Tracking towards 2020: the role of large-scale solar in reaching the target

28 November 2017

Mark Williamson, Executive General Manager, Scheme Entry and Entitlement

This presentation provides an update on the projects built and committed under the Renewable Energy Target throughout the year.

Presentation transcript:

Firstly for those who don’t know the Clean Energy Regulator, we’re an independent Commonwealth regulator. We’re part of the energy and environment portfolio and we administer most of the Commonwealth’s climate change laws which are primarily the National Greenhouse and Energy Report scheme, the Emissions Reduction Fund and the one that I’m going to talk to you about today, the Renewable Energy Target.

We’re an economic regulator with an environmental objective. Our purpose is to accelerate carbon abatement for Australia.

Today I’m going to build an argument that the Large-scale Renewable Energy Target – the 2020 target – is within reach and also that utility scale solar has really been the big surprise, on the upside, in terms of the pipeline. I’m also going to give you some insights into tracking at household and commercial and industrial level, because as [Inaudible] argued, aggregated small-scale is really going to be important and I’ll be building an argument that those segments are really booming as well.

[SLIDE 2]

So I’m going to cover a little about the large-scale pipeline and I’ll go into a little bit of detail about that, also about business and household scale PV. I’ll also speak a little bit about how the market is responding to the need for greater reliability in terms of variable renewable energy.

[SLIDE 3]

To frame this headline slide, pre the scheme starting in 2001 there was about eight gigawatts of existing capacity which was primarily hydro, bagasse and landfill gas. So, if we exclude that, the scheme incentivised between 2001 and the end of 2015, approximately six gigawatts of variable renewables which was heavily dominated by wind. When the 2020 target was settled in mid-2015, we estimated that an additional six gigawatts was needed to meet the 2020 target of 33,000 gigawatt hours. If we forget about the baseline generation when the scheme started, six gigawatts – mainly wind – was added from 2001 to end of 2015 and another six gigawatts needed to be firmly committed between 2016 and 2018, and built by 2019 to meet the large-scale renewable energy target.

This slide frames that extra six gigawatts that was needed from the start of last year. The current headline numbers, but before I do, I should say these numbers don’t include projects from Lyon Solar. We’ve taken a very conservative approach to what we say is firmly announced – either with a power purchase agreement with a strong party or that it’s reached a financial investment decision. As David Green from Lyon Solar explained, his is a different, more innovative financing option.

Our headline number for firmly announced is 5589 megawatts, almost 5600 to the 6000 we said was needed. The bottom light slice is the accredited capacity. Power stations get accredited with us at the point of first generation and that’s the time they connect to the grid and produce large-scale generation certificates. That slice is currently 557 megawatts, but we have more than 500 megawatts of additional applications to be accredited. This is not theoretical; it’s all happening on the ground.

The dark blue is the capacity that’s committed that’s under construction – projects are starting construction as soon as they reach final investment decision. That’s 3503 megawatts under construction. We don’t believe the industry has built less than a gigawatt of capacity in one year before. The other slice at the top is the projects with a power purchase agreement with a strong counter party that we expect to go on to be committed. That’s about 1529 megawatts but for example includes the Stockyard Hill Wind Farm of 530 megawatts. There’s been substantial financing announced and I think everyone in the market expects that will go on to a final investment decision fairly soon.

So, what part has solar played in this? When we said 6000 megawatts was needed, we assumed – and we were quite bullish – we said there’d be roughly a 75 per cent wind, 25 per cent solar split, coming off the first 6000 megawatts where solar only had four per cent. However, of that 5589 megawatts that we say is firmly announced, we have 2349 megawatts is large-scale solar and that’s around about 42 per cent. IT’s come up quite spectacularly. We all know solar doesn’t quite have the same capacity factor as wind, we didn’t adjust that six gigawatts because we’re generally finding higher wind capacity factors and higher solar capacity factors than what we assumed in our original model. Also, one of the interesting things about the market sweet spot is the amount of that solar that’s going to be single axis tracking which has a much higher capacity factor.

As you can see from this slide, the target certainly looks within reach.

[SLIDE 4]

This was the technology mix, excluding the eight gigawatts of baseline capacity which was mainly hydro before the scheme started, in the first six gigawatts this was the mix, with solar only playing that four per cent share and wind dominating.

[SLIDE 5]

This slide shows where are now in terms of technology mix for the firmly announced capacity since 1 January 2016. At the moment, there is an enormous increase for solar at 42 per cent, but it could end up being even higher in terms of the capacity that was needed.

[SLIDE 6]

We start at the top of this slide with residential solar PV (less than 10 kilowatts). The biggest year we ever had in the scheme with various multipliers and very generous feed in tariffs, was 1035 megawatts installed capacity in 2012. Since then it had all been downhill gradually, though the market was very strong. This data for the small-scale always lags in timeframe. While we’re saying it’s at 21 November, the certificates can be created within 12 months but typically it’s created within six to eight weeks of the installation occurring. On the right hand side, in 2016 we had 401 megawatts capacity at 21 November 2016, but also in commercial and industrial (between 10 and 100 kilowatts) we had 135 megawatts and if you add those together it comes to 536 megawatts. Where we finished last year though, with regards to that lag, was at 747 megawatts. If you add 2017 numbers, where we’re at now, 594 megawatts for less than 10 kilowatts and 203 for 10 to 100 kilowatts then you come to 797 megawatts. Therefore, it looks highly likely we’ll exceed a gigawatt of installed capacity in the small-scale scheme under 100 kilowatt this year, which will likely be the biggest year ever for solar PV and will exceed 2012.

We’ve broken down commercial and industrial business systems into the large-scale and small-scale schemes. The third line from the top shows systems between 100 kilowatts and one megawatts. The year end data from last year compared to the previous years, applications for installed capacity doubled year on year. Based on the applications we’ve got in the system, I believe we’ll double again this year. We are in a true exponential growth rate for commercial and industrial systems. Bloomberg projects going forward there’ll be real uptake in commercial size systems, but it will be industrial size systems that will really take over. Some of those will be similar size to utility scale.

Cumulatively, this will be the biggest year of construction for solar project from household through to utility, but next year will be much bigger because that’s when we’ll see the really big take off in projects.

[SLIDE 7]

This slide shows state by state in the small scale scheme. We are now tracing 797 megawatts, looks like it will go over a gigawatt for the year. If you add that to existing stuff, we’re now well over 6200 megawatts installed capacity. Queensland is running number one, New South Wales two, Western Australia three and Victoria a close fourth in terms of installed capacity this year.

[SLIDE 8]

Going to the large-scale scheme, that big number on the left is because of the large amount of below baseline installed capacity. These capacity numbers include existing capacity before the scheme started. The reason for the difference between the earlier numbers of almost 5600 megawatts is that we already have some capacity accredited out of the 6000 megawatts. In order of progress, again Queensland tops the numbers for the pipeline and installed large-scale capacity. New South Wales a clear second, followed by Victoria and South Australia.

This year will probably be the biggest year for accredited capacity, both large-scale wind and solar. Next year we’re going to see around more than three gigawatts that will be accredited, so first generation reached, of which two gigawatts could be large-scale solar. So when you look at that and renewed growth in household systems and continued strong growth in business systems, you can see next year is going to be a much bigger year than this one.

[SLIDE 9]

Now we’ll turn to a few interesting features, and this is an example of how the market is responding to the reliability challenge. The unknown in this package is not “unknown” – I’m sure the developers know, but we haven’t been able to ascertain that from them. The market’s moved very quickly to show that single axis tracking is the sweet spot. Talking to some developers very close to the coast in Queensland, some have gone fixed panel because they’re very concerned about cyclone risk, but generally speaking since FRV 56 megawatt at Moree which was the first single axis tracking – and everyone at the time said the business case just isn’t going to stack up – but since then the majority of the market by far looks like going single axis tracking. It’s roughly a 25-30 per cent higher capacity factor, but the key change is the Moree on its official opening, it was operating at 90 per cent capacity at 9am in the morning and similarly very late in the afternoon. So the value proposition in terms of better matching demand is the real value that FRV saw rather than simply the greater amount of electricity generated.

Some of the other features we’ve seen include combination solar and wind, and I think is what we’re going to see is the massive amount of utility scale solar starting to balance out, and together with wind, provide a better consistency of generation.

[SLIDE 10]

These are some of the battery projects we’re currently tracking, which is evidence of the market responding to variability challenges. Together, with the single axis tracking, better matching load, combination of wind and solar and a bigger boost to utility scale solar plus storage, quite clearly the variability renewable energy market is responding to the reliability need.

[SLIDE 11]

To quickly conclude, the Large-scale Renewable Energy Target is within reach and solar is currently tracking 42 per cent of the pipeline, but that could go up yet, based on residual projects coming in. There is immense momentum at all levels for solar. It does look like, in the small-scale renewable energy scheme, we could crack the biggest year yet after a number of years of downward trends. This year we’ll be accrediting the largest capacity of utility solar we’ve accredited but next year will be the huge one, with about two gigawatts of capacity.

[SLIDE 15]

Variable renewable energy is looking a bit different in this six gigawatts of renewable energy compared to the first six gigawatts, and that’s around the contribution of solar, single axis tracking and together with all the storage coming on.

Thank you.