Solar Insights

In September 2016, when ARENA announced it would be supporting the development of 12 new solar farms around Australia, we called it ‘Australian Solar’s Brightest Day’.

Much was made of the scope of the announcement, which significantly exceeded our expectations (4-10 supported projects was the prediction when the program launched in 2015), and will see plants established across the country from Emu Downs in Western Australian to Kidston in Far North Queensland.

The final 12 projects were chosen from 22 finalists, which had been whittled down from 77 full applicants. So how did ARENA choose which solar plants to fund, from a high-quality field?

To answer that question, it’s first important to point out that the LSS round was part of ARENA’s Advancing Renewables Program (ARP), which aims to:

  • Reduce the cost of renewable energy;
  • Increase value;
  • Improve technology and commercial readiness;
  • Remove barriers; and
  • Increase skills, capacity and knowledge.

It’s these objectives and outcomes that drove the process of selecting 12 successful applicants. First, a set of eligibility hurdles had to be met for applications to be accepted for both the EOI phase and the full application stage. For both stages, a range of merit criteria were used to rank applications, each with equal weighting.

The process

The graphic below illustrates the eligibility and merit components in more detail – illustrating how we use quantitative and qualitative factors to select projects most likely to meet the ARP objectives.

Firstly, a project had to get over the hurdle of eligibility. This tested threshold questions like, is the project actually using renewable energy, and will it take place in Australia.
Once eligibility was established, projects were judged against six merit criteria: contribution to program outcomes; applicant capability and capacity; activity design, methodology, risk and compliance; financial viability and co-funding commitment; and knowledge sharing.

The merit criteria

As the diagram above indicates, sub-criteria fed into each overarching merit criteria. One of the most important of these was cost competitiveness and ‘levelised cost of electricity’ (LCOE), as part of ‘contribution to program outcomes’. (You can view a recent comparison of LCOE for different technologies).

We set a benchmark of an LCOE below $135 per megawatt hour for high merit projects. It’s an important tool for understanding capital costs, discount rates and expected energy yield.

How the days were won

During the most recent stage of the LSS funding round, some applicants fell short in demonstrating financial viability and co-funding commitments – successful applicants provided written evidence of contracts and equity, which related to merit criteria D in the flow-chart above.

We also found that strong projects demonstrated good value for money, particularly when calculated on an ARENA dollars per megawatt hour basis. Chris Twomey, ARENA investment manager, says “Good projects had evidence based technological and economic rationales, alongside well advanced development with limited risk factors”.

Overall, carefully selected criteria are used to filter projects and ensure outcomes are as close as possible to the goals listed in the ARP guidelines. It’s a holistic approach. The carefully-designed process demanded that all of the criteria needed to be met to a high degree for a project to be competitive.

The results show it worked, to the benefit of Australia’s burgeoning large scale solar industry.