Feed-in tariff resets: Solar sabotage or real value?

Recent claims that the decision by the independent pricing regulator to reduce feed-in tariffs for PV equipped households in NSW will “sabotage” the solar industry[i] show a lack of understanding on why the tariff scheme was introduced in the first place.

The Independent Pricing and Regulatory Tribunal (IPART) has, in its final report on solar feed-in tariffs, recommended a reduction in NSW voluntary ‘all-day’ payments from 11c-15c per kilowatt hour (kWh) to 6.9c-8.4c/kWh. IPART’s benchmark range mirrors changes in the wholesale electricity price.

Their reasoning also takes into account that households without solar panels should not have to pay higher retail prices to reduce the bills of those who do have solar panels. “This would disadvantage the households who are unable to install a solar system themselves,” the IPART report says, noting that a household equipped with a 2kW PV system pays about $550 less each year than a household without solar panels.

Victoria’s Essential Services Commission (ESC) has also set new minimum feed-in tariff rates from 1 July. For the first time that state’s households can opt for either a single rate feed-in tariff (set at 9.9c/ kWh) or a time-varying feed-in tariff (set at between 7.1c/kWh and 29c/kWh depending on the time of day the energy is exported). The new two-tier system came out of the Victorian Government’s inquiry into the “true value” of distributed energy. The first stage of that inquiry conducted by the ESC looked at the energy value, while the second part considered the network value.

A fair price for feed-in tariffs is one that reflects the price retailers would pay to buy wholesale energy somewhere else – if the rate was higher, retailers would have to pay more than what they would pay for wholesale electricity on the National Electricity Market. In Victoria the ESC includes an amount for “the avoided social cost of carbon attributable to a reduction in air pollution due to the energy exported”. That rate is currently 2.5c/kWh.

Households without solar panels include those who cannot afford to install rooftop solar, households who pay rent or those who live in apartments.

In other words, solar-equipped households are receiving a fair price for the energy they collect and return. If tariffs were set at a much higher rate than the actual value of the energy, customers without solar will pay more to make up the additional cost.

Many Multiples

The Australian Competition and Consumer Commission this week highlighted the distributional effects of solar feed-in tariffs (although in the context of premium tariffs) in its final retail electricity pricing inquiry report[ii]. It noted that the premium schemes had paid customers “many multiples” of the value of the energy produced. It noted that while the schemes were now closed to new consumers, the costs are “enduring” (see figure 1) and impact households without panels:

“Those households that have installed solar PV have benefited from the generous solar feed-in tariffs and also received subsidies for the installation of the system itself through the small scale renewable energy scheme (SRES). Solar households have reduced consumption of electricity from the grid significantly. Solar customers are paying, on average, $538 per year less than non-solar customers. Meanwhile, non‑solar households and businesses have faced the burden of the cost of premium solar feed-in tariff schemes and the SRES.”

Figure 1: Environmental costs in residential customer bills by state 2017-18, real $2016-17

Source: ACCC

The ACCC has recommended that any costs remaining from premium feed-in tariffs should now be borne by state governments through their budgets rather than being recovered from all energy users to help reduce pressure on electricity prices. In 2017 Queensland undertook this step for three years as part of its Powering Queensland Plan[iii] and at an estimated cost of $770 million to the state’s budget.

Earlier this year the Australian Energy Market Operator (AEMO) also warned that while the surge in rooftop solar installations has helped to reduce power bills for many Australians, those on the grid are receiving higher electricity bills due to the number of households defecting.

Record solar uptake

According to the AEC’s January Solar Report, 2017 was a record-breaking year for solar in Australia. By the end of 2017, cumulative installed capacity for solar PV systems stood at 6,401 MW nationally with close to 1.8 million installations - up from 5,463 MW and 1.64 million installations at the same time in the previous year. Due to a reporting lag for solar systems (solar PV owners have up to 12 months to report their data to the Clean Energy Regulator) the raw data under estimates the total number of installations and installed capacity; it is estimated that the amount of rooftop PV capacity installed during 2017 is over 1 GW.

John Grimes from the Smart Energy Council has predicted PV take-up rates will continue to increase given the incentives to install solar panels, a view supported by the latest available national data for 2018.

According to consultancy Green Energy Markets, PV installations have increased 48 per cent to 701.9 MW in the first six months of 2018 compared with the first half of 2017.

The ACT posted the fastest growth in installations with a whopping 130 per cent increase, while NSW registered the highest uptake of new roof panels at 183.6 MW (a 70 per cent increase), followed by Queensland at 176.2 MW (35 per cent increase) and Victoria with 86.8 MW (56 per cent increase).

AEC analysis shows that the capacity of residential systems installed has also steadily increased, from around a 2.5kW system in 2012 to over a 6kW system today.

Conclusion

The situation in NSW is not unique with other states to follow in resetting feed-in tariffs rates, or in Tasmania’s case, planning to review current tariff arrangements. And with a lower wholesale forecast price than last year, other states have already reduced their tariffs or will likely do so in coming years.

Customers who installed solar received incentives to do so in the form of rebates and they continue to enjoy the returns from the energy produced from their panels and the ongoing excess energy they receive a fair price for.

Are these customers being punished? Not at all. While a lower feed-in tariff is disappointing for them, it remains appropriate for all NSW customers to see a benefit from downward pressures on energy bills. To maintain higher feed-in tariffs would in fact punish those without solar who would subsequently pay more.

[i] https://www.smh.com.au/environment/climate-change/sabotage-regulator-slammed-for-move-to-slash-solar-feed-in-tariffs-20180703-p4zp7x.html

[ii] Restoring electricity affordability and Australia’s competitive advantage, June 2018

[iii] https://www.dnrme.qld.gov.au/__data/assets/pdf_file/0008/1253825/powering-queensland-plan.pdf