Few analysts expected 2011 would grow far beyond 2010’s bumper 360 megawatt (MW) year, which was itself 350 per cent growth upon the year before. 2010 was assisted to this figure by 50 MW of the tail end of $8,000 rebate work, and changes to the New South Wales Solar Bonus Scheme were destined to affect 2011 figures. And yet by the end of May, installations have already reached at least 275 MW, with the possibility that 350 MW may already have been installed within the first five months of the year. By way of comparison, the industry had installed 61 MW this time last year (see Figure 2 overleaf). This solar-powered rollercoaster keeps on climbing.

However, currently this rollercoaster is accelerating towards a fast-approaching drop. The pressure to install before the end of June intensified when a further cut to the solar multiplier was announced. The threat of a 40 per cent overnight drop in value of the Federal solar subsidy brought forward sales from customers wishing to buy solar power before the price hike, and suppliers and installers have faced immense pressures to meet their commitments or face angry customers (or be out of pocket themselves). Just as a rollercoaster seems to accelerate towards the drop, so the solar industry has raced lemming-like to be first off the cliff.

STCs: compounding the fall

When riding a rollercoaster, there’s a brief moment when you first glimpse the impending precipice, yet the train of action set in motion long ago means inevitably those reaching the edge first will only entice more to follow. Compounding the impending drop in the solar multiplier is the massive oversupply (or ‘under-demand’) of small-scale technology certificates (STC) – a direct consequence of solar success. By the end of May, over 17.2million STCs had been created and a further 3 million were awaiting creation – far exceeding the 16.8 million required by 28 June, and not far short of the 28 million required by 14 February 2012. Yet the consequent STC price drop has barely affected industry momentum due to the significant installation pressures. This price insensitivity compounds the problem, paving the way for a jolting over-correction just beyond the horizon.

For on the other side of June 30 lies a comparative dearth of customers. In the short term, the descent will be less steep, softened by the second-stage rush to purchase and install before feed-in tariff programs conclude, which is sometime prior to October in Victoria and South Australia. While Western Australia’s 150 MW cap could be reached before the year is out, and the Australian Capital Territory recently closing their small-scale feed-in tariff to new customers. Again, the threat of subsidy reduction only creates further incentives for customers, bringing forward sales that might have otherwise proceeded in an orderly fashion. So, even as the tracks disappear, the solar rollercoaster loads up with more businesses, customers, and stock.

What next?

What happens next isn’t clear – predictions range from turmoil to carnage. Nobody is sure exactly when STC prices will bottom out. As the STC creation rate decreases, both due to the multiplier reduction and the waning influence of New South Wales installations, it’s possible that market sentiment will drive up prices.

However, the STC oversupply won’t dry up anytime soon, and the combined effect of depressed STC prices, reduced solar multiplier, and end to feed-in tariffs could cause sales to dry up and businesses to exit the market, whether voluntarily or unplanned. Fire-sale STC desperation might be on the radar, though at least one bank is already trading STCs, which should improve liquidity and provide some price resilience.

The upside

On the positive side, the Australian Capital Territory’s medium and large-scale feed-in tariffs offer opportunities, and the Queensland and Western Australia governments are considering commercial-scale photovoltaic (PV) programs (as were former governments in Victoria and New South Wales). It’s likely that the massive amount of Chinese PV manufacturing capacity recently brought online will drive global panel prices down through mid-2011. System prices may also fall further due to heavy competition for fewer sales by PV sales companies, themselves obtaining better prices from more than 40 hungry Australian solar wholesalers.

So, as the Australian solar rollercoaster jumps its tracks and begins to fly, it is time for a new metaphor. For a rollercoaster implies a contingent of safety features, whereas it seems more like governments thought it would be good to develop the start of a solar amusement park ride, without completing the track. Now fully-airborne but with grid parity within sight, the need to safely land this aircraft becomes clear. Unless the nine pilots (federal and state) start to speak with each other, we’re in for a bumpy, over-corrected ride. It’s likely that a more robust solar industry will emerge from the ashes, with well-informed, strategic solar companies likely to be the eventual beneficiaries of a solar shakeout, consolidating, re-focussing, and capturing market share.