Australian solar power generators' profit margins to go down over time

More solar generation is involved in this.

Increased solar generation will reduce demand for grid power and reduce volatility in the wholesale electricity market, both of which will likely have a negative impact on the profitability of independent merchant generators.

According to a research report from Moody's Investors Service, compared to conventional power stations connected to the grid, solar panels benefit from favorable feed-in tariff arrangements as well as savings on network costs.

These features put solar panels in a favorable position along the dispatch merit order. In other words, Moody's Investors Service expects every additional unit of output generated from solar panels to displace a unit of conventional generation in the grid.

It also noted that the pressure on the conventional generators is already evident.

Here's more from Moody's Investors Service:

Last year, Stanwell Corporation - a state-owned generator in Queensland - attributed a revenue decline to solar generation.

This is further accentuated by the fact that installed capacity – including the rooftop solar already installed – in the state is expected to exceed requirements over the coming decade.

Moreover, with additional capacity coming into the market, pricing peaks due to short-term demand surges will likely reduce.

Peak price periods are generally positive for merchant generators’ earnings, as they provide an opportunity to sell excess capacity at a higher than average price, whilst marginal generation costs remain stable.

For the independent merchant generator, the credit impact will also depend on its relative cost position within the dispatch merit order.

Marginal base-load generators – most likely to be gas-fired generators – will likely be pushed down the dispatch merit order and might need to convert their operation to a peaking generator.

Whilst such conversion would be manageable for integrated players that have multiple operating plants, it is far more difficult to implement for a standalone merchant power station.

Finally, it is worth noting that solar panel generation still only represents less than 5% of total market generation in the NEM.

As such, its overall impact on traditional generation capacity is more disruptive than destructive at present.