Federal minister Mark Dreyfus was applauded by one solar installer for his “gutsy” effort in fronting up to address a solar conference on Thursday, just hours after announcing that one of the industry’s key support mechanisms — the solar credits scheme — would be trimmed.

But Dreyfus, the Parliamentary Secretary for Climate Change and Energy Efficiency, need not have feared a lynch mob. The truth is the industry had been expecting this measure for weeks. And in any case, it appears to be doing rather well just now.

Last night, the Norwegian solar giant REC hosted an evening of samba, food and drinks at the Melbourne Rialto (actually, it turned out to be a three-piece jazz outfit), to celebrate a new distribution agreement with two Australian solar firms, while over at the Lindsay Fox Car Museum, BP Solar hosted a sit-down meal for 60 or more of its distributors.

Solar PV is big business, and one enjoying spectacular growth. Over the past 30 years, the global industry has grown 1000 fold and its prices have fallen 90%, according to Mark Twidell, head of Australian Solar Institute, and it is now worth $100 billion a year. Policy makers here and overseas have struggled to keep pace, creating unsustainable bubbles in certain markets. Yet despite numerous changes in policies and the boom/bust scenarios, it is still the fastest growing industry in the world, certainty of its size.

In Australia, solar PV has grown tenfold in just two years. But despite its popularity, and the installation of panels on nearly 300,000 houses — and the possibility that more PV may be installed this year than wind turbines — the industry believes it has barely scratched the surface. Its penetration rate is only 2.7% of the residential market; the commercial sector, which could be an even bigger market, has barely been touched, and neither have large-scale installations. “We’re still at the very beginning of the cost curve,” Twidell says.

But there are clouds on the horizon. Much of its growth has been out of control, a result of poorly conceived policies, grand-standing politicians and a complete mismatch between federal and state incentives. The industry has enjoyed making hay while the sun shines, but it could end up being a victim of its own success. The greatest threat comes not from the accelerated reductions in the federal subsidy, which the industry agrees will help prevent it from falling over a cliff, but the future of state-based tariffs. Problems loom in several key markets.

The first and biggest of these is in NSW, where the government holds a solar summit on Friday to try and decide what to do about its suspended solar scheme, which has brought the market to a shuddering halt. Problems loom, also, in Victoria and South Australia where the schemes are approaching their stated caps, and in Queensland, where the scheme is threatening to burn a hole through the bottom of the budget.

The industry fears that all these decisions will be made in a poisoned climate. Because of its success, solar has become the favourite whipping horse of rising electricity prices, even if its contribution is minor compared to network costs. But even the federal government couldn’t help itself, couching its amendments to the solar credits as a panacea to rising electricity prices (The savings boasted by Canberra amount to about 70 cents a week, and even that is highly speculative given the unpredictable nature of the industry).

“It’s the right answer, but the wrong reason,” said the Clean Energy Council. “Australian households have responded exactly as the policy intended. What has been done today is an effort to correct a flaw in the market design, not to control electricity prices that are barely affected by the program,” CEO Matthew Warren said.

Like any other, the solar PV industry craves sustainability. There is no doubt that policy changes made over the next few months will likely cause some consolidation, and what Solar Business Services analyst Nigel Morris describes as “the recession it has to have”. But, as many argue, it is not the technology that is unsustainable, it’s the stop-start policy making. A national feed-in tariff — one that outlines a sensible path to the point of grid parity, when it will no longer need any subsidies — is the obvious answer. But Dreyfus said yesterday a national feed in tariff  was impossible in Australia’s federal system, even though Canberra was trying to encourage a co-ordinated approach.

Credit confusion

The federal government’s decision to reduce the solar credit multiplier from four to three from July 1 had an immediate impact on certificate prices in the small-scale renewable energy scheme, jumping from $25.25 to $29, before easing to close around $28.25. Analysts and participants are not too sure which way it is heading. “It’s a market, just like any other,” says Ric Brazzale, of Green Energy Trading. “It’s hard to predict.”

Ironically, this was not supposed to be a market at all. The SREC was designed with a fixed price of $40, with credits to be redeemed through a clearing house. But uncertainty over targets, the boom in installations and the flood of credits has created a massive secondary market. Only 1.3% of credits have been going through the clearing house.

And there is a further irony: over the past month, as the price of SRECs slumped dramatically, those with the most to gain have been the large energy retailers, who have been allowed by the price regulator to pass on the full cost of $40 fixed price to customers, but who have been able in recent weeks to pick up certificates at a substantial discount. Given that more than one million certificates have been created each week, the potential for hefty trading profits for the utilities has been enormous.

*This first appeared on Climate Spectator