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Solar power, electric cars: what’s in store for 2017

By David Leitch, www.reneweconomy.com.au

Only a few of the important events in 2016 and their implications

Although many will think of the Trump election when they think of 2016, we are going to ignore that in this note. Colour me ostrich. Below we look at only a couple of the trends that we focused on this year and make a few bold predictions about 2017.

A large increase in the global land surface temperature

The 12-month moving average of  the global temperature land sea surface anomaly stands at 0.99 degrees C, or 7 per cent higher than the 20th century average temperature of 13.9 degrees C.

The 20 year (240 month) moving average which smooths the data but at the cost of a significant lag is up 4.3 per cent. Using an excel generated polynomial trend puts the rate of change at about 5 per cent with a 79 per cent correlation coefficient. This is serious. As anyone with an interest knows, and that should be most of us, the global average hides the polar extremes.

Global land sea temperature anomaly. Source NOAA

Global land sea temperature anomaly. Source NOAA

Global PV volumes rocketed up an unexpected 40 per cent to something like 75 GW driven by the extraordinary growth in China, where something like 22 GW were installed in the first six months. A very, very sharp slow in H2 will flow into 2017, which may well be the first year in a decade where global PV volumes fall. Much will depend on the ROW including India, South America and Japan. There are two main points to bear in mind:

  • Global PV volumes drive the ‘learning rate’. In a wide range of industries you can show that doubling volumes leads to a 15-25 per cent fall in unit costs. Its going to be way harder to go from 75 GW to 150 GW a year.
  • That said China during the boom years was putting in 100 GW a year of coal powered electricity. There is no real reason why it couldn’t do the same in PV if it wanted to. And there is the rub:
  • What global PV forecasts don’t make explicit is that the forecasts depend on Government policies, these can be renewable subsidies or taxes and thermal subsidies or taxes. Hard to predict changes in those policies produce dramatic changes in demand. Our view remains that renewables are a major tool in the decarbonization policy maker kit and so the rule changes will on average be favourable. As such the picture portrayed in the graph below will hopefully be conservative.

In turn this drove down the cost of solar power in various markets to prices way below those achievable in Australia. Once again the AEMC and the Federal Govt. should be asking themselves this question:

What are we doing so wrong, that the rest of the world can be so much cheaper than Australia on renewable energy?’ US $50 MWh is probably the global bench mark for high irradiation areas like QLD.

Electric vehicle sales grew strongly on the back of a doubling in sales in China but the real news was 400k orders for Tesla model 3

At the end of September global year to date sales were 518K which annualizes to 690K for the full year and compares with 540K in 2015.

However perhaps more importantly we saw the Tesla Model 3 with 400k people putting down deposits in 2016 for a car they can’t get until 2018. Those deposits themselves imply more than 50 per cent growth in the global market.

Secondly, we saw the Chevvy Bolt, a similar spec, although less flashy, car to the Tesla Model 3 start deliveries in California. We think Chevvy can probably sell as many of these cars as it chooses to make with the question in the industry being whether this is a ‘compliance car’ built just to satisfy ZEV policy in California and 9 other USA states, or whether General Motors really sees it as part of its mainstream future.

Lithium battery manufacturing capacity jumping

The jump in manufacturing capacity will greatly assist growth in demand and keeping price down. Of those expansions we think stage 1 of the BMZ facility was online earlier in the year, the Tesla factory will open incrementally (an internal learning curve, BYD will likely meet its expansion target in our view).

Residential battery offerings exploded in Australia, but sales are still slow

www.solarquotes.com.au  publishes this great table showing 36 – count them – different brands of household storage products. Of those about 33 are lithium based, plus one flow battery and one or two aqueous, hybrid ion types.

Enphase claims to have orders for 80,000 units (about 80MWh)  for its product, and if this is correct it will be a major event by global standards and also a meaningful impact in the NEM.

Outside of the offgrid market though we will be surprised if industry sales in 2016 were much above 5,000 units, say 20-25 MWh.

Still by year’s end there were four  products with a capital cost (unit only, not necessarily including installation, and mostly not including inverter) that are under $1,000 KWh.

Of those the Tesla Powerwall 2 (not yet available) and the GCLE-KwBe 5.6 are on the point of being economic. Prices for some products have already fallen by about 15 per cent or more. The GCLE-KwBe 5.6 is in stock right now at the distributor 1stopwarehouse.com.au but Google doesn’t show any Sydney based retailer/installers.

In our view the criteria for being successful in this market are simple:

1 Make the installation as simple as possible. A bundled inverter will be the winner over time in our view.

  1. Keep the size down and make the product consumer friendly.
  2. No safety issues.
  3. Get the cost per cycle down under $0.30 KWh and really under $0.20 KW

Residential solar prices

www.solarchoice.com.au provides excellent data on the cost of installing rooftop PV. The current cost is around $1.20-$1.30 watt after getting the STC credit. There is a 1/15th reduction in the STC credit in 2017 which may increase prices modestly. These prices are down about 20% on PCP with most of that fall happening in the first half of the year.

Solar + storage: Same question, new answers

Based on the discussion above it ought to be possible to install 4Kw of PV and 5.6 KWh of storage for about $10K in Sydney!!! Only 18 months ago this would have been closer to or even above $20 K.  Your author hasn’t verified this number from an accredited installer, but I plan to.

The PV system is going to produce about 14 KWh per day on average enough to charge the battery and leave about 8 KWh over for self consumption ignoring efficiency losses.

Average household consumption in NSW is about 6.5 MWh but there are plenty of larger consuming houses of, let’s say, 8 MWh per year or around 22 KWh per day. If we take AGL, their online offer is in the region of $240-$280 MWh depending on the city of which grid access (fixed charge)  is around $300-$500 per year.

If we back the fixed access out.  AGL is charging around around $190 – $238 MWh for consumption depending on City.

We think that even allowing for a $3,500 battery replacement after ten years (and cost will surely be lower then) that this system can produce an internal return of around 7 per cent. If you can include the PV+storage in your mortgage, and why not, it seems to be a winner.

Of course these assumptions might be optimistic. On the other hand we haven’t allowed for any inflation in grid delivered electricity price. Prices will be up 8% next year, just ask the AEMC.

We’d go further and say it must be at the point where volume builders on planned estates will start to see the benefits.

* David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years.

 


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