Originally published on CleanTechnica.
By Darryn Van Hout
Australia boasts the highest penetration of residential solar in the world, with one in five households now powered by the nation’s abundant sunshine. While the debate over solar and wind tax credits rages on, the government’s decision to slash various incentives hasn’t affected the ever-rising investment in solar energy. The prevailing strength of the solar industry is thanks to a sharp drop in the initial cost of PV panels.
In spite of this encouraging industry growth, the Solar Credits subsidy, which is aimed at reducing the cost of a residential or commercial solar system, is regrettably set to be phased out in the very near future.
Critics of renewables claim that the energy mix should be determined by deregulated market forces and not the government. On the other hand, supporters of renewable energy argue that tax credits should be extended to initiatives that contribute to CO2 reduction efforts. This conflict has become the force behind the push for increased renewable energy efforts.
Understanding the Solar Credits Subsidy
The Solar Credits Subsidy is primarily based on Renewable Energy Certificates (RECs), also known as small-scale technology certificates (STCs). Generally, these certificates have a value which is dictated by the market.
STCs are currently valued at about $38 each and this price varies depending on the installation locations where they are traded. Previously, STCs have fluctuated in their value, being both undervalued and overvalued on different occasions.
Despite often being referred to as a “solar rebate,” the Solar Credits Subsidy is structured differently than other financial incentives in the solar industry. The financial benefit generated from these certificates is included in the advertised solar package costs and offered as a point of sale discount. Ultimately, this saves the customer the hassle of having to post-purchase the certificates, and also reduces the initial capital outlay.
The number of certificates that come with a solar power system depends on the location of installation and the electricity produced in megawatt hours (MWh) by the system over a period of 15 years (or year 2030, whichever comes first). Over this period, one certificate is estimated at one megawatt per hour of electricity generated over the same period.
For instance, a 5 kW rooftop solar energy system installed in Melbourne (Zone 4) with or without solar battery storage is eligible for 88 certificates. When the certificates are factored in, the system cost is reduced by about $3,344 (88 x $38), which is a substantial amount for small-scale investors.
Small businesses, homeowners, and community groups all qualify for this subsidy. Unfortunately, the level of this incentive is likely to fall soon. And since the deeming period for these certificates is 15 years or year 2030, whichever comes first, in 2017 this period will reduce to 14 years, in 2018 it will reduce to 13 years, and so on.
The Australian solar energy market has grown enough to become cost competitive without the solar energy subsidies, while acknowledging the benefits of these incentives in achieving the CPP goals. Of course, growth in the Australian renewable energy market over the past decade has increased the support for solar power development.
If the status quo of the RET policy remains, what this means is that the deeming period’s first year will experience a drop by almost 7%. The impact will deepen if certificate value drops further.
With the reduction of the incentive on the horizon, and considering the ailing Aussie dollar,making the switch to solar is one of those critical decisions that shouldn’t be left until the last moment. Particularly, since incentive reductions are historically accompanied by a rush on PV systems.