Grid vs. On-site Solar Electricity Costs

On-site solar will be cheaper than electricity from the grid in the long-run.

Investing in an on-site solar generation is a no-regret move if you agree within the fundamentals described below.

In times of high uncertainty and complexity, it’s a good idea to return to fundamentals. For assessing the economics of behind-the-meter solar generation, there are three main factors to look at:

1. The retail electricity price

Due to old coal capacity reaching the end of its technical lifetime, there will be a need for new electricity generation capacity from 2021/2022. This capacity is likely to be gas due to its natural fit with the system requirements – high reliability, lower emissions and flexibility of generation to meet demand. The boom in LNG has linked domestic gas prices to higher international gas prices. To recover the costs of a new gas power plant investment, electricity prices will rise further.

2. The levelised cost of solar generation

The technology cost will continue to decrease due to economies of scale and additional efficiency gains. Kobad Bhavnagri (Bloomberg New Energy Finance) stated that “by 2032 new solar should out compete incumbent coal” at the Australian Clean Energy Summit 2017. More detail can be found in his presentation, titled ‘Australia’s shift to base-cost renewables’ (see slide 10).

3. The support scheme for renewables

This seems to be the factor with the highest level of uncertainty. However, it is important to note that price risk is limited until the end of 2020, due to market price signals (forward trading of LGCs). Beyond 2020, uncertainty increases. This is reflected in the graphic below, showing the indicative range between the expected best and worst case.