Solar Rebates Are Being Phased Out: So What?

On the face of it, it might feel like 2016 is a year of reckoning for the solar industry, last week we wrote about tariffs being cut across the country, and today we hear that rebates will be phased out as early as 2017. This might sound shocking, given rebates have had such a large influence on the growth of the renewable industry, with some critics saying that it is ‘keeping the industry afloat'. Fortunately, it may not be as bad as it seems.

Rebates have been a topic of contention within the renewable sector. So much so that the government seems to disdain the word itself, opting to call them payments for energy certificates as part of a greater renewable buyback scheme. They were introduced as a financial incentive for consumer-grade solar, in an attempt to achieve Australia's clean energy targets. While most people believe that when you buy solar, the government simply hands you a check, the reality is a little more complex.

Solar rebates were actually created so as to kill two birds with one stone, the first being the slow uptake of rooftop solar among consumers, the second being the enormous amount of pollution energy companies were contributing to the environment. So when you buy solar power you or your installer are awarded a number of small-scale technology certificates. STCs are awarded for every 1000kW your system will produce over a fifteen year period, however, they are handed over upon installation.

The number in which you receive per kilowatt will depend on your zoning. To put it simply, the sunnier it gets, the more STCs you will receive, meaning that central Australian's are awarded ~1.6 STCs/kW whereas Victorians will only receive ~1.18 STCs/kW. This is where things get interesting.

To prove to the government that they are helping to increase the amount of renewable energy being produced year-on-year, energy companies must either create or purchase a set number of STCs annually. Meaning that your certificates have a value and can be cashed in. The price of an STC is dependent on market economics, however, most of the time they go for an average price of $37.

In many cases, your installer will handle everything and simply discount the retail cost of purchasing solar, so as to save you the headache of processing your certificates themselves.

Right now, most homeowners will receive around $2410- $4,500 off a 5kW system, which is a substantial discount, accounting for around 37% of the total cost on average. However, the rebates will be gradually phased out over 14 years starting in January 2017, and finishing up in 2030.

From then on, the number of STC's awarded will decrease by one-fifteenth meaning in five years time, homeowners will only receive as many STC's so as to account for a ten year period of energy production. This will continue on until those who buy solar in 2030 will only receive one year's worth of technology certificates.

Without being able to predict the future of the energy certificate market, it is difficult to tell exactly how much a homeowner will receive in cash to account for one year of renewable energy production. If we use today's average price of $37, the total will amount to a dismal $300 for Zone 1 inhabitants and only $220 for Zone 4 residents.

Despite this, most economists and experts in the field predict that the uptake of solar will dramatically increase by 2030, despite the reduced rebate. In fact, one Stanford Professor Tony Seba, who predicted the rise of the internet, believes that by 2030 we will look back on technologies like internal combustion engines and fossil fuels as 20th societies looked back on the horse-drawn cart.

This is a bold claim, however, he reminds us that the transition to the automobile took a mere 13 years, and in this modern and ever connected world there is no reason to see why a similar feat is not possible today.

He predicts that by 2030 "the industrial age of energy and transportation will be over," replaced by "exponentially improving technologies such as solar, electric vehicles, and self-driving cars."

For example, since 1970 the price of solar has become 154 times less expensive and prices are still falling to this day. In comparison, the price of crude oil, is more or less static, in that a barrel of oil will produce roughly the same amount of power no matter what.

Solar power, on the other hand, sees a 22% reduction in price for every 100% increase in uptake meaning the more people who get rooftop solar, the cheaper it is for the next person. There is no doubt that uptake is rapidly increasing, given that the global capacity of solar increased 100 fold from 2000 to 2013 from 1.4GW to 141GW.

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Seba believes that by 2020, solar power will become cheap enough and efficient enough not only to outpace the production cost of fossil fuels but also transmission cost, meaning it would an impossibility for energy companies to compete.

These figures tell us one thing, the rebates will be of little significance by 2030, therefore the plan to phase them out by then is actually an economically sound policy (unless the government scraps it prematurely). There is no real reason to worry about a decline in subsidised solar when the competition is expected to die out ten years earlier.

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