Australia: Here comes the sun: Funding for solar energy will fast-track Australia's renewable future

A global surge in solar investment is driving new growth in Australia's solar sector. Costs are falling and storage technology is improving, making solar energy an emerging force in Australia's clean energy future.

At a global level, energy experts are predicting large-scale solar photovoltaics (PV) to be the least-cost option for power generation almost universally by 2030.1

Locally, investment in Australia's renewable energy industry is forecast to exceed A$40 billion over coming years. This translates to an estimated 30-50 major projects comprising at least 6000MW of new generating capacity to be built by 2020.2

Australia's solar industry is also backed by a number of key funding initiatives. The result is a bankable investment environment that will enable investors and project proponents to harness Australia's abundant solar resource.

THE RENEWABLE ENERGY TARGET (RET)

The RET is an Australian Government scheme designed to ensure that at least 20% of Australia's electricity supply is sourced from renewable energy sources by 2020.

Administered by the Clean Energy Regulator, the scheme has two parts. The large-scale RET (LRET) aims to increase large-scale renewable energy generation capacity, including solar farms. The small-scale RET supports smaller projects, such as household solar panels and hot water systems.

In June 2015, two particularly important legislative changes were made to the RET scheme to fast-track Australia's transition to clean energy.

First, the LRET is set at 33,000GWh of electricity from 2020. This is more than 20% of Australia's anticipated electricity consumption for that year. Second, the RET scheme will remain unreviewed (and thus unchanged) until at least 2020.3 This certainty brings important stability to the renewable energy industry, and provides investors a strong foundation for investment.

GOVERNMENT FUNDING FOR RENEWABLES

The LRET of 33,000GWh means substantial investment in renewable energy generation capacity will be needed over the next five years.

Despite the impressive progress solar PV has made over the past few years (costs have fallen by 80%, and average annual capacity growth has reached nearly 50%),4 access to upfront financing continues to be a barrier to investment.

Recognising this, the federal government has committed funding to support the development of large-scale solar projects around the country. Of particular significance are the funding initiatives delivered through two government agencies – the Australian Renewable Energy Agency and the Clean Energy Finance Corporation.

The funding is focused on making solar more cost-efficient and economic. The projects selected for funding will be flagships to drive further innovation in solar across Australia.

Australian Renewable Energy Agency (ARENA)

ARENA has committed A$100 million to the development of large-scale solar projects around Australia. Funding will be directed to solar PV projects that have a generation capacity of 5MW or more.

The program aims to develop an additional 200MW of large-scale solar capacity in Australia, and achieve cost parity between solar and wind energy projects by 2020.

Projects will be selected via a competitive funding round, where major solar PV project proponents can bid for grants of up to A$30 million. The funding is anticipated to result in the construction of between 4 and 10 new large-scale solar farms across Australia.

Clean Energy Finance Corporation (CEFC)

CEFC is committing to a A$250 million financing program to support solar projects with a size of 10MW or more, and with loan requirements of greater than A$15 million.

This long-term debt financing program will plug funding gaps and assist projects to become economically viable.

The funding is also designed to encourage private sector investment from banks, and other institutions, as the renewable energy sector expands and develops a track record of proven credit and operational performance. For example, the Commonwealth Bank, in partnership with the CEFC, has launched a specialisation loan stream for investment in renewable energy infrastructure and equipment.

QUEENSLAND FUNDING INITIATIVES

The Queensland Government has committed to building a local renewable energy industry, and has announced a renewable energy target of 50% of the state's electricity needs by 2030.5

Through its Solar 60 scheme, the government will support up to 60MW of large-scale solar capacity by providing a long term revenue contract to successful Queensland projects.

Queensland's funding scheme is closely aligned with ARENA's program, with Queensland developments to be identified from the list of projects successful in ARENA's solar PV competitive funding round.

A SOLAR BOOM

We expect a boom in large-scale solar projects, triggered by the funding to be made available by ARENA, CEFC and the Queensland Government's Solar 60 program. Parties interested in applying for funding should be aware the application processes differ for each of the funding mechanisms.

Australia is creating the right environment to transition towards a cleaner and more sustainable energy future. For solar, the future is looking bright indeed.

Footnotes

1 Bloomberg New Energy Finance, 'New Energy Outlook 2015 – Executive Summary' (2015).

2 Clean Energy Council (CEC) (2015), media release; CEC briefing paper.

3 Minister for the Environment and Minister for Industry and Science (June 2015), media release.

4 REN21, 'Renewables 2015 – Global Status Report' (June 2015) and press release; IRENA, ' Rethinking Energy' (2014).

5 Minister for Energy and Water Supply (June 2015), media release; Queensland Government, DEWS (2015).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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