Industry Overview and Market Analysis of Australias Solar Energy Industry - Case Study Example

A Report on Australia’s Solar Energy Industry Name: Course: Institution: Tutor: Introduction Australia has one of the world’s largest untapped solar energy resources. This is due to the fact that Australia has the highest solar energy radiation per unit surface area than any other continent in the world. In Australia, solar energy is used mainly in small-scale direct applications such as heating, and accounts only for 0.01% of total energy consumption. In the recent years, the Australian government has implemented several energy reforms which will see solar energy consumption climb to about 6% of total energy consumption by 2025 (Swan Energy, 2010). Essentially, the increase in solar energy generation and consumption will greatly depend on commercialization of large scale and modern solar energy technologies as these will reduce investment costs as well as risks. The following report explores the current state of solar energy consumption and marketing in Australia. In particular, the report analyses environmental factors affecting the Australian solar energy industry and the marketing mix strategies employed by major players to promote their products and technologies to the consumers. Overview of Solar Energy Technology There are two types of solar energy technologies: solar thermal energy technology and solar photovoltaic energy technology. Both of these two technologies can be utilized for small scale decentralized solar energy production or large scale centralized solar energy production. The difference between these two technologies is that photovoltaic technology converts solar energy into electricity while solar thermal technology converts sunlight into heat by magnifying and concentrating sunlight (ABARE, 2010). On households and other small scale usages, photovoltaic technology is represented by flat plate solar panels while the solar thermal technology is represented by simple hot water systems. At high levels, concentrating solar thermal power systems (CST) are used to concentrate sunlight into high temperatures hot enough to generate steam that drives steam turbines, which in turn creates electricity. On the other hand, large scale concentration photovoltaic (CPV) systems are used to concentrate heat energy into cells which convert the concentrated sunlight into electric energy. The kind of solar cells used to install CPV systems and equipment for CST facilities should be capable of withstanding high temperatures and of maintaining efficiency over long periods of time. The ability to meet these two conditions is a major marketing concern for companies in the solar energy industry (Swan Energy, 2010). Usually, the best location for solar energy power plants is in areas with high direct radiation. Normally, direct normal radiation is highest in desert areas where cloud cover and atmospheric moisture is minimal. In Australia, these conditions are best suited for the north eastern and central territories but an obvious challenge is that these areas are sparsely unpopulated making commercial production of solar technology less commercially viable. The biggest technical problem with production and consumption of solar energy is that in the absence of energy storage devices, the energy source cannot provide a 24 hour energy base load. However, energy storage capabilities are improving with technologies such as ammonia splitting, molten slat storage and battery technologies (Lovegrove & Dennis, 2006). Industry Overview and Market Analysis Currently, Australia has about 1050MW of solar energy production capacity contributing only 2.5% of electric energy production, which represents 0.1% of total energy production. Since 2000, growth in the amount of installed solar energy capacity has increased dramatically. This has been largely due to energy rebates, feed-in tariffs and mandatory renewable energy targets aimed at assisting commercialization of renewable energy in Australia. However, a combination of Australia’s favorable latitudes and dry climate gives it more potential for increased solar energy production (Lovegrove & Dennis, 2006). According to the Australian Bureau of Statistics, Australia had 8 million households as of 2010. The number is projected to grow to 11 million by 2025 and this will inevitably present pressure on energy consumption. It is estimated that each Australian spends 10 MWh of electricity each year with domestic use accounting for 22%. Most of the energy is used for space heating, lighting, domestic electronics and water heating. With such a high and rising demand for energy, the solar energy industry is expected to grow steadily. However, the cost of producing solar is very high and this calls for government intervention. Accordingly, government policies will continue to be a critical success factor in the marketing of solar energy products. Moreover, development, demonstration and research by both private and public sectors will accelerate marketing of solar energy in Australia (ABARE, 2010). Market penetration of solar energy technologies in Australia is greatly influenced by cost of connectivity to the national electricity grid. In order to reach consumer locations in remote areas, long distance transmission lines are required. However, building high voltage power transmissions requires heavy up-front investment. It is for this reason that energy penetration to remote areas remains low. The total annual solar radiation received in Australia is approximately 60 million petajoules (PJ) which is about 10000 the country’s annual energy consumption. However, a small percentage of this is being utilized due to lack of appropriate technologies for harnessing the solar energy and the subsequent low market penetration. Moreover, most of Australia’s solar energy resources are highly concentrated in the country’s northwest and central areas. These areas have poor access to the national electricity grid. As such accessing solar energy resources in these areas requires heavy investment in transmission infrastructure, which is far beyond the capacity of private sector investors (CSIRO, 2010). Key Factors Influencing Development and Marketing of Solar Energy Resources in Australia Australia is a global leader in the production and consumption of solar energy but the market penetration of this valuable resource has been very low due to high installation costs (“Solar energy”, 2011). There are a number of factors affecting the market viability of solar energy installations in Australia. These are: a) Solar Energy Technologies and Costs: Researches into solar photovoltaic and solar thermal technologies are largely focused on increasing the efficiency of solar energy systems and on reducing costs. Commercial scale generation of solar energy in Australia has been demonstrated to be possible but the cost of technologies required to support it are relatively high, thereby making solar energy less attractive and a high risk venture for most investors. Currently, small-scale photovoltaic solar arrays are better suited to off-grid and remote applications with other applications being dependent on large-scale government funding to be viable (Talal, Steven & Borserio 2011). For direct use applications of solar energy, solar thermal hot water applications continue to be the most widely commercialized and marketed solar technology. In fact, solar water heaters continue to be developed further and have shown the potential to be integrated with photovoltaic cells, but still these technologies are very expensive. However, the cost of solar energy production is expected to decline significantly, as economies of scale improve due to development of new technologies (Faiers & Neame, 2006). b) Location of Resources: Throughout most of Australia, the best resources for producing solar energy are located far away from the national electricity market, especially the urban areas on the far eastern part. This poses a great challenge to the developers and marketers of solar energy products such as solar power plants since there needs to be a fair balance between minimizing the cost of connection to the national grid and maximizing the solar radiation. However, there are potentials for solar energy applications to provide intermediate and base load electricity using fossil-fuel plants. Stand alone photovoltaic solar systems can be located at the customers’ convenience such as on roof tops and this will greatly reduce the cost of electricity distribution and transmission (“Solar energy”, 2011). However, concentrating solar technologies require large areas of land and very specific conditions which are in most cases available long distances from the customers. In Australia, it is an attractive option to install small scale commercial solar energy systems. This is especially important in remote areas where electricity infrastructure is costly and difficult to access. c) Government Policies: The Australian government continues to implement policies at various stages of the solar energy production chain. Part of these policies requires the government to provide rebates for solar energy water heating systems and other technologies. Government rebates have significantly reduced cost of solar energy technologies for consumers and have encouraged extensive market penetration of these technologies (Lovegrove & Dennis, 2006). For instance, the Solar Energy and Communities Plan (running from 2000 to 2009) provided rebates for installation of solar photovoltaic systems. The plan saw the market demand of photovoltaic systems increase significantly. Other government policies that are currently in place include the Solar Credit Initiative which gives multiple credits for electricity generation by small solar photovoltaic systems. This government initiative provides up-front capital subsidy to facilitate cheap installation of small solar systems. The government has also launched a multi-billion dollar Solar Flagship program (Faiers & Neame, 2006). The program aims to install about five solar power plants producing a combined power output of about 1000 megawatts. This program is widely expected to accelerate market demand for solar energy and provide an exclusive opportunity for the country to develop global leadership in solar energy production. Additionally, the Australian government has set up a program that will establish the Australian Solar Institute. The institute will partner with various stakeholders such as the ministry of energy and universities to further researches on the optimal production and consumption of solar energy. d) Environmental issues: Solar energy technologies are sustainable and environmental friendly than other sources of energy. In fact, a single roof-mounted solar system can yield about ten times the energy required to produce it in five years (Swan Energy, 2010). This means that greenhouse gas emissions produced during the production of solar energy systems are offset gradually over the systems’ lifecycle. In the absence of greenhouse gas emissions, solar energies contributes little damage to environmental degradation and this is one of the factors that will substantially boost market demand for solar energy technologies in Australia. e) Demographic factors: Australia b is a sparsely populated country. Despite its vast geographic size, Australia’s population is only 20 million people. Most of the country’s western and northern regions are uninhabited and hence marketing solar products to these regions is economically unviable. As such, the solar energy industry experiences low market demand. f) Competition: the Australian solar energy industry is under stiff competition from alternative sources of energy such as hydroelectric power, wind power, coal power and wave power. Recently, nuclear energy has been proposed as an alternative sustainable energy source. These alternative energy sources are not only less costly for consumers, but are also cheap and economically viable to produce. They therefore pose a great challenge to marketing of solar energy technologies. Among the numerous industry players, the Australian government is by far the leading player as regards installation of large scale solar energy power plants. There are also numerous companies that engage in the installation and distribution of solar technologies, majority of which are foreign owned subsidiaries (Ausra, 2009). Strategies for Marketing Solar Energy Products in Australia Solar energy marketing refers to advocacy of providing electric and heat energy generated from solar technologies. Most of the solar energy products and technologies marketed are aimed at consumers of photovoltaic solar systems since electricity produced by these systems is not fed into the national electricity grid. Most of the technologies and equipments marketed include solar dishes; solar towers; solar troughs; Compact Linear Fresnel Reflectors; Solar PV Dishes and Heliostat Concentrator Photovoltaic (HCPV). The marketing strategies used by companies to promote these technologies and products are related to the characteristics of potential consumers, installation costs and consumer knowledge of the products (Passey & Watt, 2002). An important marketing strategy that is widely employed by most companies in the Australia solar energy industry is market segmentation. Through market segmentation, companies get to understand consumers including their preferences, similarities and differences (“Solar energy”, 2011). Market segmentation also enables companies to know which consumer categories are more likely to adapt particular solar energy products and equipment. As such, the strategy enables companies to offer custom products to their customers and to effectively communicate with the different customer categories. Building consumer awareness is another common strategy employed to promote solar energy marketing in Australia. Through this strategy, companies proactively reach out to customers instead of waiting for customers. The strategy enables companies to promote a wide range of solar energy products and their related course and has proven to be viable in promotion of photovoltaic solar systems and equipment. Closely related to this strategy is customer education. In this strategy, companies use various media to address misconceptions about solar energy product and services (Talal, Steven & Borserio 2011). Through the strategy, marketers inform consumers of the potential benefits of using solar energy and this makes consumers feel that consumption of solar energy makes a difference (Faiers & Neame, 2006). Recommendations The current marketing strategies used to promote consumption of solar energy in Australia are not optimal and hence there is need for the solar energy industry and individual players in the industry to step up their marketing efforts. In particular, there is need for dedicated consumer education initiatives. This requires for programs beyond making information available on the Internet. The programs should not only raise awareness and popularize solar energy but should correspondingly increase consumer response to marketing initiatives. It is, therefore, important to have empowerment schemes that integrate the effects of income and propensity to utilize solar energy (Passey & Watt, 2002). Consumer attitudes and perceptions have a great impact on the marketing and adoption of solar energy products. It is important for companies in the solar energy industry to market highly innovative products that can be utilized and managed effectively. Moreover, more control should be imposed on marketing efforts so that the products are made attractive to potential consumers. Conclusion Australia has the largest untapped solar energy resources in the world. Unlike other energy sources such as fossil fuels, solar energy is environmental friendly. Despite this vast potentiality, solar energy contributes less than 1% of Australia’s energy consumption (“Solar energy”, 2011). One reason for this is that production, transmission and consumption of solar energy requires special equipment and instruments which are relatively expensive. Unlike other energy resources which can be produced and utilized in the immediate vicinity, solar energy can only be utilized in special areas such as deserts, which are however located far from residential areas. Nevertheless, the Australian government has made substantial progress in promoting the solar energy industry. Some of the initiatives taken by the government include subsiding photovoltaic solar equipment. The subsidies will greatly boost marketing of these products and their adoption by consumers. It is, however, important for companies in the industry to step up their marketing efforts so as to increase customer awareness. References ABARE (Australian Bureau of Agricultural and Resource Economics), 2010, Australian energy projections to 2029–30, ABARE research report 10.02, prepared for the Department of Resources, Energy and Tourism, Canberra. Ausra, 2009, The Liddell Solar Thermal Power Station. Retrieved from http://www.ausra.com/pdfs/LiddellOverview.pdf. CSIRO, 2010, Energy technology in Australia: overview and prospects for the future, A report for the Department of Resources, Energy and Tourism, Canberra. Faiers, A. and Neame, C 2006, Consumer attitudes towards domestic solar power systems Energy Policy, 34, p. 1797–1806. Lovegrove K and Dennis M 2006, Solar thermal energy systems in Australia, International Journal of Environmental Studies. 63(6), p. 791–802. Passey, R. and Watt, M 2002, Review of Australian Green Power Schemes, Australian CRC for Renewable Energy Ltd. Swan Energy 2010, Clean Energy Australia Report 2010, viewed 25th July 2012 from http://swanenergy.com.au/solar-industry-news/clean-energy-australia-report-2010/ Talal, Y., Steven, G & Borserio, A 2011, Potential of renewable energy alternatives in Australia, Renewable and Sustainable Energy Reviews, 15, p. 2214-2221. “Solar energy”, 2011, Australia Energy Resource Assessment, viewed 25th July http://adl.brs.gov.au/data/warehouse/pe_aera_d9aae_002/aeraCh_10.pdf Swan Energy 2010, Clean Energy Australia Report 2010, viewed 25th July 2012 from http://swanenergy.com.au/solar-industry-news/clean-energy-australia-report-2010/ Read More