Pending legislation on solar incentives in the Australian state of New South Wales (NSW) is having immediate negative impacts on foreign investments, according to industry experts.
Sydney-based Solar Choice, a commercial solar power broker, announced yesterday that the state’s plan to retroactively reduce the NSW solar feed-in tariff has directly resulted in the loss of millions of investment dollars from overseas.
“Already we’ve seen overseas investors shake their heads in disbelief at O’Farrell’s announcement, pack their bags and leave Australia altogether,” said Angus Gemmell, managing director of Solar Choice. “They’ve decided that any State or Territory in Australia is too risky after NSW’s retrospective plans,” he added.
NSW state premier Barry O’Farrell announced earlier this month that the state would decrease the feed-in tariff paid to existing small-scale solar projects from 60c per kilowatt hour (kWh) to 40c per kWh as of 1 July. The feed-in tariff is the guaranteed rate electricity companies must pay to renewable energy providers that feed electricity into a regional or national power grid.
In addition, the incentive programme, launched in 2009 as the Solar Bonus Scheme, will be closed to new applications until its expiration in 2016.
The legislation is still in the approval process. According to a Tuesday announcement by Premier O’Farrell, the final version will still be retroactive, but may contain measures to compensate some scheme participants for their losses.
Dubbed a ‘policy failure’ by the government, the scheme experienced six times the expected uptake of the programme, in part due to lower costs for solar equipment. The state has announced that the final cost of the scheme, originally estimated at A$202 million, could amount to A$1.9 billion.
Premier O’Farrell’s action marks the second attempt to reign in the costs of the scheme. Last October, to protect against sharp rises in electricity rates, the Keneally Labor government decreased the tariff for new applicants from 60c per kWh to 20c per kWh and placed a 300 megawatt cap on the total capacity of solar projects accepted into the scheme. The 20c rate will remain unchanged by the recent decision.
110,000 households will be affected by the policy change, a move that surprised many because of its retro-active nature.
“These investors were prepared to plough multi-millions into the Australian economy. They never expected to encounter retrospective changes in a developed country such as Australia. It will require the legislation being voted down to have a chance of luring them back,” said Mr Gemmell.
Solar Choice had been working with several large international investors, including Toronto based Plan B Energy.
Plan B Energy director Ali Lila said that legislative risk was the last thing the company expected to find in Australia. “Almost immediately after Premier O’Farrell’s decision, our bankers raised the risk profile of all our projects in Australia which rely on a contract with a State or Territory. The net effect is that A$20 million worth of investment in solar equipment, construction and maintenance jobs in the ACT will not be going forward.”
The NSW policy change applies to projects of homeowners and small business owners only. But national level solar incentives for large-scale projects took a hit earlier this month when the federal government released budget papers containing A$220 million in cuts to the national Solar Flagships programme. Announced in 2009, the Solar Flagships programme is meant to provide A$1.5 billion to fund up to four large-scale solar power stations.
Industry experts say the policy changes and funding inconsistencies are creating an unfavourable investment climate for Australia.
“Energy and infrastructure investments have long time horizons and the best thing governments, including Premier O’Farrell, can do is create stable conditions for the industry in which we can operate,” said Ms Lila.
SolarBusinessServices, a renewable energy consultancy based in NSW, told Eco-Business its clients have expressed similar views. Director Nigel Morris said of the policy change, “It certainly it adds a huge risk factor which may not be present in other markets.”
He added, “I genuinely hope we can convince Premier O’Farrell to reconsider, but clearly the PV industry and consumers are an easy target for Premier O’Farrell to demonstrate his strength on. “
