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Silex Solar submission to the medium-scale solar discussion paper

Medium-Scale Solar Discussion Paper:

Questions for Response

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?

In our² opinion – if we have to define the range from 100kW to 5MW – systems from 100kW to 999kW are of commercial type, and systems larger 1MW to 5 MW justify the terminology medium-scale solar. Further explanation is provided in QU2. Note, the PV capacity refers to the DC generator always.

²Note; Referring to ‘our’, means the opinions from Silex Solar and Solar Systems.

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

The reason for the differentiation is related to interconnection issues, project development and financing activities and type of installation (e.g. roof-top or ground-based).

E.g. commercial systems from 100kW to 999kW target – preferably – the roof-top market, providing an added value to the building (and maybe even the system) owner, e.g. through energy savings (less heat gain in the building), better aesthetics, Corporate social responsibility (CSR) option, etc. Solar (e.g. PV) system up to 1MW can be competitively installed in the built environment, without using valuable land, and providing multiple benefits for the building owner and also for the environment. Suitable PV capacity for the built environment is up to 1MW, or maybe even 3MW (this requires an in-depth study on the available building stock).

We recommend to balance the design of a supportive framework (targeting the PV capacity range from 100kW to 5MW) between the built environment and ground-based solar application, guaranteeing a widespread deployment of medium-scale solar application in Victoria, and not only a mushrooming of ground-based solar applications (solar farms) where best sources are available.

PV in the built environment serves various purposes and provides additional benefits beyond ‘just’ electricity generation, e.g. as with a ground-based PV power generator. To justify a program for this power capacity range 100kW to 5MW, and succeed in a more evenly (widespread) distribution, we recommend splitting the current ‘medium-scale’ solar range into two categories and allocated a target capacity, based on the further policy design.

1. Commercial-scale Solar (100kW to 999kW)
2. Medium-scale Solar (1MW to 5MW)

This will stimulate industrial growth in two different sectors and drive the technology innovations for roof-top and ground-based applications.

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 large-sale solar?

Smaller (e.g. residential) solar systems can be packaged into a house mortgage or paid by personal savings; utility-scale solar power plants require a professional consortium of project developer, EPC contractor, financing institute, and product vendors.

Financing projects in the range of 100kWp to 1,000kWp is often difficult, as high transaction cost incurs and the size is not attractive (yet) for larger financing parties. Commercial solar systems need to be financed with an innovative approach as in Europe successfully implemented.

Similar to systems from 1MW to 5MW power capacity; financing those projects results in high transaction costs – becoming a tipping point in the viability assessment, in few cases – and endless administrative work, e.g. land approval, transmission issues, etc. Unless one can bundle it and reduce the transaction cost, minimize the red-tape issues, or find an innovative approach to finance the project, these will be a key barriers in the successful deployment.

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?

We believe the long-term barriers can be overcome, if an appropriate mechanism is in place and financial institutes went through the initial learning phase and have increased their understanding. Commercial-scale, as well as medium-scale solar application can become of interest for various lending bodies (e.g. pension funds) due to the lower bulk risk factor, as with utility-scale solar applications, and the use of synergies – e.g. with commercial solar application – of the power generator and the use in the building.

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

If solar is considered as CPV, PV and CSP, than one has to add:

• Access to water for cleaning purpose (e.g. for CSP)

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?)

YES, we believe business entities will encounter various additional barriers compared to Gov organisations, e.g. in approval processes, raising funding (risk-assessment of applicant), and other red-tape issues.

QU7: What is the most significant barrier affecting your particular market segment?

We believe a significant barrier can be the potential need for network upgrades, as projects will focus on best resource locations, if a one-fits-all policy (100kW to 5MW) is implemented. To counter the likelihood of network congestion, the program should be split into the two recommended segments (see QU1 and QU2) and create a balanced demand pull from urban centres (roof-top applications) and remoter locations (ground-based applications).

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?

The level of uptake should be in line with the local industry capabilities, to trigger benefits for Australian companies and not a money drain to foreign entities. The design of a policy and associated target needs to be approached holistically, in order to make any significant contribution towards meeting RE and GHG emission reduction targets:

1. Address local industry capabilities
2. Spur new job creation -> green collar evolution
3. Preferential use of locally manufactured products (local content quota)
4. Regional development (across VIC, urban centres and remoter areas)
5. Meet defined RE and GHG emission reduction targets

Considering the current level and capabilities of the local PV industry in VIC and other states in Australia, we believe – as a ballpark figure – an uptake of 20MW in the initial stage, with future annual growth rate of 40%, is feasible and provides a sustainable growth scenario, enabling job creation in downstream business (installation and related services) and upstream business (local manufacturing of solar products and related products for supply chain).

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

• On a State level, the contribution will be small – unless a long-term program is implemented with GW targets.
• For communities, ground-based medium-scale solar applications can provide a stabilizing factor to the supply, especially for remoter communities.
• Commercial-scale solar applications will benefit the decentralized supply structure of the mains, and reduce power-outages and stabilize the local grid.

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

• Commercial-scale solar applications (BAPV) support the development towards decentralized power generation and providing added values to the building owner.
• Small-scale (residential) solar applications serve this purpose too, but on a smaller scale, unless there is a specific deployment program driving the high-penetration.
• Medium- and large-scale solar application (> 1 MWp) – unless applied on a large factory – serve the purpose of electricity generation only and thus, enhance the supply security and reliability of the grid.

The scale (power rating) is one of the factors for differentiation between the four sectors (small, commercial, medium and utility scale), however another important one, is the type of the application, e.g. building or ground-based. This will greatly differentiate the contribution between the four sectors.

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

As per QU8, if a (in terms of manufacturing) viable target is defined and a supportive framework implemented, local manufacturing, e.g. of PV modules or inverters, will follow automatically. Similar industry development has been experienced in Ontario, Germany and the US.

Solar Systems Pty Ltd is manufacturing CPV systems in Victoria since the early 90s and Silex Solar Pty Ltd could consider establishing a small PV module manufacturing in Victoria, providing the market demand justifies the economics for local manufacturing.

As experienced in various other markets; the industry follows an attractive policy. In very few cases (mostly in Asia) the industry develops without a RE/PV policy implemented, because of low cost manufacturing opportunities and special tax incentives availability, but these drivers differ greatly to the current discussion in VIC.

Most products involved in medium-scale (and utility-scale) solar applications could be manufactured regionally. Few exceptions, silica, poly-silicon, wafers, glass, Aluminium frame, which involved high energy demand and may not be viable for regional production. The level of local production can be greatly influenced and stimulated by appropriate clauses in the planned policy, e.g. similar to the Ontario FiT program, where a 60% local content is mandatory for participation in the program (for systems larger than 10kW and connected after 1st Jan 20112).

²Ref: http://fit.powerauthority.on.ca

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?

• Supply of related services required, if available -> difficult to quantify without indication of community capability.
• But, the stronger the focus on the local content (see QU11) the larger the benefits for the community engagement.

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

A performance-based incentive model will provide long-term opportunities for the community to be engaged, especially with a focus on the use of local products, and mandate a minimum local content provision to provide an incentive for locally made products.

Any capital-based incentive model will not result in significant benefits for the community, and if, than short-term only.

QU14: Are there any further broad policy aims which should be considered?

A potential policy framework should not only address the deployment of the solar technologies in terms of power (or number of systems), but also include components such as:

• Local industry development, through capacity building programs, incentives, special tax rebate or bonus programs and maybe even levies on imported products.
• Awareness and training programs for the public to benefit, e.g. new jobs, new business opportunities for available services, investing in solar, etc.
• Regional development by tuning the available capacity to certain areas, through a FiT mechanism.

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?

• Attractive (IRR of 10 to 15%) incentive scheme (FiT) in place
• Long-term contracts (20 years) available

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

• Attractive (IRR of 10 to 15%) incentive scheme in place
• Long-term contracts (20 years) available

Additional:

• Bankable products available
• Tax holidays for revenues generated from MSS power plants
• Access to low-interest debt finance
• CPRS scheme

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)?

• Corporate social responsibility -> green image (target group: business)
• Green star for buildings -> commercial-scale (target group: business)

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

• Attractive (IRR of 10 to 15%) incentive scheme in place
• Reasons: viable project business, access to debt finance

Section 6.3: Potential for Medium-Scale Solar in Victoria

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

The opportunities are manyfold and can address environmental, or industrial or social issues.

If a long-term sustainable framework (with a focus strategy for local manufacture) is implemented for the uptake of medium-scale solar (including commercial applications from 100kW to 999kWp), than the industry will react accordingly, creating new jobs (in installation or preferably manufacturing) in the region, hiring related services (M&E and C&S, construction, etc.), create new business opportunities benefitting mainly regional SMEs and establish local manufacturing, proving the market demand justifies a local set-up.

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

The differentiation has to be done with focus on the various solar technologies and the power capacity as per our two tables in QU26.

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)?

Unfortunately, today over 60% of the system cost is related to imported systems components, as Australia has a very small local PV manufacturing industry. Silex Solar Pty Ltd is the only larger-scale c-Si PV cell and module manufacturer, and Solar Systems Pty Ltd with our proprietary solar technology is a world-leading CPV manufacturer located in Australia.

An appropriate policy with clearly defined targets and a supportive incentive program in place can spur local industry development and reduce the dependency on imported product, providing a local content clause is addressed in the policy. Today, various states (e.g. in the US and Canada) and countries (e.g. China, Malaysia, UK, France) design their RE policy in the light of stimulating the local industry and include a preferential treatment either by a bonus FiT rate for locally produced product used or by mandating a local content clause.

This is legally acceptable, as given the case of the EU Trade Union losing a dispute over the local content clause in the Ontario court.

We highly recommend addressing the use of locally manufactured products and transforming the incentives provided into local jobs.

Although the impact of imported products for medium-scale solar projects will be not a barrier – as it is already the case of the Australian PV market today, and the market is booming – but a key objective of a Medium-Scale Solar policy should be to stimulate local industry development and keep the Dollars spent in the country, leveraging through local services provided or local production of products in demand, and creating thousands of new jobs.

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?

The labour requirements are not linear with the various installations, e.g. 1,000 * 2kWp PV installations can result in approx. 8,000 workman-hours, whereas a 2MW ground-based grid-connected PV system can result in less than 6,000 workman-hours, providing an experienced crew is available. Roof-top PV applications, e.g. 10 * 200kW, are between 6,000 to 8,000 workman-hours.

Thus, more smaller-scale (residential) solar applications will create more workman-hours, than commercial and medium-scale solar applications. However, the skill set for commercial and medium-scale solar applications will be expanded and it provides additional benefits to labour development than e.g. deploying 1,000 * 2kW PV systems.

We recommend not comparing these two very different markets and drawing conclusions based on above provided figures. Labour density is one factor, skills development; requirement of additional services – which are not being captured above – and the potential of local manufacturing will turn the favour towards commercial-scale to utility-scale solar applications.

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

• Appropriate codes / standards need to be available or published. E.g. AS4777 needs to be revised to address commercial-scale, medium-scale and even large-scale solar applications.

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

YES, we recommend having a separate qualification differentiating residential installers and MS to LS solar applications. The requirements are rather different to small-scale solar application, and companies need to redo their training, with a specific focus on larger power ratings. Accreditation should reflect the training courses participated and ensure expertise and quality is provided.

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

New opportunities will be available for linesman, civil engineers, M&E engineers, also many new trainers, independent solar experts for due diligence process, etc.

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?

Transmission issues:

• Needs to be discussed with NEM on a higher level.

Local industry development issues:

• Needs to be addressed as preferential clause in the policy.

Policy issues:

• Design a comprehensive supporting framework, defining clear targets, mechanism to reimburse produced electricity generation, duration, review procedures, and local industry stimulation, etc.

As experienced globally, a FiT mechanism with a viable (but not over-attractive) FiT rate, is the most successful and proven scheme in various countries and states. However, the FiT rate, the length of reimbursement and if a program is capped or uncapped, are very critical factors to make a program successful or a failure.

During the industry consultation workshop (4/11/2010) the option of reverse auctioning (bidding process) was discussed. Auctioning (bidding) helps the Government to stretch their resources and ensures that the program is kind-of market driven. However, the scheme has significant flaws, e.g. the various solar technologies have to compete versus each other, but should not, otherwise this would be a RPS scheme, which often favours the lowest cost power generator only. And the lowest bidder is not a guarantee for reliable service over the 20 year life-time of the solar power application, because lowest cost products can jeopardize the system quality and can result in a negative impact for the program. Also, the power capacities need to be allocated accordingly and not one auction systems across the few hundred kW to MW power systems. A 250 kWp roof-top project should not be part of the same auctioning process as a 4 MW ground-based PV system. Auctioning seems attractive (from the point of view from the Government) but requires serious administrative effort and monitoring to achieve success.

On the other hand, FiT is well proven and easier to manage than an auction process. A FiT requires a comprehensive design with well-defined categories and review periods, but once agreed and endorsed, it can be swiftly and successfully executed.

We propose a well-defined gross FiT scheme (over 20 years) according to following two tables:

Commercial-scale (100kW to 999 kWp)	PV	CPV	CSP
Capacity: 100kW to 499kW
Applied in the built environment (BAPV)	44 c/kWh
Ground-based	39 c/kWh	23 c/kWh	20 c/kWh
Use of local manufactured PV modules	10% adder applied to FiT rate
Use of local manufactured PV inverters	5% adder applied to FiT rate
Capacity: 500kW to 999kW
Applied in the built environment (BAPV)	43 c/kWh
Ground-based	38 c/kWh	23 c/kWh	20 c/kWh
Use of local manufactured PV modules	10% adder applied to FiT rate
Use of local manufactured PV inverters	5% adder applied to FiT rate
Minimum required domestic content level	40%

 

Medium-scale (1MW to 5MWp)	PV	CPV	CSP
Capacity: 1MW to 1.99MW
Applied in the built environment (BAPV)	37 c/kWh
Ground-based	32 c/kWh	20 c/kWh	17 c/kWh
Use of local manufactured PV modules	10% adder applied to FiT rate
Use of local manufactured PV inverters	5% adder applied to FiT rate
Capacity: 2MW to 5MW
Applied in the built environment (BAPV)	35 c/kWh
Ground-based	30 c/kWh	18 c/kWh	15 c/kWh
Use of local manufactured PV modules	10% adder applied to FiT rate
Use of local manufactured PV inverters	5% adder applied to FiT rate
Minimum required domestic content level	50%

Note; the figures are of indicative nature only and need to be verified (and finalized) during the design of the FiT policy.

The proposed FiT schemes needs to be degressive (10% per annum) and be reviewed at least annually or every 6 months. And as highlight in the questions previous we recommend to have a clause to address the use of locally manufactured products, e.g. 50% for solar systems larger than 1MW and 40% for solar systems less than 1MW, to stimulate job creation and leverage on the Dollars invested.

FiT rates need to address BAPV applications versus ground-based solar systems, which will be cheaper to build and also located in the best available resources centres. BAPV systems will be located in urban areas achieving a widespread regional development and not a focused installation boom in one smaller area (e.g. Mildura), as it would happen with ground-based medium-scale solar applications.

With these parameters (FiT rate for the various categories) one can nicely tune the regional development and minimize a boom in one place (and one technology) only.

Finance issues:

• Several high-level workshops inviting financial institutions and providing awareness and capacity building.

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?

Medium-scale CPV projects:

Hermannsburg, NT	190kW
Yuendumu, NT	240kW
Lajamanu, NT	290kW
Umuwa, SA	350kW
Windorah, QLS	175kW
Bridgewater, VIC	140kW

 

Further information is available from Solar Systems Pty Ltd.