Impact of Federal and State Rebate Changes on C&I Solar and Batteries

In the past fortnight, two major policy announcements have significantly altered the economic landscape for commercial solar and battery initiatives in Australia.

Effective October 1st, the Federal government will increase the Small-scale Renewable Energy Scheme (SRES) STC eligibility cap from 100 kilowatts (kW) to 1 megawatt (MW). Additionally, from September 1st, the New South Wales Peak Demand Reduction Scheme will broaden its scope to include commercial-scale batteries, offering upfront discounts for batteries with a capacity of up to an impressive 30 megawatt-hours (MWh).

Impacts on Solar Costing

To gauge the implications of these changes, we examined the upfront costs of 14,000 unique commercial and industrial (C&I) projects modelled over the last three years. The findings, presented in eight charts, indicate an optimistic outlook for the commercial solar sector.

The upcoming expansion of the SRES will likely drive median upfront costs for C&I photovoltaic (PV) projects down by as much as 20.5% for the larger installations, potentially nearing $900/kWh. Historically, these costs have started at around $1,100/kWh for smaller systems at the 100 kW size. However, price variations can be expected, with actual costs possibly diverging by as much as 25% above or below this median figure.

Historic Price Reductions in C&I Solar

As of October 1, we anticipate further reductions of 13-20% in prices compared to the current levels, which equates to approximately two to three years’ worth of market price drops. In the C&I PV category (101-1000 kW), prices have already decreased by 21% over the past three years.

Overall, by October, we project that the costs for PV projects will have fallen around 34%, from $1,500/kWh to approximately $1,000/kWh within a three-year span.

Shorter Payback Periods for Investments

This new pricing structure will shorten payback periods for C&I PV projects, dropping below five years for all sizes within the 100-1000 kW range. This development further simplifies the decision-making process for financial stakeholders, easing the burden of investment consideration.

Expanding Solar System Sizes

The current data reveals that 100kW systems dominate Australian C&I solar installations, making up nearly 20% of all modelled PV projects. Following the STC adjustments, a surge in installations in the 100-200 kW range is anticipated, encouraging many solar companies to revisit existing 100 kW projects and upgrade capacities.

Australia’s Competitive Edge in C&I Solar

How does Australian C&I solar pricing compare with other markets? Over the last five years, Orkestra has modelled over 30,000 projects internationally. Data shows that Australia has been the most cost-effective option, expected to become 32% cheaper than Germany and 29% less expensive than the UK as of October. This trend positions Australia as a burgeoning leader in both residential and commercial solar adoption as we approach 2030.

Reduction in Battery Costs

The recent expansion of the NSW government’s Peak Demand Reduction Scheme will include commercial-scale batteries with three new streams: Apartments (BESS3), Small-Medium Enterprises (BESS4), and C&I (BESS5). This new initiative provides upfront subsidies to batteries ranging from 200kWh to 10MWh in capacity, with eligibility extending up to 30MWh. Like the STC scheme, this initiative will rely on market-driven Peak Reduction Certificates (PRCs), with prices fluctuating accordingly.

We anticipate that battery prices will decrease by approximately one-third for units in the 200kWh to 1MWh range, with significant reductions for larger systems. For instance, a 5MWh system will benefit from incentives totalling around $1.066 million, leading to a nearly 50% reduction to just $249 per kWh.

Trends in Battery Pricing

Over the past three years, the median costs for C&I batteries have already plunged by 34%, moving from over $1,050 per kWh to around $700 per kWh. In NSW, these prices will further decline by an average of 31% next month, compounding a total reduction exceeding 50% within three years.

Although we have not released payback information for batteries in this discussion due to the highly variable factors influencing financial outcomes, it’s essential for businesses to perform accurate financial modelling to ensure the viability of savings and revenue estimates.

Considerations for Future Developments

Several practical implications for industry players emerge from these shifts:

• Many existing 100 kW projects may now be undersized relative to load; if rooftop space permits, there’s a clear opportunity for upgrades.
• As optimal system sizing takes precedence, there’ll be a need for more thorough sizing analysis.
• Lower solar prices will naturally heighten battery demand, as reduced payback periods encourage larger installations paired with storage for self-consumption.
• The landscape for battery offerings in NSW will likely shift to become more standardised, given that a 5MWh system priced at half market rates changes the dynamics considerably.
• Be mindful of certificate price volatility, as even minor fluctuations can significantly influence battery pricing.
• Compliance requirements for the PDRS may present challenges, so seeking advice from accredited certificate providers is advised.