The latest batch of large-scale solar projects have revealed a "new cost paradigm" for the technology in Australia, although costs remain more than double the lowest-cost projects overseas, experts say.
Construction contracts awarded to Downer EDI for the Clare solar project and to RCR Tomlinson for the Sun Metals Solar project, both in Queensland, demonstrate a further decline in costs per unit of power produced that makes the projects markedly cheaper than the first utility-scale solar projects built here, said Gero Farruggio at Sustainable Energy Research Analytics (SERA).
"The costs are half of what the the capital intensity was of the ones that are on stream and were built over 2015 and 2016," Mr Farruggio said. "It's a huge step forward for the industry and for the future of solar in Australia."
The progress on costs has been more rapid than expected, and large-scale solar projects are now becoming competitive with wind power and getting "very close" to wholesale electricity prices excluding large-scale generation certificates (LGCs), said SERA director Ben Willacy.
"It really won't be long before solar projects can compete in Australia without a subsidy and without necessarily relying on LGC revenue," Mr Willacy said.
Mr Farruggio said that while the cost of solar panels was falling worldwide, increased competition among contractors was also helping improve the economics of local solar projects, with about 15 EPC [engineering, procurement and construction] contractors now fighting it out for work as opposed to just one a few years ago. Work has also slowed in other areas such as mining and energy, helping soften construction costs, while expertise in the area has grown.
Solar developer Fotowatio Renewable Ventures late last month awarded a $190 million construction and operations contract for the 100 megawatt Clare project near Ayr to Downer, after striking a deal last May to sell power from the plant to Origin Energy.
RCR Tomlinson said late December it won a contract worth more than $155 million from Korea Zinc's Sun Metals subsidiary to build a 98.5MW solar project at a zinc operation in Townsville. RCR previously worked on AGL Energy's Broken Hill solar farm.
A wave of further announcements on construction contracts is expected by the end of the month as the projects that were selected for funding under the Australian Renewable Energy Agency's large-scale solar funding round move towards financial close. Those 12 projects, spread across Queensland, NSW and Western Australia, are expected to unlock almost $1 billion of commercial investment.
SERA calculates the capital intensity of Clare at $1.78 per watt of capacity, and of Sun Metals Solar at $1.57 per watt. The firm says that project capital is coming in well below the spending estimates published as part of the recent large-scale solar project funding round by the Australian Renewable Energy Agency.
But high local labour costs and a relative lack of development expertise means Australian projects still require higher power prices to break even compared to the most competitive overseas projects.
SERA calculates the most competitive new project in Australia has a break-even price of $69 per megawatt hour, compared with $US29 ($38.75) per MW/h seen at the most economic ventures in Chile and Dubai. That breakeven price includes all cost recovery including financing and any grants, and delivery of a 5 per cent return.
The solar power projects will contribute to rising investment in clean energy in Australia thanks to the 2020 Renewable Energy Target. Investment in the sector surged 49 per cent last year to $US3.44 billion, bouncing back after two weak years thanks to renewed confidence in the large-scale RET, Bloomberg New Energy Finance said in a report on Friday.
Last year's increase in investment bucked the global trend, which showed a global slowing in the sector, and was driven by a rise in large-scale project financing which rose to $US1.98 billion, BNEF said. Still, investment in large-scale renewables projects will need to double if the 2020 target is to be met, the firm found.
