SYDNEY—When bidders crunch the numbers on a looming US$20 billion auction of Australian power assets in one of the world’s biggest privatizations of this year, they would do well to cast their eyes upward—to the tops of apartment blocks and factories.
Business for fitters of rooftop solar panels in eastern Australia, where the sale is to take place, is flourishing as more households and companies choose to generate their own power rather than relying entirely on electricity from the grid.
While solar remains a small part of the nation’s energy mix, accounting for about 2% of electricity output, the industry’s growth in recent years is casting a shadow over the impending auction of power assets in Australia’s most populous state, New South Wales.
Demand for solar power began stirring around eight years ago, when expensive upgrades to the grid jacked up electricity bills while rooftop-panel prices were falling. The market has continued to grow despite easing in late 2010, when the state government started slashing generous subsidies for people who sold solar power back into the grid.
Now, many expect a strong pickup with the launch of new batteries from Tesla Motors Corp.
and others capable of storing substantially higher amounts of solar energy for use after sundown—and at prices that are expected to fall more within the reach of ordinary households. Batteries with weaker storage capabilities have been around for some time, but stronger ones have tended to be prohibitively expensive.
“Whether it takes 12 months, two years or five years, I believe battery storage will become viable,” said Matt Vella, managing director of MPV Solar, which turns over five million Australian dollars (US$3.9 million) a year installing panels in sun-soaked Sydney suburbs. “When it does, it’ll be as big for the energy market as the shift from the fixed-line telephone to mobile phones.”
New South Wales last week invited first-round bids for a long-term lease of 49% of the government’s power-transmission network. The money will go for infrastructure such as schools and highways. The auction is expected to attract pension funds and power companies from China to Canada eager to snap up monopoly assets that tend to generate unexciting but reliable returns.
Last year, the Hong Kong billionaire Li Ka-shing made an investment of nearly US$2 billion in Envestra Ltd., an Australian gas-transmission company that he fought off others to obtain. The price was 1.5 times the value of the company’s asset base; at that level, the part of the grid for sale in New South Wales would go for around $A25.8 billion.
The problem for bidders is this: How do you value the poles and wires that crisscross the state if demand for solar panels and storage batteries surges? A recent survey commissioned by Morgan Stanley
found 2.4 million households in New South Wales, Victoria, Queensland and South Australia states were willing to spend up to A$10,000 each on a solar-panel installation, including the batteries. There were 7.8 million households in Australia in 2006, a total projected to rise to at least 11.4 million by 2031, according to the most recent count by the Australian Bureau of Statistics.
The worry for grid owners is that cheaper storage devices will take more people off their networks more often, forcing a ramp-up in prices to cover costs. And the higher rates go, the more appealing solar panels and other energy-saving gizmos, such as low-voltage lights, look.
“That’s when people start talking about the death spiral,” said Clinton Wood, director of Lighthouse Infrastructure, a Melbourne-based fund manager with investments in solar power.
‘That’s when people start talking about the death spiral.’
To be sure, the rooftop solar market has been unstable and influenced by government regulation, even on a continent with the highest amount of solar radiation per square meter. It is also unclear how soon companies such as Tesla can drive the cost of batteries low enough to appeal to a mass market. Tesla’s “power-wall” batteries, which were launched in May and will be available later this year, will sell for as much as US$3,500 and need to be integrated with solar panels and other devices. The cost of buying and installing the full package may be US$20,000 or more.
The case for solar power is more clear-cut for businesses that use energy during the daytime. Sun Connect Pty. Ltd., which turns over tens of millions of dollars a year, decided three years ago to focus exclusively on the commercial market. Since then, the company says, revenue has tripled.
“Business has never been better,” said Christopher Dean, its chief executive. “Whether they’re privately owned or not, the cost of wires and poles and the guy holding the sign with the hard hat on will keep going up, while the cost of solar will keep coming down.”
Even Australia’s two biggest listed energy retailers, Origin Energy Ltd.
and AGL Energy Ltd.
, have said they would begin targeting the rooftop solar market more aggressively by offering panel and battery installations amid falling demand for electricity from the grid. The decline prompted rival Alinta Energy in neighboring South Australia to close two coal-fired power plants earlier this month.
Despite the challenge from solar energy, there are plenty of reasons to expect New South Wales’s power sale won’t flop.
Energy demand is expected to rise as the state’s population climbs over the coming decade. Regulators are also looking at giving grid operators more flexibility in how and when they charge customers. They may benefit, too, from greater use of storage batteries because that could help reduce strain on the grid during peak hours, allowing firms to spend less on maintenance, upgrades and expansions.
“If the new technology assists in moving the peak around and you get a better utilized asset, I’d argue that’s better for you in the long term,” said Michael Cummings, head of Australia and New Zealand infrastructure funds at Sydney-based AMP Capital. “But these businesses aren’t ’set and forget’ like they might have been 10 years ago.”
Write to Ross Kelly at [email protected]