auto_stories Quarterly Carbon Market Report June Quarter 2022

Installed rooftop solar PV capacity steady

The lower level of rooftop solar PV installations noted in the March Quarter 2022 report continued in Q2, with the number of systems installed in the first half of 2022 30% below the same period in 2021. Installed rooftop solar PV capacity in H1 2022 was an estimated 1,144 MW, 27% below the 1,576 MW installed during H1 2021.

The number of rooftop solar PV installations in the first half of this year was broadly similar to 2019 levels while installed capacity is 22% higher due to increases in the average system size over the period—now at 8.7 kW compared to 7.0 kW at the beginning of 2019 (see Figure 3.1).

There are typically more systems installed in the second half of each calendar year, although this pattern was not observed in 2021 likely owing to COVID-19 lockdowns in the eastern states. The average system size also increases over the year with the largest systems installed in Q4 driven by increased number of installs in the commercial and industrial sector. If this seasonal pattern is observed again this year, it is likely installed capacity for 2022 will reach 2.3 GW as estimated in the March Quarter 2022 report.

In the Integrated System Plan (ISP) published in June 2022, the Australian Energy Market Operator (AEMO) notes approximately 30% of detached homes in the National Electricity Market (NEM) have rooftop PV, with 15 GW of aggregate capacity. As at the end of H1 2022, Clean Energy Regulator data shows more than 17 GW of rooftop solar PV capacity has been installed across Australia. AEMO expects an average 2.2 GW of rooftop solar PV will be added each financial year out to 2031-32, resulting in over half of the homes in the NEM having rooftop solar PV by that time.¹

Supply side issues

In the 12 months to 30 June 2022, 75% of Australian weather stations reported higher than average rainfall.² In particular, South-East Queensland, northern New South Wales and Sydney experienced flooding events which have significantly impacted households and businesses. This has likely disrupted and delayed rooftop solar PV installations in the affected regions.

Similar to other industries, the small-scale solar industry reported labour supply issues during H1 2022. Rising COVID-19 and flu cases have been associated with reports of episodic workforce shortages as employees become unwell, subsequently delaying installations.³ Further, Australia's unemployment rate fell to 3.5% in June, the lowest since 1974 while job vacancies increased to an all-time high of 480,100 in May. This resulted in broad workforce shortages and competition for labour across Australia, also reportedly impacting the rooftop solar industry.⁴

There have been reports of increasing component costs during H1, however industry data suggests this has not eventuated in increasing upfront system prices faced by consumers yet.⁵ Owing to unanticipated COVID-19 lockdowns, persistent wet weather and a decline in new system demand relative to expectations in H1 2022, component distributors who had ordered additional stock in late 2021 were left with an oversupply.⁶ As a result, system prices have remained relatively stable in H1 despite the deeming period for certificates declining. As excess stock is used up, it is possible underlying price pressures resulting from supply chain constraints and transport costs could result in higher system prices in H2. According to Solar Choice Price Index, the price per Watt for small-scale rooftop solar has been moving sideways since early 2021 as the upward price pressure from the deeming period decline began to counteract the overall decline in system prices.

Opposing demand side factors in the rooftop solar PV market

As a consumer product, the demand for rooftop solar PV systems is impacted by a range of, often opposing, forces. As reported in the March Quarter 2022 report, Australian households are facing an increase in the cost of living which may be contributing to the reduction in demand in the small-scale rooftop solar PV market in the first half of 2022. In June 2022, the Australian consumer sentiment dropped to the lowest level since April 2020 as inflation and interest rates increased. According to the ANZ-Roy Morgan Consumer Confidence Index almost half of Australians believe now is a 'bad time to buy major household items' (a week in June recorded the highest figure for this indicator since April 2020).

Conversely, if households and businesses are faced with sustained high electricity prices driven by elevated wholesale prices, there may be demand for increased uptake in rooftop solar later in 2022.

There are early signs of renewed interest in small-scale solar systems, especially in jurisdictions with state or territory-based rebate schemes. Data published from the Solar Victoria Solar Homes Program indicates above average application volumes approved in recent months.⁷ Strong monthly approvals may be a good lead indicator for installations picking up in H2 2022.⁸ There have also been reports from retailers that leads and enquiries have increased recently, although it remains to be seen if or when this will result in increased installations.

Australia has the highest penetration of rooftop solar in the world. One continual trend is increasing average system sizes — including older, smaller systems being replaced with much larger systems. The expected increase in domestic fuel switching from gas to electricity, and increasing penetration of electric vehicles, will also lead to increased demand for larger rooftop solar systems. As stated in the March Quarter 2022 report, Australia has a very efficient and competitive market for sales and installation of rooftop solar. The Clean Energy Regulator expects installed rooftop solar capacity will return to growth but the timing is uncertain.

Batteries

Consumer desire to be self-sufficient and reduce reliance on the grid amidst rising electricity costs could be a driving factor in increasing rooftop solar PV systems installed with concurrent battery storage. Data voluntarily disclosed to the Clean Energy Regulator as part of STC claims shows similar trends towards concurrent battery storage. The proportion of systems with a concurrent battery installed increased from a reported 3% in the first half of 2021 to 6% in the first half of 2022. As this is voluntarily reported data, it is probably a better indication of changes rather than the level of installations and this represents substantial year on year growth.⁹ Industry analyst SunWiz is also reporting higher attachment rates for PV systems installed with batteries in 2022 than previous years, with their data suggesting the proportion of rooftop solar PV systems sold with concurrent battery storage across the industry reached an all-time high of 18% in June.¹⁰

Continued STC Clearing House activity

The STC Clearing House continued to see material use throughout Q2 while STC supply fell short of the volume required to meet surrender obligations. As shown in Figure 3.2, average weekly STC supply has been consistently below the weekly requirement to meet the 2022 Small-scale Technology Percentage (STP). Liable entities surrendered more than 11.8 million STCs for the Q2 2022 surrender period, resulting in a surrender rate of 99.8%. The STC Clearing House deficit increased to 5.8 million certificates immediately prior to the Q2 surrender on 28 July and 6.1 million regulator-created STCs were purchased.

The reported STC spot price increased from $39.90 to $39.95 in May and remained steady throughout the rest of Q2. STCs are trading in the spot market close to the Clearing House price of $40, as expected while the Clearing House is in deficit. STC futures prices have increased slightly with Aug22s to Dec22s all trading just below $40 indicating the market is not expecting a significant uplift in supply for the remainder of the year. The Clean Energy Regulator expects the STC Clearing House to remain active throughout 2022 as STC supply is expected to remain below the STP rate. It is likely the Clearing House will remain in deficit following each surrender period in 2022. Further, unless there is a material pick up in installs in H2 the deficit should result in a material reduction in the STP for 2023.

Footnotes

¹ Estimates according to AEMO's Step Change scenario based on assumptions outlined in the ISP. The NEM does not include Western Australia or the Northern Territory. Data source: AEMO ISP Figure 1.

² Data sourced from the Bureau of Meteorology.

³ 'Months of backlog for business hampered by COVID household contact rules', The Canberra Times, 20 April 2022

⁴ 'Fears skill shortages may delay Australia's renewable progress', PV Magazine, 20 July 2022

⁵ Data sourced from Solar Choice

⁶ Lliam Ricketts, Director of Supply Partners & Future Sustainability a national distributor of solar and energy storage products and Nigel Morris, Head of Business Development at Solar Analytics speaking at the Energy Next Conference 2022.

⁷ The Solar Victoria Solar Homes Program incentivises households to install solar energy systems through rebated solar PV panels, batteries and hot-water systems. Note there is a seasonal uptick in June as annual rebate funding decreases from 1 July each year.

⁸ Rebate applications are approved prior to installations occurring and have a three-month expiry.

⁹ Based on data voluntarily reported to the Clean Energy Regulator. This may be an underestimate of the total number of households with rooftop solar PV systems with connected battery storage.

¹⁰ 'Dramatic lift in solar battery sales as households seek energy “insurance”', One Step Off The Grid, 21 July 2022