How can Australia “cash in” on their excellent solar resources?

In a recent study published by the Institute for Energy Economics and Financial Analysis (IEEFA), Smart Innovation Norway senior energy researcher Dr. Christian Kunze is one of four contributors. The study investigates the potential for Australian citizens to capitalise on the country’s exceptional solar resources and surging residential solar rooftop market to drive growth in electric vehicles (EVs).

Edited by Mari Kristine Buckholm, December 16, 2019

Australia has seen rapid growth in roof-top solar power, as households have seized the opportunity to cut their electricity bills by exploiting some of the world’s best solar irradiation, as well as rapid falls in global solar module and battery prices.

In the study “Steering by the Southern Sun: How Australians Are Missing a Trick on Solar-Powered Electric Vehicles”, Analyst Arjun Flora, IEEFA Energy Finance Consultant Gerard Wynn, IEEFA Energy Finance Analyst Simon Nicholas, and Smart Innovation Norway Senior Energy Researcher Christian Kunze explore whether Australia can go a step further, and capitalise on cheap solar and battery power to drive down motoring costs, by tapping into a growing global electric vehicle market, where the country so far has lagged.

According to the Australian Renewable Energy Agency, a fifth of Australian households (2.2 million) had installed some 10 gigawatts (GW) of roof-top solar as of September 2019, making it a world leader by market share. Lately, Australia has also seen strong growth in residential batteries, cumulatively at tens of thousands. However, Australia has lagged in the uptake of another emerging digital energy technology, EVs. In 2018, Australia achieved just 1,800 new EV sales, or a miniscule 0.21% market share. That is far below peer countries by economic size or region, such as Korea (29,630 new EV sales last year), the Netherlands (25,070), Canada (22,660), or New Zealand (4,360).

Solar power can be used to charge EVs via a stationary battery. Given the availability of exceptionally low-cost solar power, the IEEFA study investigates the potential for Australians to save money on a conventional gasoline car, by buying instead an EV coupled with residential solar power and battery. Authors Flora, Wynn, Nicholas and Kunze have estimated the number of years it takes to pay off the cost of a combined new EV, rooftop solar system and residential battery, through the savings generated by on-site generation and from avoiding the cost of buying and fuelling a conventional car. They estimate payback periods both today, and through 2030, considering expected cost reductions in EVs, solar power and batteries.

The study also investigated whether Australia could benefit from the experience of Norway, the world leader by EV market share. In 2018, Norwegians bought 46,140 new EVs, a 29% annual market share, far ahead of second-placed Netherlands, at 6%. Norway has achieved rapid EV growth through both taxes on conventional cars, which may be unpalatable in Australia, and incentives including exemptions on road tolls and value added tax (VAT).

Main Findings

The most important findings of the study are summarized in the following:

  • Standalone rooftop solar systems are already achieving payback periods of five years or less in Australia. Such payback periods are short and attractive enough to drive mass adoption. Rooftop solar in Australia today is where many countries around the world will be over the next decade.
  • The economics of solar plus battery in Australia lags more developed markets, such as Germany. The researchers find that residential batteries are significantly more expensive in Australia than in Germany, and additional (“balance of system”) installation costs are also more expensive. We attribute these higher costs to a far less developed market. In Germany, some 150,000 households have solar-battery systems. Also, in Germany and Britain, consumers can earn a fee for residential battery systems, recognising the service of small-scale batteries in aggregate to help stabilise the grid.
  • Australia lacks a support regime for EVs. As a result, solar plus battery and EVs have a rather unattractive payback period of nine years today. However, this situation changes rapidly as EVs and batteries become cheaper. And if one borrows some examples of EV incentives as used today in Norway, Australians can benefit from cheap, solar-powered charging even sooner.

Conclusion and recommendations

In the report “Steering by the Southern Sun: How Australians Are Missing a Trick on Solar-Powered Electric Vehicles”, Flora, Wynn, Nicholas and Kunze find that with cost-effective EV policies, far less generous than those in some countries today such as Norway, Australian motorists could charge their EVs with self-generated solar power, and achieve a payback on a combined solar, battery and EV system of around five years, compared with purchasing a conventional gasoline-fuelled car and continuing to draw household electricity from the grid. Payback periods fall to 2 years in 2025, and to zero by 2030.

To help realise these opportunities, the researchers make the following recommendations:

  • Make EVs exempt from 10% GST
  • Remove 5% import tariff for EVs
  • Introduce a full motor vehicle tax exemption for EVs (e.g. AUD 236 per year in NSW)
  • Provide capital grant for the purchase of new EVs, starting at AUD 6,500, and halving annually thereafter, falling to about 100 AUD in 2025

When coupled with expected technology cost reductions, particularly in the price of batteries, but also solar panels, this will dramatically impact customer economics and enable Australia’s citizens to “cash-in” on their excellent solar resources. In turn, this can foster the development of a thriving domestic market for new energy services in Australia, and accelerate the country’s transition to a more sustainable, environmentally friendly and independent energy future.