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Moreland Energy Foundation - Submission to medium-scale solar discussion paper

Moreland Energy LogoMedium-Scale Solar Working Group
Energy Sector Development Division
Department of Primary Industries

9 November 2010

Re: Medium-Scale Solar Discussion Paper

Introduction

The Moreland Energy Foundation (MEFL) welcomes the opportunity to provide input to the Department of Primary Industries (DPI) Medium-Scale Solar Working Group.

MEFL is an innovative not-for-profit organisation established by the City of Moreland in 2000 to reduce greenhouse gas emissions. MEFL works within and beyond the Moreland community to implement a range of energy efficiency and greenhouse gas abatement programs, including behaviour change programs, research and demonstration projects and advice and information services.

Based on our expertise in this field, MEFL has been engaged to deliver a range of consultancy projects for all levels of government. MEFL is currently delivering a number of large-scale demonstration, engagement and enterprise projects as part of the Moreland Solar City initiative, a partnership with the City of Moreland, Victorian Government and Commonwealth Government, under the Federal Solar Cities programme.

Summary

MEFL views the issue of medium-scale solar in the context of the broader sustainable energy policy context. Climate change requires a rapid transition to clean sources of energy and a step change in the way we use and think about energy. Government support is needed now to drive the rapid transition that is required, and to help prepare Victorian residents, businesses and communities for the eventual introduction of a broad based price on carbon. This support should not be limited to any one technology, but rather should be designed to encourage the development of innovative energy products and a highly skilled industry to meet the needs of all energy users. Medium-scale solar technology is only one of the products that will be required to meet this need.

Definition of medium-scale solar

The terms of reference of the Working Group are limited to an examination of ‘medium-scale solar’.

As noted in the Discussion Paper, there is a range of existing incentives and support mechanisms for solar power, including the Commonwealth’s Small-Scale Renewable Energy Scheme (SRES), Solar Credits scheme and Large-Scale Renewable Energy Target (LRET), and the Victorian premium feed-in-tariff (PFiT) for small systems and impending large-scale feed-in-tariff.

The Discussion Paper identifies a gap in support for systems greater than 100kW and less than 5MW. MEFL agrees that there is a gap in support for medium-sized solar systems. However, this gap affects systems between 5kW (the upper limit of eligibility for the premium feed-in-tariff) and 5MW. The standard feed-in-tariff, which applies to systems up to 100kW in size, is not considered to provide an adequate incentive for households or small- to medium-sized businesses to install solar panels. Accordingly, 5kW to 5MW is a more appropriate definition of medium-scale for the purposes of the Working Group’s task.

While this may be an appropriate working definition of medium-scale solar, the Working Group should focus its attention on the characteristics of potential medium-scale solar customers – including office buildings, medium-sized businesses such as factories and warehouses with ample roof space, community groups, and aggregate groupings of individual households or businesses – even if this means broadening the scope of its investigation beyond this definition. The definition could therefore be expressed as a guide – but not a prescriptive limitation – to the Working Group’s task.

Within the 5kW to 5MW range there is likely to be at least two distinct groupings of potential solar customers. Smaller entities such as small businesses and community groups are likely to experience similar issues and require similar support to the residential sector. Larger entities such as large businesses or factories may still fall within the target range but be much more sophisticated and have greater resources at their disposal. The Working Group should be aware that different entities may require different incentives or types of support, or different levels of support.

Although we understand that the Working Group’s mandate is limited to solar power, we do not think that renewable energy incentives should be limited to one particular technology unless good reasons exist for doing so. Many of the more successful renewable energy policies around the world apply to a broad range of sources of renewable energy in order to promote innovation and ensure that the most cost effective renewable technologies are the most successful. Any recommendations provided by the Working Group should therefore be considered for application across the range of renewable energy technologies.

Potential barriers to uptake of medium-scale solar

MEFL is a community based organisation. The most likely future customers for medium-scale solar systems amongst MEFL’s stakeholders are community organisations, small- and medium- businesses and aggregated groupings of residents, particularly residents of higher density developments and apartment complexes.

The Discussion Paper provides a comprehensive overview of the barriers to the uptake of medium-scale solar in these sectors. MEFL believes that addressing the following should be the focus of the Working Group’s task:

  • The significant upfront cost of installation, combined with long payback periods.
  • Limited time and resources of potential medium-scale solar customers to properly research investing in medium-scale solar.
  • Limited awareness amongst potential customers of the costs, benefits, risks and opportunities of solar, and limited availability of independent, accessible and user-friendly information.
  • Regulatory barriers, including owners corporations laws, the planning framework and electricity network planning processes that have not been designed to accommodate distributed and intermittent forms of energy generation.
  • Policy uncertainty.

Potential benefits from medium-scale solar

The Discussion Paper identifies the range of possible benefits that may flow from increased uptake of medium-scale solar in Victoria.

MEFL believes that the primary objective of providing government support and assistance to encourage the growth of medium-scale solar should be to eliminate the gap in support for this sector of the industry and thus encourage the development of a broad-based solar industry in Victoria. Current policies are targeted at small residential systems and at very large systems, with a gap in between. This is not conducive to the orderly development of a broad-based and innovative solar industry that would be capable of directing investment towards the most cost efficient and scaleable forms of solar. Ideally, government policies supporting medium-scale solar should be incorporated into a holistic policy covering all types of solar systems.

A well-developed solar industry would also be likely to have more resources to invest in research and development and help accelerate the already rapid cost reductions in solar systems, as well as develop new business models such as energy service agreements (such as power purchase agreements and rooftop leasing arrangements). While cost reductions globally may eventually make solar an attractive option without government support in Victoria, this would defer the development of a solar industry in Victoria with all the associated economic benefits such as increased job opportunities, and leave Victoria unprepared to service future demand for solar energy systems.

MEFL notes that increased uptake of distributed medium-scale solar may have network benefits, including peak shaving and avoided investment in expensive transmission network upgrades. As storage technologies improve, these benefits would increase significantly. The network benefits (and potential costs) of increased distributed generation are discussed in great detail in the CSIRO’s Intelligent Grid report. MEFL also notes that concerns about the impact of large amounts of distributed generation being added to the grid, while real, should not be overestimated. Germany and Denmark, for example, have large amounts of distributed generation installed and have not yet experienced serious issues. Better electricity network planning processes can address potential network issues, and MEFL would welcome

the opportunity to work further with the Department on exploring these issues and developing processes that include as a core objective the incorporation of renewable energy sources.

Finally, MEFL notes the extraordinary opportunities for community involvement in medium-scale solar projects, as demonstrated by the recent Hepburn community owned wind farm. With appropriate incentives, community owned facilities can not only produce affordable clean energy and protect communities from the impact of rising electricity prices, but it can produce more cohesive and active communities whose residents are engaged with energy issues and supportive of progressive climate change policies more broadly. MEFL has strong links with the Moreland community and would be interested in working further with the Department to explore opportunities for aggregate model projects in the Moreland council area.

Potential solutions

Encouraging the uptake of medium-scale solar requires above all clear, long-term and stable policy that potential medium-scale solar customers and associated service providers such as consultants and installers can rely upon. This policy must include:

  • Measures to reduce the payback periods: The most widely used policy for this around the world is a feed-in-tariff combined with guaranteed connection to the grid, and MEFL believes a properly designed feed-in-tariff – with set long-term and interim targets and appropriate policy levers to allow for adjustment in response to technological advances and to help contain costs if necessary – is the most workable solution. Despite the fact that the existing PFiT is provided on a net basis, we emphasise that a gross tariff at a lower rate is the far superior policy option because it allows consumers to more accurately estimate the benefit they will receive and thus makes it easier for consumers to make informed investment decisions. A gross tariff also provides greater certainty for government when estimating the cost of the scheme. We urge the Government to opt for a gross feed-in-tariff for medium-scale solar as well as for the residential sector.
  • Measures to support industry development: This includes support and funding for training and accreditation programs to ensure the orderly development of a high quality industry. This work should be undertaken in partnership with industry associations such as the Electrical Trades Union and relevant industry training and skills organisations.
  • Measures to support consumers: This includes funding for the provision of independent, accessible and user-friendly consumer information and, while the energy services sector remains relatively immature, funding for community organisations such as MEFL and Embark who already have experience in assisting the community to make informed energy decisions, for example through bulk solar buys for the residential sector, community owned projects such as the Hepburn wind farm, and investigation of precinct scale energy solutions.

MEFL is also keen to work with the Department on addressing the regulatory barriers noted above, including through:

  • Possible legislative amendments to owners corporations laws to ensure that they facilitate medium-scale solar projects.
  • Further investigation of the extent to which the planning framework facilitates and does not obstruct the uptake of medium-scale solar, including issues related to planning permit processes and amenity issues.
  • Further investigation of the potential network costs and benefits associated with increased uptake of distributed energy generation such as medium-scale solar, and how network planning could address any network issues (eg. mapping of network congestion and network areas most suited to the installation of medium-scale systems). However, we note that it is widely accepted that the installation of intermittent sources of distributed generation such as solar panels up to around 18 - 20% of total network capacity is unlikely to cause significant network problems, and Victoria remains a long way away from this level of installed distributed generation.
  • Further investigation of how grid connection processes for medium-scale solar systems should be handled to balance the proponent’s need for certainty and the distribution business’ need to maintain reliable supply, and to equitably apportion associated costs. This would include clear opportunities for renewable energy industry groups and community organisations such as MEFL to participate in the development of these processes.

In relation to the other options identified in the Discussion Paper, MEFL has the following comments:

  • Pilot study of medium-scale solar: A number of pilot studies of medium-scale solar systems have already taken place, including projects at the Queen Victoria Markets, the Flemington Racecourse and the Monarto Zoo in Adelaide to name a few. It is now time to build a broader market for medium-scale systems.
  • Reverse public auction process: While this option may be feasible, it could potentially be too complicated for less sophisticated consumers to participate. For this reason, a reverse public auction process may only be suitable for more sophisticated players, or alternatively may need to be designed in a way that is sufficiently simple to allow less sophisticated consumers to participate.
  • Capital grants or loans and certificate scheme: The upfront cost of medium-scale solar systems (up to several million dollars) can be a significant deterrent to potential customers, and accordingly an appropriate measure to assist with this cost may be of benefit. The Commonwealth RET currently provides some rebate for solar systems, however such support is insignificant for systems above 1.5kW in size (the cut-off point for the Solar Credits multiplier).

Please do not hesitate to contact Eli Court to discuss the issues raised in this submission.

Yours sincerely

Paul Murfitt
CEO