What does the outlook of the solar energy market look like?

Published: 19 July 2018

The solar energy market is an evolving industry that continues its development through the application of new technologies, trends and investments. But the question is: what does the future of solar energy look like?

The idea is to aim for a sustainable future in which renewable energy like solar can have the biggest share in the electricity generation mix.

The commitment of a few countries to solar has spread out worldwide, leading to an achievement of a maximum of nearly 300 GW in installed capacity by 2016, a projection and trend that follows an exponential growth over the last decade, as can be seen below. 

exponential growth over the last decade of solar energy

Moreover, this rise in solar power installations is directly linked to a reduction in solar energy costs. 

For example, the average cost for a utility-scale solar system was 5,000 USD/kW back in 2009. In 2018 the cost reaches only 1,500 USD/kW, a reduction of nearly 70% in nine years

The projections estimate that costs will continue to drop down to 800 USD/kW by 2025: 

Estimates for the future of solar energy

Such a reference is a high motivation to go solar, especially when the solar resource available in the country is good enough to consider it, as is the case in Australia.

The advantages of going solar

Australia holds an amazing potential for solar energy expansion, being one of the most promising solar energy markets in the world. 

Moreover, the development of solar presents several advantages that are generally considered as potential benefits apart from the contribution to zero carbon emissions.

The first one is energy security. By harvesting its own energy production, Australia wouldn’t need to depend on external fossil fuels coming from high risk regions like the Middle East or depend on chokepoints like the strait of Malacca to receive oil. Therefore solar energy enhances our energy independence.

The second is related to the national electricity grid itself. Fossil fuels are by nature centralised production centres, generally isolated from populated regions, meaning there is a high cost for infrastructure and transmission to transport the electricity to consumer centres. 

Distributed energy resources like solar energy allow the grid to rely on different points of power injection to the grid directly from the consumers location, saving costs in transmission and at the same time providing better reliability and grid operation performance to the grid.

Finally, the third one is related to the social and market aspect, as thousands of jobs and companies can be produced out of the business of solar power and other renewable resources. Particularly for Australia the achievable benefits of job creation are very promising as can be seen below:

The future of solar energy, 50% renewables for 2030

Development in 2018

Other benefits can also be achieved with solar power and assuming the costs continue their descent, we can expect to see more solar panels on Australian rooftops in the future. 

Actually, it is expected that residential installations and large-scale power plants will double the current Australian solar power capacity in 2018 alone, as an extraordinary amount of solar installations are expected by the end of the year in New South Wales and Queensland. 

As an overview, almost 30 industrial solar farms are expected to be introduced this year, 10 in NSW and 18 in Queensland. 

This amazing deployment of solar energy installations is related partially to the drop in solar prices, but is also due to the end of the Renewable Energy Target in 2020.

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The challenges ahead for the solar market

One of the most important challenges that renewable energy faces worldwide is the panorama on the energy policy after 2020. 

For example, the European Commission established renewable energy targets in all state members by 2020. Thus, projects in Europe rush to meet this due date as there is uncertainty about the upcoming projection and support of government agencies for renewable energy. 

Each energy department of every member needs to present their energy mix for the next period up to 2030 where the target of the European Commission is to achieve 27% of total energy demand using renewable energy sources. 

Still, hardly any Member States have yet submitted their energy plans, creating uncertainty for investors with projects in mind.

The same issue arises here in Australia with the end of the Renewable Energy Target (RET). 

The RET is a Federal Government market incentive which encourages the uptake of renewable generation including residential, commercial and large-scale solar power installations. 

This scheme ends in 2020, meaning that some uncertainty will soon be added to the market. 

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However, it is important to notice that, as any market incentive, it is not meant to last forever, but only until prices are competitive with their rivals, fossil fuels. 

Such competition is widely changing, but with current solar prices dropping, competition is now possible, even with lower fossil fuel prices.

The key of competition between solar and fossil lies in two main aspects. One of them is related to the available solar resource. If the available solar resource is good then the probability of achieving large amounts of electricity production over a year are better. 

Fortunately in Australia there is an abundance of sunlight and thus, solar energy resource, making it an attractive and promising investment. 

The second aspect is related to the operational costs of power plants

Among other things, these costs are related to the energy source cost of the power plant which in the case of solar is technically zero, while in the case of fossil fuel is related to oil prices. 

Yet, oil is actually not directly used in the production of electricity. Actually only 5% of electricity production in the world comes from oil according to the World Bank. 

Also, we must remember that fossil prices are volatile by nature, which presents uncertain investment risks in the short-term that are undesirable for anyone, especially when the existence of other sources of energy could threaten production. 

On the other hand, solar energy is not volatile at all because the major investment is in the upfront capital costs. 

We must also remember the first potential benefit of solar energy and other renewables – improving national energy security. 

Energy security is something that Australia cannot completely achieve when the principal characters driving the oil market are foreigners like the US, Russia and OPEC Members

Therefore, the projection aims for Australia to continue including solar energy as part of the energy mix over the next decade.

The solar market outlook in Australia

Solar market development in 2017 was incredible. 

Residential scale solar installations were estimated to be responsible for 20.3 percent of Australia’s clean energy generation and produced 3.4 percent of the country’s total electricity, with more than 1.1 GW installed and the number of accredited solar installers being 4312 more than in 2016. 

Moreover, Australia was the seventh world solar PV capacity installer in 2017 and the fifth country for total capacity per inhabitant.  As you can see, it seems that the numbers for solar in Australia are good so far.

However, there is new change on the horizon for the renewable energy policy of Australia that should be examined towards 2030 with the proposed National Energy Guarantee (NEG). 

This policy mechanism proposes to retain existing resources and encourage new investment within the National Electricity Market while at the same time ensuring low emissions requirements and reliable operation of the power grid. The mechanism consists of two sections, the reliability guarantee and the emissions guarantee.

The reliability guarantee demands that electricity retailers must invest in sufficient dispatchable energy resources like hydro, battery storage, demand response, solar and wind, but also coal and gas, in order to cover electricity demands during peak hours in case of an unpredicted shortfall in generation. 

Regarding the emissions guarantee, the mechanism demands that electricity retailers meet a defined emissions level for purchased electricity in the wholesale electricity market. The policy would not act as a subsidy or tax for renewables.

That way the mechanism forces retailers and large consumers to be responsible buyers and sellers of electricity in Australia without depending on a subsidy to turn a profit.

According to the Australian Government the purpose of the scheme is: “.. to deliver affordable and reliable energy for households and businesses without any subsidies, taxes, emissions trading schemes or carbon prices.”

Government measures are to deregister energy providers if they do not meet these regulatory obligations.

The underlying issue behind this scheme is that it does not support a subsidy or incentive for any renewables, including solar. 

This means that solar energy would need to stand against coal and gas in the market with no tariff to support the green energy. 

Given what we have discussed, solar energy in Australia should be able to compete with fossil fuels without an energy incentive, but what about the other renewable sources?

The Malcolm Turnbull government insists that renewables can already be competitive with other sources with no subsidy and argues that Australia would still meet its Paris Agreement obligations under this scheme.

However, the Clean Energy Council insists that the scheme could mean a great step backwards for renewable energy installations in Australia towards 2030. 

The reason is that according to the Energy Security Board, renewable energy will account for 28-36 percent of total energy generation by 2030 under the NEG (including hydro and rooftop solar). 

Such numbers would suggest somewhere between 250-670 MW large scale renewable projects every year between 2020-2030. 

When considering that nearly 4300 MW of renewable energy projects were committed or under construction by 2017, this would mean a drastic reduction in renewable energy projects:

Solar projects: New energy projects under NEG


As discussed earlier, one of the most important challenges ahead in the next decade for renewables not only in Australia, but also in the world, is the policy context. 

After a decade of deployment in renewables across the world, the question that remains is, are renewables already competitive enough with other fossil fuels to dispense with any incentive?

The answer varies depending on the country and type of technology as the nature of renewables is directly related to the available natural resource in the country. 

That means that soon we could see a loss of incentive and deployment for all renewables in every high-income country, where only the most competitive, reliable and mature technologies would have a share in the energy mix.

The NEG still needs the approval of all the States and Territories in Australia to establish the policy at federal level. The final decision is to be made on August 2018 and it will drive the future of renewable energy policy in Australia. 

The Australian solar industry will be able to endure a competitive environment as it is one of the most mature renewables in the market. But, will other renewables such as windpower survive?

Next Steps…

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