Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.

Last week ABSI discussed the flaws in the Coalition's nuclear energy policy, citing the uneconomical nature of nuclear power compared to cheaper renewable options in Australia. This week ABSI will stick to the energy theme and focus on the most viable renewable energy solution for Australians - solar energy. 

While billions are being spent on the holy grail of energy, nuclear fusion, people sometimes forget that we effectively already have access to nuclear fusion through solar energy solutions that harness the nuclear fusion of our solar system’s sun. It is important to appreciate that when we talk about solar power there are numerous ways to harness the sun’s power, however, the most common form is through photovoltaics (PV) which will be the primary focus of this discussion. 

The photovoltaic effect was first discovered by French physicist Alexandre Edmond Becquerel in 1839 but it wasn’t until the silicon age in 1954 that Bell Labs developed the first practical silicon solar cell with ~6% efficiency. In the 1980s and 90s, Australian UNSW professor Martin Green, known as the father of photovoltaics, made significant advancements in silicon solar cell technology. Under Green’s leadership, UNSW has set multiple world records for solar cell efficiency. Today the world record for solar cell efficiency is 47.6% using a III-V four-junction concentrating PV cell.

While the lab results are encouraging, in current commercial markets solar PV cells are 15-25% efficient depending on the quality of the panel purchased. Efficiency is important as it dictates the energy yield from the amount of sunlight received, however, it isn’t the only metric to focus on. Other factors to consider in solar panels include cost per watt, degradation rate, capacity factor, angle of incidence, and durability.

Global Horizontal Irradiation: Long-Term Yearly Average

Source:  World Bank

One of the primary reasons for Australia’s superiority in solar generation is the continent’s high solar irradiance. The World Bank’s Global PV Power Potential report ranks Australia highly due to high solar irradiance levels, low variability across seasons, and vast open spaces. This results in higher capacity factors, the ratio of actual output to potential output at full capacity, and therefore a lower levelised cost of energy. According to the CSIRO’s GenCost 2023-24 report, large-scale solar is the cheapest form of energy generation at A$47-A$79/MWh. Additionally, solar is regarded as the simplest form of energy production to construct and commission. It has been proven that solar PV power infrastructure has materially lower incidences of time and cost overruns as well as being able to be deployed in the shortest time frames.

Source:  Science Direct

The flexibility and decentralised nature of solar PV has resulted in the emergence of microgrids, found particularly in the form of rooftop solar. In Australia, one in three households have embraced rooftop solar with an installed capacity of over 20 GW, making it the second largest source of renewable energy. Analysts expect this uptake to continue with forecasts for over 60 GW by 2054. 

The biggest issue with the largest rooftop solar uptake is that only one in forty households pair their system with a battery resulting in peak solar production being wasted during the day and an over-reliance of the grid during the evening peak when solar generation has ceased. This havoc in the Nation's Energy Market is a key reason why baseload power, such as coal, is struggling to stay economically viable.

LCOE of Solar PV Over Time

Source:  Lazard

The good news is that there are solutions to the problem. The cost of battery storage is coming down quickly and batteries are much cheaper at scale which is why ARENA is awarding grants for “community batteries”. These are shared battery solutions that absorb the excess solar energy from a neighbourhood during the day and distribute it during the evening peak. This week ARENA announced that it has conditionally approved A$143m to support the rollout of up to 370 new community batteries with an aggregated storage capacity of 281 MWh. ARENA expects to launch a second round of funding later in the year. 

The cost of energy underwrites the prosperity of a nation. Periods in which energy prices have spiked have resulted in major economic downturns for a country. For Australia, every household, warehouse, parking garage, and other buildings should have solar panels which will provide the country with limitless cheap electricity to secure a pathway to prosperity.

A quick detour to announce the BPC NRL Tipping Competition! 

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