10 SOLAR PV IN SINGAPORE IN THE ABSENCE OF SUBSIDIES
235
Challenges for PV Adoption
Market and Financial Challenges. Despite accelerating growth in recent
years, achieving a business case for solar PV in Singapore remains challenging. The difficulty of building a financial case for solar developers
is one of the most cited reasons. To provide an illustration of the level
of profitability of solar projects, a discounted cash flow model developed
by the Solar Energy Research Institute of Singapore has found that even
with a levelized cost of electricity of 10.2 Singapore cents per kWh for a
“self-owned” 1 MW industrial roof system, a project installed in 2017 is
most likely to have an internal rate of return of approximately 12% and a
payback period of about eight years (National Solar Repository 2018).
Solar developers typically sell their projects by selling electricity based
on a discount (typically ranging from 5 to 10%) on the prevailing electricity tariff offered to the consumer. This creates a twofold problem.
First, most solar electricity consumers are industrial and commercial
consumers. Under the current wholesale market conditions, these large
consumers are already exposed to tariffs that are lower than the regulated
electricity tariff, thus making payback periods longer than they would be
if the discount was on the regulated tariff. Second, this exposes solar
developers to fluctuations in profit margins. While the costs associated
with implementing a solar project is fixed, the returns are likely to fluctuate based on the volatility of electricity tariffs. The EMA regulated tariff
and the average retail price offered to contestable consumers are almost
entirely dependent on the price of natural gas. In turn, these are indexed
to oil prices, as is the prevalent practice in Asia. This exposes the electricity tariffs to fluctuations in the global oil price. Between 2014 and
2017, electricity prices dropped significantly due to the collapse of oil
prices, thus creating increased pressure on solar project developers’ profit
margins.
One potential solution adopted in other countries would be the introduction of FITs or other support mechanisms. However, as mentioned
previously, such a policy would run counter to established energy policy
in Singapore wherein energy market and prices are to be operated under
a free market environment with minimal government intervention. An
alternative is to introduce fixed tariffs for solar electricity sales. One may
argue that a fixed price mechanism may offer benefits to both developers and consumers by providing stable returns and costs. However, this
235
Challenges for PV Adoption
Market and Financial Challenges. Despite accelerating growth in recent
years, achieving a business case for solar PV in Singapore remains challenging. The difficulty of building a financial case for solar developers
is one of the most cited reasons. To provide an illustration of the level
of profitability of solar projects, a discounted cash flow model developed
by the Solar Energy Research Institute of Singapore has found that even
with a levelized cost of electricity of 10.2 Singapore cents per kWh for a
“self-owned” 1 MW industrial roof system, a project installed in 2017 is
most likely to have an internal rate of return of approximately 12% and a
payback period of about eight years (National Solar Repository 2018).
Solar developers typically sell their projects by selling electricity based
on a discount (typically ranging from 5 to 10%) on the prevailing electricity tariff offered to the consumer. This creates a twofold problem.
First, most solar electricity consumers are industrial and commercial
consumers. Under the current wholesale market conditions, these large
consumers are already exposed to tariffs that are lower than the regulated
electricity tariff, thus making payback periods longer than they would be
if the discount was on the regulated tariff. Second, this exposes solar
developers to fluctuations in profit margins. While the costs associated
with implementing a solar project is fixed, the returns are likely to fluctuate based on the volatility of electricity tariffs. The EMA regulated tariff
and the average retail price offered to contestable consumers are almost
entirely dependent on the price of natural gas. In turn, these are indexed
to oil prices, as is the prevalent practice in Asia. This exposes the electricity tariffs to fluctuations in the global oil price. Between 2014 and
2017, electricity prices dropped significantly due to the collapse of oil
prices, thus creating increased pressure on solar project developers’ profit
margins.
One potential solution adopted in other countries would be the introduction of FITs or other support mechanisms. However, as mentioned
previously, such a policy would run counter to established energy policy
in Singapore wherein energy market and prices are to be operated under
a free market environment with minimal government intervention. An
alternative is to introduce fixed tariffs for solar electricity sales. One may
argue that a fixed price mechanism may offer benefits to both developers and consumers by providing stable returns and costs. However, this