a good hedge against electricity price increases.  However, informed consumers will continue to sit on the sidelines expecting and awaiting further solar installed cost declines.


An Oil and Tar Furphy in the US

March 22, 2012

The politics of oil is looming large in the run-up to the US presidential elections.  Petrol (gas) prices are on the rise, and Obama and Department of Energy chief Steve Chu are being accused of causing the problem.  That’s not the extent of the issue:  also at play is the determined lobbying of oft-Republican aligned oil companies to take advantage of high prices to expand drilling to unconventional and marginal sources currently locked up by regulation.  Steve Levine makes the point this week in an Oil & Glory blog post at Foreign Policy.

Obama is doing and has done some sensible things to address oil price vulnerability:  continued support of commercialisation and break-through alternative energy funding, and much less glamorous work such as vehicle fuel performance standards.  We’re a little less enthused about the sense of periodic releases from the Strategic Petroleum Reserve (of which another is due shortly, if you’re prepared to believe the rumours).  The capacity to influence short-term prices at the pump is somewhat limited, with emerging market demand largely setting the price.

One of the more ludicrous assertions that has been picked up by various frothing partisans is that the US has huge oil resources which could be tapped if only the Administration would act.  This assertion is made specifically in relation to the Green River Formation:  the largest oil shale reserve in the world, spanning three states (Wyoming, Utah, Colorado) and mostly under public (federal) land.  Recently, here in Australia Climate Spectator ran a broader piece on shale oil and oil shale reserve assertions.

The Green River oil shale resource is estimated at 1.44 trillion barrels of oil.  See a resource map here at the U.S. Geological Survey briefing note on the Green River basin.

Here’s the important point:  the USGS doesn’t even attempt to make an estimate of what is economically recoverable.  Oil majors have tried and failed to find an effective way to drill and release the oil, and no-one is ready to provide any form of time horizons as to when suitable technology might become available.

So, while correct that the resources are there, for all the good they’re going to do for US energy independence in the short- to medium-term, they may as well not be.  That’s why they aren’t booked as ‘reserves’.

A much smaller amount of more accessible oil is locked up in Utah – in tar sands.  This amounts to between 12-19 billion barrels.

Current plans to enable leasing of public tar sands land in Utah are for about 91,000 acres – far less than a 2008 plan conceived under the Bush Administration for 431,000 acres.

However, given the environmental sensitivities associated with tar sands extraction and processing, it looks like any production rates from Utah tar sands is likely to be pretty small.

This region doesn’t look like the answer to US energy security for the time being.

NSW Feed-in-Tariff a Fizzle

March 14, 2012

The regulator which was handed the thankless task of coming up with a fair and reasonable ‘unsubsidised’ feed-in-tariff rate for solar PV in New South Wales has come to a final conclusion.

The fact sheet can be accessed here.

The final price that they’ve come up with for exports to grid is in fact a wider range than previously indicated:  $0.052-$0.103 per kWh for 2011/2012, taking into account the value to the retailer and to the wholesale market of the electricity.

The NSW State was saddled with massive legacy budget costs following the over-generous gross feed-in-tariff instituted under the previous administration of $0.60/kWh.  This review result is deemed to result in no additional cost to either consumer or the State coffers.

The report suggests that IPART comes up with an annual benchmark rate against which to assess retailers’ offers (ascertained here).

This tariff isn’t going to get raucous applause from the solar industry.  However, with retail PV panel rates now below $1 a Watt, the private sector should be able to come up with offers to make PV attractive to consumers relative to consumer electricity retail prices (approximately $0.20-0.30 per kWh) for most places in Australia.

While on a price basis this decision may look like it has established a level playing field, split incentives between landlords and tenants; and upfront capital costs will  both act as drags on deployment.

ACRE Grants a Wish: Geothermal Gets First Bite at Funding

March 8, 2012

Today in Sydney the Australian geothermal industry had a meeting at which financing woes were discussed by a range of industry and finance participants.  At the meeting, the Australian Federal Minister, Martin Ferguson, duly stepped up to the mark to announce the first of the ACRE Emerging Renewables funding agreements.

Under this agreement, a company called National ICT Australia will receive $1.9m to undertake a preparatory industry ‘Measure’ to identify and map geothermal resources in Australia.

The Minister’s press release can be found here.

A significant chunk of the $126 million that Emerging Renewables has to spend has been earmarked for geothermal.

The sector is going to need that cash, and then some, which is lucky as there’s another $1.7bn in unallocated capital associated with ARENA, which is due to come on-stream later this year.

Then there’s the $10 bn Clean Energy Finance Corporation – the other Federal Government renewable energy fund, which noone quite yet knows what it will do (though we do know where it will be – in Sydney).

So there’s lots of cash looking for problems – and geothermal has a few (high capital costs, unexciting returns, technical risk etc)

China Integrates Environmental Risk into Bank Lending

March 6, 2012

This week the markets took notice of China’s stated new annual growth target of 7.5% – below the 8% accepted growth benchmark deemed to offer social stability.  This comes hot on the heels of a major World Bank/China think-tank piece on economic growth, which urges major economic re-structuring away from fixed capital investment, and a major focus on environmental improvement.  Now, the national banking regulator is moving to make China’s bank lending greener.

This piece in the China Daily last week caught our eye:

Green-credit guideline for banks issued

By Wang Xiaotian (China Daily)

BEIJING – The Chinese government introduced a “green credit” guideline for commercial lenders on Friday to facilitate economic restructuring in a manner that’s environmentally friendly and saves energy.

The China Banking Regulatory Commission, the top banking regulator, ordered lenders to cut loans to industries with high-energy consumption and high levels of pollution or excessive capacity, and to strengthen financial support for green industries and projects.

The CBRC encouraged banks to evaluate, classify and rate the environmental and social risks inherent in their clients’ businesses and take the results as a key reference in their ratings and access to credit.

“Through credit controls, banks can have an influence on businesses’ awareness of energy savings, emissions-reductions and the benefits to the public,” said Yan Yanfei, deputy director-general of the statistics department at the CBRC.

He said that in the next step, the CBRC will set up some key indexes to make the guideline more specific and try to include adherence to the plan in the rating system.

Lenders also need to improve management of any overseas projects that they support, to ensure that the initiators of those projects comply with local environmental, land, healthcare and security legislation, according to the guideline.

Zhang Rong, the program manager of environment and social standards at the International Finance Corporation of the World Bank Group, said the guideline is welcome, especially given the increased involvement of Chinese enterprises in the global market, and the increasing number of calls urging the overseas projects to take more care of the local environment and to reduce energy use.

“Actually Chinese banks have already made very good attempts at green credit, and they can learn from the mature technology and management systems that their international counterparts have already been using for some time,” Zhang said.

China Development Bank Corp, which makes nearly half of the total loans supporting overseas projects of Chinese enterprises, has just provided credit to a Chinese company that operates an iron ore mine in Africa. The funds will help the company move surface soil to a place of safety to protect the seeds of local plants, according to Lu Hanwen, deputy director-general of CDB’s Project Appraisal Department II.

By the end of 2011, CDB had lent 658 billion yuan ($104 billion) to support environmental protection, energy-saving and emissions-reduction projects, accounting for 12.7 percent of the bank’s total outstanding loans.

Yang Bin, deputy general manager of Corporate & Investment Banking at Shanghai Pudong Development Bank Co Ltd, said banks have enough motivation to lend green credits because the demand from clients that they undertake green initiatives has been rising constantly.

Such loans have a lower non-performance ratio than other lending because enterprises can usually obtain strong incentives for green projects from the government to repay the loans, he said.

“And the rate of return against cost for green credits is much higher than other lending,” said Yang, adding that evaluating the environmental impact and energy-consumption of their clients will cost the banks little.

“But State-owned enterprises should also be ordered to implement green policies if the government wishes to achieve its energy-saving and emissions-reduction goals,” Yang said.

Obviously, while the current initiative is voluntary and toothless in nature, the source of the guidelines and the promise of more detail to come points to a pathway of progressive enforcement of lending practices.  This is perhaps bound into a broader revision of lending policy guidance given the sometimes inefficient nature and direction of bank loans in recent years.

China’s environmental quality is poor.  It ranks 116th out of a possible 132 in the annual Environmental Performance Index rankings – a global study put together at Yale.  It ranks particularly poorly on air quality and water quality impacts on human health and ecosystems.

If the banking regulator’s initiative moves to make China’s offshore investments more environmentally and socially sound, then it may do much to burnish China’s soft power by making investments more welcome in host countries.  If it can assist in adjusting the environmental and social impacts of domestic industry, then the policy will contribute to reducing the negative social stability impacts of a lower GDP growth rate.

Australia’s Renewable Energy Market is a Pig’s Breakfast

March 1, 2012

To the uninitiated, working in Australia in the renewable energy sector looks like fun right now – it’s like being a kid in a candy store.  Or, more accurately, it’s like being a kid locked outside a candy store looking in.  In fact, recent developments highlight in black-and-white that the Australian renewable energy market is toast.

There is so much promised.

There’s the tempting, sugary taste of the energy commercialisation funding body, ARENA, which we’re all looking forward to getting our little mits on.

There’s the delectable energy efficiency industrial funding, and the large-scale solar flagships program.

Then we have the ‘old’ programs such as ACRE, which are apparently still operational.

There’s the Renewable Energy Target, which is designed to promote the deployment of renewable energy so that it accounts for 20% of Australia’s energy generation mix by 2020.

Last, but not least, the delicious $10 billion Clean Energy Finance Corporation.

Submissions to the CEFC closed last December, since when the Expert Panel have been shut up in a dark hole reading the sage opinions of all men and their dogs (or shredding them).

The best comment that we’ve heard about the CEFC is at an industry meeting last week at which an industry sage was asked whether he thought the CEFC could fix some of the problems faced by the renewable energy industry, to which he replied that the CEFC seemed like “a solution looking for a problem”.

When the shop opens later this year, it really could mean that goodies will be splashing around to anyone with a plan.

Well – there is a problem – and a very, very big problem it is.  We’ve discussed various aspects before at this blog – see here, and here, for example.

Official policy preference at State and Commonwealth levels is for funding to target technologies for which Australia has a competitive advantage.  There are two aspects of interest raised by this policy: first, an assumed knowledge of which technologies Australia has an advantage in and, second, the ramification that part of this competitive advantage is implied by a signficant domestic deployment potential.

The problem with funding that targets domestic deployment potential, is that the deployment may not happen.

It’s a fact that Australia’s Renewable Energy Target is facing a renewable energy certificate supply glut.  The Solar Flagships program debacle underscores the structural issues at root:  Power Purchase Agreements (offtake contracts) not being signed.

The energy market is dominated by three large companies, which are not signing up to any new Power Purchase Agreements with project developers.  This credit oversupply is likely to persist for a few more years.

Government policy interventions abound, which have distorted the market beyond repair.  Policy and regulatory risk is extreme.  No-one knows whether the renewable energy market will even exist after the next election.  Australian party politics is a public joke.

There is a practical implication of this deployment market distortion for the direct funding aspects of the Government’s Clean Energy Future package of legislation.  Mechanisms targeting technologies with short-term horizons to market may not result in project deployment.

The actual window for renewable energy project deployment pre-2020 will be short (assuming REC liable parties don’t just pay the non-compliance penalty), and the opportunity for project development thereafter uncertain.

In short: billions of tax-payer dollars are being proposed to be spent on renewable energy companies and technologies, but projects are not being built, investment is not and will not be made.  The Renewable Energy Target needs urgent focus.

Graphic: US Shale Gas Production Boom

February 29, 2012

Shale gas production is going gangbusters: transforming US, and potentially global, energy politics and economics.

The US has led the charge through application of new drilling and cracking techniques.  US gas production in 2011 experienced the greatest annual growth ever – 7.8% – largely due to shale gas production growth.

The graphic below, from the EIA, demonstrates the extent of shale gas production growth (by basin):

Shale Gas Production in the US by Basin

It is curious to note the relatively minor position of the Bakken shale for gas when compared to the others.  The Bakken Shale is the one likened by the EIA to the Cooper Basin in Australia – which is the main one that people get excited about down under.