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Solar project builders face pincer grip of rising costs and lower prices

Solar project builders face pincer grip of rising costs and lower prices

Only the fittest of solar project builders are likely to survive in the booming Australian market as players get caught in a pincer grip between a sharp rebound in solar panel costs and ongoing downward pressure on electricity contract prices.

Consultancy Sustainable Energy Research Analytics is warning that, despite the huge opportunity – the value of uncommitted solar projects is put at more than $14.7 billion – intensifying competition between construction contractors and squeezed margins is likely to see some players exit.

"Delivering projects at today's prices is proving a challenge," said SERA managing director Gero Farruggio.

"We expect competition to intensify as new players enter the market, sub-contractors step up as full EPC [engineering, procurement and construction] providers, and margins are squeezed to gain market share.

"The market may enter a 'survival of the fittest' phase."

Australia is experiencing massive growth in solar power construction, with 311 megawatts of capacity currently in operation, 1 gigawatts in construction and a further 6 GW in the advanced design stage, according to SERA.

The exit of experienced solar builder First Solar from the construction market has left a host of new entrants scrambling to grab a share of the huge pipeline of solar projects, given about 80 per cent of future project capacity is yet to secure a construction contractor.

Offshore competition

The battle is playing out between local players with experience in Australian mining and energy, such as RCR Tomlinson, Downer and UGL, and overseas players that have a strong track record delivering renewables infrastructure overseas such as Spain's Elecnor and France's Bouygues, which are more recent arrivals in the local solar scene.

Several other smaller players are now also vying for construction contracts, including Germany's Phoenix Solar, Baywa, ib vogt, Juwi, Belectric and Conergy, and many others are lining up to enter in the next six months, SERA says.

Costs for solar projects have been heading south for years, benefiting from a 10 per cent annual decline in solar panels prices and helping achieve record low prices for solar power purchase agreements.

Competition from wind projects, a steep learning curve and the host of new entrants fighting to establish themselves in the local construction market have combined to cut prices by about 20 per cent in the past six months to an average for EPC contracts for projects currently under construction of about $1.6 per watt.

But the cost trend for solar panels has gone into reverse in recent months as a busy solar construction market in China tightens the global supply-demand balance, SERA's Ben Willacy said, citing information from contractors.

Labour costs are also on the rise, with 30-50 per cent salary increases for experienced hires in the past six months. Delays in grid connections can also impact project economics.

Australian Financial Review

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