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BASolar submission to the medium-scale solar discussion paper

Submitters details
Company: BASolar

Date: 9 Nov 10

Medium-Scale Solar Working Group October 2010

The material contained in this publication has been developed by the Medium-Scale Solar Working Group. The views and opinions expressed in the materials do not necessarily reflect the views of or have the endorsement of all members of the Working Group, nor indicate the commitment of all members to a particular course of action. Nor do the views and opinions expressed in the materials necessarily reflect those of the State of Victoria or the Minister for Energy and Resources. The State of Victoria and the Medium-Scale Solar Working Group do not guarantee that this publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.

The following is a listing of questions extracted from the Medium-Scale Solar Discussion Paper and cross-referenced to the relevant section for ease of reference. Please note that there is no requirement to provide an answer to all of the questions posed in the Discussion Paper.

Section 4: Definition of Medium-Scale Solar

QU1: It is appropriate to define medium-scale solar as falling between 100kW and 5MW?

No

QU2: Do you agree with such a definition and if not, why not?

No, BASolar does not agree with this current definition. We believe that the mediumscale solar range should be 30kW to 5MW and further subdivided into two groups of;

1. 30kW > 1.5MW, and
2. 1.5MW > 5MW

It is our belief that the take up of medium solar farms will fall into 2 major groups that are directly related to capital availability. The majority of installations, based upon private owners, is expected to initially fall into a 30kW > 300kW starting point that will rapidly see private commercial expansion from 300kW up to 1.5MW in standardised 300kW farm modules, themselves based upon standardised 30kW units (see BASolar modelling and methodology advantages for further information)

Group 1, 30kW > 1.5MW, is based upon private rural investments that will typically be either supplementary income for farmers or alternative income for private ventures. Given the high capital costs of commencing such projects, a suitable medium feed-in tariff needs to be determined that will provide short to medium to term assurity for these investors. BASolar is recommending that the tariff on assisting to reducing high up front costs, through the feed-in tariff, before reducing it to a sustainable level.

Group 2, 1.5MW > 5MW, sites of this size are not expected to be predominately commercial in nature with the appropriate amount of permanent support staff. This area is not the focus of BASolar (at this time) however we believe that as market trends push down development costs, then it will be reasonable to expect some cooperative developments between farmers / council / energy providers.

Overall, we would like to see a focus on group 1, 30kW > 1.5MW, as we believe that this will produce the greatest returns to strengthening rural communities.

Section 5: Identification of Potential Barriers to Uptake of Medium-Scale Solar

QU3: What are the immediate financial short-term barriers to investing in the medium-scale solar sector and how do these differ from investment in small or largesale solar?

Up front capital costs coupled with poor return on investment (ROI) under the current configuration are our major barriers to the establishment of medium scale solar farms.

Currently the RECS phase out from 5:1 to 1:1 at 1.5kW provides an indirect disincentive to go beyond 1.5kW and should not be seen as a primary driver for medium scale systems but rather as a sweetener.

The current ROI dictates a payback rate that is far too long, 10~15 years dependent upon capital costs, for private investors to consider. Typically we require a ROI for break even of no more than 4 years when compared to other contemporary investments.

Given that large scale solar farms can achieve an economy of scale for reduced capitalisation costs and small solar systems are eligible for effective subsidisations through RECS, it becomes clear to us that without a sufficient medium scale feed in tariff then the market drivers are currently geared to deter investment in medium scale farms in favour of more economically viable investments.

QU4: What are longer-term financial barriers to investing in the medium-scale solar sector and how do these differ from investment in small or large-scale solar?

1. Small-scale systems are support heavily by RECS multipliers
2. Large-scale systems can leverage of scale of economies

Medium scale suffers from mainly a 1:1 RECS up to 100kW before receiving negligible support. The 30kW > 300kW area of the sector suffers from poor economies of scale when compared to large-scale systems.

A suitable medium scale feed-in tariff is required to strike a balance for economics compared to small & large systems as well as medium term certainty of this tariff.

QU5: Have all the relevant barriers to uptake of medium-scale solar been identified in this Discussion Paper, and if not, what are they?

We feel that the paper has failed to capture the ground swell of interest in the lower end of medium scale solar farms. We have experienced significant interest from regional based individuals, typically farmers or those with a few acres, whom would install 30kW > 300kW if given a guaranteed pay back period based on a medium feed in tariff.

Significant interest still remains if the feed in rate was reduced post capitalisation pay back.

The key issue is certainty of returns for the short to medium term.

QU6: Can these barriers be differentiated by market segment (for example, are business entities likely to encounter different barriers to government organisations or community groups?)

Our focus is on private investors in the 30kW > 300kW solar farm region. The major differentiator for this group is certainty of return when preparing business plans for financing which is typically from a bank. The return on investment normally needs to be 3~5 years to gain sufficient funding given the scale of outlay for a single person ($100K > $1.5M).

QU7: What is the most significant barrier affecting your particular market segment? Three things rate equally as our main concerns;

1. return of investment period,
2. tariff certainty, and
3. payment methods of excess energy.

Section 6.1: Broader Policy Aims for Medium-Scale Solar

QU8: What level of uptake would be required for medium-scale solar to make a significant contribution to meeting renewable energy and greenhouse gas reduction targets and how feasible is such a level of uptake?

We believe that 30kW > 300kW privately owned medium-scale solar farms can contribute significantly if given the right medium term incentives in the form of a medium feed-in tariff.

QU9: What contribution is medium-scale solar likely to make to the security and reliability of supply?

Main contributions we foresee for medium-scale solar to Victoria’s energy security and reliability are;

1. A physically diversified medium scale solar net can provide the opportunity to supplement baseload applications. Upon reaching critical mass, the number of medium scale solar farms could make further construction of fossil fuel fired electricity plants unnecessary as the load is taken up by the distributed network.
2. A distributed baseload reduces the impact of “acts of god” and terrorist actions upon the network, especially for large infrastructure. For example, the incapacitation of a major fossil fuel fired power plant could cripple the state however such an action against medium scale solar farms would require 100 such “direct attacks” to achieve a similar result.
3. A diversified network should improve stability given that more micro generators, provided that are sufficiently synchronised, would reduce regional brown outs.
4. Energy losses as a result of transmission would be reduced as energy is generated by medium-scale plants that are physically very close to the end user when compared to a dedicated fossil fuel generator and it’s associated cross state transmission losses. These benefits would be magnified during peak summer loads when severe heat reduces transmission line capacity and transformer performance is reduced. Ironically, this period is when mediumscale solar farms are producing peak output for immediate local consumption.

QU10: How does this contribution differ from the contribution that is likely to be made by small or large-scale solar?

A physically diversified medium scale network would improve grid stability for the same amount of kW distributed amongst discrete home/business sites. Small scale systems are known to disrupt networks when placed in close physical and electrical proximity.

Medium scale solar farms could provide a decentralised generation capability equivalent of at least one base load generator within a relatively short time frame (2~3 years) under the right commercial conditions. As momentum in the sector gains, the right medium feed-in tariff model could continue to be used until the right mix of fossil fuel, wind power and solar power base load generators are achieved.

QU11: What are the opportunities for establishing local manufacture and production of solar technologies? To what extent are these regionalised?

BASolar has been developing a quick installation frame for both roof and terrestrial mount systems. We have already conducted several builds for Sydney and regional installations near Orange NSW.

Our construction facilities are located 10 minutes from Bendigo (Vic) and we would like to expand our capabilities in support of medium scale solar farms. This is economically viable for medium scale establishments.

QU12: What are the benefits of increased community engagement in this space over and above financial benefits? To what extent can these be quantified or do they remain largely intangible?

Successful development of commercially viable medium-scale solar farms as either a supplemental or stand alone income for rural Victorians will benefit regional communities by (no particular order);

1. Allow country communities to contribute to modernising Australia’s infrastructure,
2. Bring money into rural communities,
3. Enable regional Victorians to take advantage of next generation electric vehicles and associated infrastructure,
4. Encourage beneficial understand of practical care for the environment,
5. Keeping families on the land or in regional towns, and
6. Reduce dependency on fossil fuel for electricity generation.

QU13: What support models for medium-scale solar are likely to provide the greatest opportunities for community engagement?

Medium term, 5years, commitment on a medium feed-in tariff that is comparable to the premium feed-in tariff that secures a return on investment that results in pay back of capital costs (under our construction models this is possible).

Followed by a review of feed-in rate for the extension from 5 ~15 year mark as a multiplier of the retail rate and a minimum of 1:1.

QU14: Are there any further broad policy aims which should be considered? Medium scale hybrid farms and the respective sources of generation should be reviewed.

We see an opportunity for medium scale solar farms to extend the usage rates for capital equipment, primarily inverters, through the incorporation of micro wind and micro hydro. Currently a premium or medium feed in tariff only applies to solar systems however we believe that the source of the energy should not be discriminated against as long as it is renewable.

By logic, this should be extended so as to incorporate the boutique manufacturing industries with Australia for hydro and wind. Typically micro wind and hydro are build in the 500W to 5kW range however because they lack certification RECS and grid compliance is not usually achieved. As we are using certified inverters that are connecting the supply to the grid, it stands to reason that any energy supplied to the grid is as suitable for usage as any other source (otherwise inverter / filter would not have been certified for Australia in the first place). The incorporation of micro wind and hydro would see expansion of the base load capability of solar farms beyond typical daylight hours. Even though this would be at a normally reduced rate, it is still a contribution to reducing our carbon footprints and supports our society’s energy consumption needs.

We recommend that consideration be given to extending the medium scale feed in tariff to hybrid farms on the basis of a renewable energy source.

Section 6.2: Specific Drivers for Investing in Medium-Scale Solar

QU15: What are the immediate short-term financial drivers for investing in the medium-scale solar sector?

Income supplement and/or alternative income stream for rural Victorians.

QU16: What are longer-term financial drivers for investing in the medium-scale solar sector?

We see an opportunity for farmers and rural Victorians to diversify income streams and reduce dependency on Victorian government subsidies through medium-scale solar farms.

Given that panels are generally rated for 80% productivity at 25 years usage, the longterm investment returns for the Victorian state far exceed traditional generation methods. It would also be reasonable to assume that given that the life expediency of such systems would exceed 25 years and therefore contribute significantly more energy to society than is currently forecasted over the complete lifecycle of the system.

QU17: What other drivers exist for investment in medium-scale solar and to what extent are these differentiated by different market segments (for example business, government and community groups)?

Not considered.

QU18: What is the primary driver in your particular instance and why?

Our main drivers are two fold;

1. Deriving a an economically and environmentally sustainable income from medium sale solar farms, and
2. Assisting Victorian’s in developing their own medium solar farms based upon 30kW modules.

Section 6.3: Potential for Medium-Scale Solar in Victoria

QU19: To what extent is increased uptake of medium-scale solar a regionalised opportunity?

Regional private investors have greater access to cheap land that is already supported by suitable pre-existing infrastructure (primarily 3 phase). We believe that this makes a logical choice for the Victorian government to pursue a medium-scale feed-in tariff that should result in a total solar energy uptake that exceeds multiple large solar farms with a reduced and diversified risk profile.

QU20: If a support mechanism is deemed appropriate, to what extent should this be differentiated in relation to the type of grid connection?

None – We believe that both private and business investments should be treated in the same manner and with the same medium scale feed in tariff rates. We also believe that given thee right circumstances and incentives, medium scale (circa 300kW) privately owned regional plants should total more power output than several corporately owned large scale plants.

QU21: To what extent is the need to import system components likely to impact on a project’s capital costs (for example through foreign exchange rates and increased distribution costs)?

Our method for distribution and installation has influenced significantly less than retail commercial installations. We believe that we would not be impacted unfairly when compared to competitors whom are facing similar importing barriers. It should be noted that the current high Australian dollar should be taken advantage of for stockpiling panels and invertors however we are reluctant to pursue this without confirmed medium feed-in tariff rates that promote this section of the sector.

QU22: Is labour density likely to increase or decrease when investing in larger installations? In other words, is the relationship between kilowatts installed and number of jobs created a constant, or are medium-scale installations likely to require more or less employees than smaller-scale installations?

We are targeting the 30kW > 300kW market and forecast a primarily “owner / operator” model was construction is completed.

To support the construction process, we forecast a significant rise in sub-contractor engagement with “seasonal work” centred on large installations. Part of our commercial model is engagement with the solar farm owner / operator in construction of footings, trenches, erection of small infrastructure and storage of bulk materials on site. This is possible as our clientele are rural and / or farmers whom already poses the space, equipment and capabilities.

We would be looking to engage a regular set of sub contractors. Our partners in Sydney forecast the need to have a regular construction crew of between 3~9 personnel per regional establishment. However this should be complemented by our public community engagement models.

QU23: How are safety and OH&S concerns best addressed when implementing medium-scale solar?

On a case by case basis. Current state based arrangements through sub-contractors are deemed to be sufficient.

QU24: Is there a need to modify or extend current accreditation procedures in relation to medium-scale solar?

Our model sees us working more directly with wholesale generators / distributors (e.g. Powercor) for grid tie in and retailers for financial transactions.

QU25: What opportunities are available for increased training in the solar sector?

We have considered training both project managers / engineers as well as labour crews for installations on medium-scale farms (300kW > 900kW)

Section 7.1: Potential Solutions to Addressing Current Barriers to Medium-Scale Solar

QU26: Given the barriers you have already identified as being the most significant in your particular instance, what would be the most appropriate solution and why?

We have provided three scenarios in order of preference;

1. Extend premium feed in tariff to lower section of medium scale solar farms (30kW > 1.5MW) using premium feed in tariff allocations (currently 60c/kWh net).
2. Allocations of 300kW parcels to be awarded via application based on location (distribution of sites) and a preference for rural individual / private ownership over medium to large business (strengthen rural communities). This should be conducted until the desired level of MWh @ 60c/kWh is fully subscribed then further allocated releases are considered however the feed in tariff is reduced. The process continues until either the desired uptake is allocated or no further applicants are received at the current feed-in rate. This provides a market lever by which to control tariff rates whilst providing medium term certainty for return on investment.
3. Medium scale feed in tariff to be set as a multiplier of the previous yearly average wholesale cost with the first 5 years being the equivalent of 60c/kWh before being reduced to a minimum of 1:1 rate. Example – Every 12 months the industry establishes the average wholesale rate is 15c/kWh for which the medium tariff rate will apply (based on rolling average for 12 months not a spot price). If someone is building a 90kW solar farm then they are legislated to receive 60c/kWh, or 4:1 of the current rate, for the first 5 years of operation. This is re-assessed in each year at the same time and locked in for the next 12 months at a ratio of 4:1 for a total of 5 years. This enables sufficient return on investment to allow reduction of the applied rate to 2:1 or another figure that does not go below 1:1. This 2:1 ratio should be enacted for at least another 10 years to bring the scheme on a minimum length life cycle equivalent to the premium feed in scheme.

For all scenarios, payment for excess electricity under a net arrangement should be made as a payment to the relevant account holder on a quarterly basis not crediting.

This allows for reasonable cash flow forecasting on major private installations.

Appendix C: Case Studies

QU27: Are you aware of or have you installed any examples of medium-scale solar projects in Australia not referred to in this Discussion Paper?

Yes – A number of private 30kW solar farm installations in South Australia.