Australia cuts solar subsidies, and not before time

Before anybody denounces me as being “anti-solar” I want to put this on the record: I own 16 solar panels, a largish inverter, and because the system was built in the days before grid-connect arrived in Australia, a decent-sized bank of batteries.

Australia is now host to a lively – in fact, heated – debate over the way governments are winding back various solar power subsidies. Last year, the NSW government reduced the “feed-in” tariff that consumers would be paid for power coming from their solar panels; this month, the federal government cut the subsidy it will pay for installing solar power.

That subsidy, which peaked at more than A$6,000, will now be around A$1,200 for a 1.5 kW system.

That is, of course, a trigger for doom-and-gloom statements from interested parties, environmental lobbies, and the solar power industry – but I wonder whether things are as bad as they seem.

One thing that people forget is just how far the price of some solar components has fallen in recent times.

I have on hand a 2008 price list from a solar components supplier. In that price list, a 130-watt panel from Kyocera costs A$1,100. Today, from the same retailer, the best price is under A$800 – a fall of nearly 30 percent in just three years.

That is a pretty dramatic reduction in price – not so much as you might expect if you were accustomed to the computer industry, but significant. And that price deflation has happened in the presence a significant subsidy, which would tend to put a floor under prices.

The removal of the subsidy should tend to drive down prices. Retailers need to keep the stock turning over, and if the prophets of doom are correct, they will have to do so in the face of bankrupt stock hitting the market sometime soon.

Of course, panels aren’t all there is to a solar installation. The other big-ticket items are inverters (grid-connect or standalone, depending on system type) and batteries (for off-grid systems).

Grid-connect inverters have seen some small price deflation – about 10 percent; standalone inverters haven’t fallen at all; and battery prices have risen. Note that standalone inverters and batteries are characteristics of off-grid solar, which doesn’t attract the same government support as grid-connected systems.

All this combines to suggest to me that the market dynamics here are more complex than “subsidy equals success, no subsidy equals disaster”.