Inflation and grid needs slow progress towards Australia’s ultra‑low‑cost solar

Construction costs, grid constraints, and labour pressures offset cheap modules.

Australia’s solar project costs are not declining at the pace required to meet the Australian Renewable Energy Agency’s (ARENA) ultra-low-cost solar (ULCS) target, despite improvements in module efficiency and declining solar technology costs.

ARENA’s 2026 ULCS White Paper Update found that whilst solar module costs have continued to decline, overall installed costs and levelised cost of electricity have largely stagnated in recent years.

This is due to higher capital costs, grid connection requirements, and inflationary pressures.

The agency’s ULCS goal, set out in 2023, aims to achieve 30% module efficiency, installed solar costs of $0.21 (30 cents) per watt, and solar electricity below 14.08 (AU$20) per megawatt-hour by 2030.

“Progress toward ULCS has been meaningful, but uneven across cost categories and project types,” the agency said in the update.

Solar technology has continued to improve, with laboratory silicon solar cell efficiencies reaching 27.9% in 2025 and commercially available module efficiencies reaching 26.2%. However, project deployment costs have not declined at the same pace.

ARENA said balance-of-system costs, including labour, civil works, grid connection, and project delivery, have become a larger component of total project costs.

“Cost reduction now depends more on construction methods and system integration than module pricing,” the agency said.

The update identified construction methods, workforce productivity, and grid integration as key barriers to achieving ULCS.

Solar projects are being developed in more complex environments due to grid constraints, regulatory requirements, and challenging site conditions.

Labour availability has also become a constraint as Australia expands renewable energy deployment, with ARENA stating current construction approaches remain labour-intensive and require changes to project delivery models.

ARENA’s portfolio includes projects focused on reducing construction costs through automation, robotics, and modular deployment.

These include prefabricated solar systems, automated piling technologies, and robotic installation methods.

ARENA said moving from bespoke, labour-intensive construction towards standardised and scalable delivery models will be required to achieve the 2030 ambition.

The agency has also shifted its ULCS portfolio towards integrated demonstrations, including the Fortescue Solar Innovation Hub in Western Australia’s Pilbara region, which will test construction, automation, and deployment technologies in a large-scale solar development.

ARENA said ULCS will be needed to support Australia’s energy transition, including the decarbonisation of energy-intensive industries and the development of renewable-powered exports such as green iron and hydrogen.

“Realising these opportunities will depend on translating innovation into scalable deployment, including continued progress in cost reduction, system integration, and project delivery at scale,” the agency said.

(US$1 = AU$1.42)