We saw how the complex issues initiated by the spread of the virus could influence the solar industry and reduce or delay solar installations in the US and globally in 2020 and possibly beyond. Just as in other parts of the world, solar project developers in Australia have also experienced delays in the supply of key equipment especially in March, when China was in full lockdown.
However, while the interruption in the supply chain was highlighted as the main cause of delays in completing utility-scale solar projects in the US, the steep economic downturn in Australia could have even more serious implications for the solar industry in the land Down Under. According to Rystad Energy, 1.5 GW worth of solar projects that were expected to become operational in 2020 are facing not only the fear of delays but also cancellations¹. Additionally, although the bushfires had led to renewables growing centrality to the country’s political agenda, the shift of focus to reviving Australia’s economy has put a damper on climate change and pro-renewables efforts.
It’s important to highlight that the Australian solar industry has already suffered from both economic and grid-related issues in the pre-COVID 19 era, the disease outbreak made clear that large-scale solar energy developments will experience a further slowdown. Regarding the grid challenges, there have been a number of issues recognised. Commissioning issues, marginal loss factors, network capacity availability and system strength variability are all grid-related issues that have impeded solar project developments since 2019, and as a result, we can see more and more EPCs and international investors withdrawing from Australian utility-scale solar developments.
Are Installations on the Wane?
As Rystad Energy highlighted, in the last quarter of 2019 and the first quarter of 2020, the cumulative capacities of utility-scale solar projects entering the construction phase were less than 200 MW and 400 MW, respectively. Since the beginning of Q2 2020, the solar industry has seen a further slowdown, which is supported as only a quarter of the expected 2 GW of utility-scale solar capacity addition in 2020 has reached financial close.
On the other hand, the small-scale (sub-100 kW) solar installations have continued to break records almost every month of the year. At first glance, it seems that COVID-19 has not disrupted this segment of the industry. According to Green Energy Market (GEM), after a record-breaking 672 MW of small-scale solar installation in the first quarter of 2020, rooftop PV installations have not shown any signs of slowing down due to COVID-19². With the 237 MW of capacity addition in April, up to date, there have been more than 900 MW small-scale PV installed in 2020³. If this installation rate had continued throughout the year, the annual rooftop solar installations could reach 3 GW capacity, almost 50% more than that of the small-scale capacity additions in 2019. One of the main enablers of the seemingly uninterrupted rooftop PV installations is that these installations could be realised while still adhering to social distancing measures.
However, according to Tristan Edis, GEM’s Director of Analysis and Advisory, this data might be misleading as the small-scale technology certificate registrations “are subject to lags of about three weeks between install date and registration of the STCs and then you could add further lags between the install date and when that system might have been sold to the customer”⁴. Furthermore, many of the rooftop PV installers have accumulated a considerable amount of orders before the emergence of the COVID-19 outbreak, and therefore, they can continue working at full capacity until they offset the backlog of existing orders. Once all the accumulated orders are executed and the three weeks of lag in the administration of projects passed, we will be able to see the real impacts of COVID-19 on the small-scale solar installations in Australia.
Although this means that we will not see the full impact of the pandemic until the publication of data on the rooftop solar registrations of the month of June, the results of a survey by GEM and PV magazine Australia on the number of rooftop PV inquiries from installers and suppliers indicate a less bright trajectory. The survey revealed that about half of the respondents have experienced a 25% to 50% decrease in customer enquiries, while an additional 20% have reported that customer inquiries have “completely dried up”². If the month of June brings a 50% decline in the monthly small-scale solar installations, and this decline continues to persist for the rest of the year, the annual installations would fall below 2 GW capacity. This would mean a market downturn of about 40%.
All things considered, it is simply too early to know what the long-term effects will be as far as the C&I segment is concerned. In an environment with shrinking energy costs, committing to PPAs or rooftop investments is less appealing. In the same vein, businesses and households under immense economic pressure are more reluctant to invest in rooftop systems. Having said that, the psychological effect of lockdown might nudge people to turn their gaze toward self-generation and energy independence, leading to steady growth in domestic supply.
How is Investor Appetite Impacted?
When it comes to the investor landscape, uncertainty has only proliferated. The already mentioned grid and economic issues in the pre-COVID-19 era have created lower investor confidence. With the additional challenges that have been posed on the Australian solar industry, the issue of financing solar projects has only become more prominent.
The surge in solar investment in Australia has been primarily due to power price expectations driven by coal projects coming to the end of useful life, which inevitably drives energy prices upward with greater gas dependency. This combined with domestic gas shortage (particularly in the South Eastern states) and LNG prices pushing domestic prices upward has been a significant source of attractive forecasts for renewables energy sale price and fueled Australia’s appetite for PPAs. Naturally, the drop in international energy prices changes this outlook. The pandemic has pulled energy prices down further and the old forecasts are currently being revised. With this current climate of uncertainty swirling around, investment decisions have only become more challenging. In the short to medium term, it is expected that investors will be more careful with their assets, and that they will filter out the best-positioned players with excellent track records. While investment rates have certainly slowed, Blueshore has witnessed a continued interest in its asset management services from both incumbent and new investors throughout the recent malaise.
What’s Happening on the Political Side of Things?
Generally, the political drive for economic revival post-COVID19 has already led to the government promoting an energy agenda without renewables at its heart with the recent news focusing on the need for increased gas investment. The Australian government has already changed the mandate for ARENA and CEFC allowing them to pour funding into thermal projects. Additionally, the government has already made it abundantly clear that there will not be a reintroduction of a carbon tax with an emphasis on a technology development roadmap which flirts with clean coal and CCS.
However, the determination of the Australian solar industry offers great confidence and optimism. Our hope is that the political parties also take a step back and ponder the bigger question of what this all means for the future of sustainable energy production and overall for the long-term prosperity of Australia's economy and well-being of its society. The upheaval may be great and the path ahead uncertain but as Professor Mark Howden, Director of the Climate Change Institute at the Australian National University put it⁵,
All in all, suffice it to say that it’s very important to find and implement long-term solutions that can revitalise not only the economy but help accelerate a clean economy and curb the climate crisis. It might be a difficult task in a country, where the use and export of coal have significant roles in the domestic energy supply and revenue generation.
 Rystad Energy (2020) Covid-19 to pause up to 3GW of wind and PV projects in Australia. Retrieved from https://www.rystadenergy.com/newsevents/news/press-releases/covid-19-renewable-projects-stalled/
 PV magazine (2020) Survey: Covid-19 to cause 50% decline in Australian rooftop solar. Retrieved from https://www.pv-magazine.com/2020/04/14/survey-covid-19-to-cause-50-decline-in-australian-rooftop-solar/
 Renew Economy (2020) Another record month for rooftop solar, but Covid-19 likely to hit in May. retrieved from https://reneweconomy.com.au/another-record-month-for-rooftop-solar-but-covid-19-likely-to-hit-in-may-16069/
 PV magazine (2020) Rooftop solar surges to record highs before lockdown. Retrieved from https://www.pv-magazine-australia.com/2020/04/03/rooftop-solar-surges-to-record-highs-before-lockdown/
 BBC News (2020) Coronavirus and climate: Australia's chance to shift to green energy. Retrieved from https://www.bbc.com/news/world-australia-52395319