How fairer solar tariffs would clean up grid

How fairer solar tariffs would clean up grid

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Energy policy expert says 15-20c/kWh margin retailers and networks make on rooftop solar should be used by governments to compensate solar households and to shift grid from fossil fuels to clean energy; also highlights vital roles of ARENA, CEFC and RETs.

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The fact that most Australian households with solar PV installed on their rooftops are being ripped off for the power they export to the grid has been reiterated in a new paper published today by energy and environment policy expert, Alan Pears.

The report – a submission to the Victorian government on its proposed Renewable Energy Roadmap – notes that in that state, as in many others in Australia, the current levy on PV exports to the grid pays rooftop solar owners around 6 cents/kWh, which is then resold to (mostly) nearby consumers at 20 to 30 cents/kWh, leaving 15-25 cents/kWh to be shared as a “windfall profit” by the retailer and network operator.


But according to Pears – one of Australia’s leading energy efficiency experts – this system could be a lot fairer for solar households, while also helping governments to fund renewables growth and the transformation of ageing grid infrastructure, and without cutting into the “legitimate” costs of power retailers and networks.


“The government should capture this [15-25 cent] margin (minus the legitimate costs of the retailer and network operator). Part of this should be paid to the PV owner, and part used to fund clean energy development.

“In particular, costs of grid upgrades to facilitate high penetration of distributed electricity generation could be funded via this mechanism.”

The recommendation is part of a number of strategies outlined by Pears as part of an integrated approach to clean energy, energy efficiency, smart management, storage and renewables the Victoria government could take.

According to Pears, this should include action on replacement of gas – by a mix of energy efficiency, solar thermal and advanced renewable electricity technologies – as well as clean transport alternatives.

The aim, says Pears, should be to ensure there is enough renewable energy and associated technologies, like energy storage, to keep wholesale electricity prices low – or at least, no higher than they are now – so that renewables “cannot be ‘blamed’ for increases caused by closures of coal power stations or other changes in the electricity market.”

He also recommends the Victorian government uses a similar approach to all this as the ACT government, by using a series of ‘contract for difference’ projects sourced via a bidding process possibly run, under contract, by ARENA.

“The clean energy strategy should identify and focus investment and interventions on niche markets where clean energy reduces overall societal costs, such as fringe of grid, areas where the grid is ‘stressed’, infrastructure that cuts peak demand, etc,” the submission says.

“This should be driven by transparent processes that identify the locations and timing of opportunities, and should encourage third party delivery of services.”

On this subject, Pears has a dig at national energy market regulators.

“In principle, AEMO should publish an annual ‘statement of opportunities’ for demand side action and renewable energy, but this seems to be outside its interpretation of the ‘industry’ whose market it manages,” he writes.

“So the Victorian government should produce this report as a model for AEMO to apply at a national level.”

And like the Australian Greens did last week, Pears also proposes inctroducing an increased brown coal levy as an additional revenue source to help finance both renewables development and the wind-up of the state’s coal power sector.

“Government should introduce revenue sources to help finance clean energy development (of all kinds) as well as rehabilitation of old coal mines, decommissioning of closed Victorian coal power stations and employment creation in the Latrobe Valley,” the submission says.

As we reported last Tuesday, Greens leader Richard di Natale unveiled his party’s policy proposal that would tax Australian coal companies to fund the “billions of dollars” needed to rehabilitate former mine and storage sites and to retrain coal industry workers for jobs in the emerging clean energy industry.

“As coal companies go bankrupt or leave Australia, it is coal workers who are hit the hardest, followed by state governments, who are regularly left to foot the bill for cleaning up the mine,” Dr Di Natale said.

Indeed, independent analysis of Australian mine closure and rehabilitation liability published in May calculated that Australian mining had generated at least $A18 billion of rehabilitation liabilities, mostly unfunded.

As Pears notes in his submission paper, the present brown coal royalty is approximately $1/MWh.

“There is scope to increase this to build a fund to cover the decommissioning and rehabilitation of brown coal power stations and mines beyond the amounts presently allocated. Revenue from an increased levy could also be used to fund a VRET and/or targeted energy efficiency and other measures designed to manage impacts on some groups of consumers,” he says.

An increase in the royalty would also increase the marginal operating cost of brown coal plants, increasing the likelihood of them being closed under market forces, says Pears.

Pears also highlights the importance of a working renewable energy target as part of an efficient energy market transformation.

“One argument often raised against a RET or other incentive program is that it transfers wealth from the existing generators.

“In a historical context, this is a weak argument. Past distortions in energy markets have worked strongly in favour of these generators. Indeed, some have even received substantial ‘compensation’ payments as part of the Commonwealth government Clean Energy Futures package but no longer pay the carbon price they expected to pay, so they are well ahead!”

“This issue of transfers among consumer groups can be dealt with by packaging other measures (such as energy efficiency) with a RET.”

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  1. Finn Peacock 5 years ago

    Fantastic, practical and pragmatic ideas from Alan Pears. As always.

  2. lin 5 years ago

    Excellent proposal. Should be a real vote-winner. Let’s see if the Andrews government has the spine to act on it.

  3. James 5 years ago

    Pears makes excellent points regarding brown coal generators and their royalties – the health costs that we as a society are bearing are not being funded by these generators, meaning that taxpayers are left with the bill. Regarding feed-in tariffs – the retailer does not “resell” the energy to neighbours – the retailer simply has their wholesale energy bill reduced by the quantity of the feed-in. The wholesale energy cost avoided by the retailer is about 4c/kWh in Victoria. Feed-in tariffs are higher than 4c/kWh, and therefore represent a premium to the actual value of the energy. The distributor does not benefit either – distributors operate under a capped revenue model where the amount of money they make is fixed, and it just gets spread across whatever customers use. This means that distribution prices (on a per kWh basis) just go up each year as fewer kWh are sent through the distribution network (due to solar and energy efficiency). If we want to offer higher feed-in tariffs (for policy reasons), the best option is to fund it the same way we funded the PFIT (60c) and TFIT (25c) – all customers pay an annual levy via their electricity bill which is then distributed to those entitled to the feed-in tariff.

    • Alastair Leith 5 years ago

      The energy being produced on rooftopPV and on-sold to your neighbour is not the same as the wholesale energy that retailers buy. It’s already on location, so obviates the need for costly transmission and distribution networks and their maintenance. More fundamentally rooftop solarPV has wiped out the entire midday peak Australia once knew and FF generators price gauged the market on under the AEMO bidding system. Merit order dispatch has meant that near free wind has pulled some of the foundation out from under this most profitable place in the electricity market and distributed solar has knocked the top off the day time peak.

      This has caused considerable financial stress to FF generators and is weakening projected balance sheets, and hence the out and out climate insanity open hostility towards renewable energy from the big three gentailers (AGL, Origin & Energy Australia). Knock on effects to coal miners are playing out large in share price valuations.

      In some cases mid-scale PV deployments may increase local supply/voltage variability, like on the single phase lines running out to dairy farms where PV installers see voltage fluctuations well outside what is allowed within the standards. And in these cases it may well add to costs of the distribution network ( if they do anything to stabilise voltage/frequency) as well as saving costs elsewhere.

    • Alastair Leith 5 years ago

      I don’t see why passing on and improved FiT to other energy users is the “best” option. Pass it on to coal and gas who are costing us around $50b a year in unpaid health and climate costs (read subsidies).

      I agree with Alan Peers that returning to healthier FiTs or rebates on bills would encourage more rapid PV. PV installs have been falling for four years both in Victoria and nationally, as have employees in PV industry. Nationally growth in PV has been linear for last for years, prior to that it was exponential and closer to the global rate of a two year doubling of capacity.

      If we returned to a two year doubling of PV deployment — which would necessarily see more mid and large/utility size installations go ahead to sustain such powerful growth beyond 10% of demand maximum — we could be at 57% of yearly demand daytime maximum by 2020 and 324% in 2025!

      The growth of PV in Victoria has been up and down last few years but generally tapering from it’s peak growth in 2012. Same for the national average which is a bit erratic than each state has been, indicating state laws have an impact on PV deployment. If we see linear growth total PV will make contribute ~21% RE to a 2020 VRET and would take until 2055 to get to 100% RE VRET demand max capacity (without wind assistance).

      • Alastair Leith 5 years ago
      • Alastair Leith 5 years ago

        Growth rates for PV Clean Energy Australia Report 2014 :

      • James 5 years ago

        Alastair, regarding the value of solar feed-in – the retailer does not avoid any transmission costs or distribution costs, as the retailer is still charged the same for distribution regardless of where the energy enters the grid. The distributor does not see any lower marginal cost from the feed-in occurring close to the likely source of consumption, as its cost is in building the network to cope with peak scenarios – which occur around dinner time in most networks, at which point most energy is coming from large scale generation. The value of foregone transmission and distribution costs accrues primarily to the owner of the solar unit – while grid energy would normally be 25c of which a large part is transmission and distribution, self consumed solar energy is free.

        • Alastair Leith 5 years ago

          ” The value of foregone transmission and distribution costs accrues primarily to the owner of the solar unit”
          some would say not nearly enough and not what is fair. they’re still paying high fixed charges even if they only export power to the grid 340 days of the year.

          “the retailer does not avoid any transmission costs or distribution costs, as the retailer is still charged the same for distribution regardless of where the energy enters the grid”
          If they are putting less power into the transmission system they have an argument to ask for lower tariffs from the network providers and I’m not naive enough to think they wouldn’t ask. substations etc seeing less throughput and lower peaks means less maintenance. all these costs (inflated or legitimate) are being passed on by retailers to consumers so it should come out off our bills.

          Anything that stops the exponential growth of networks and gold plating saves the retailers (and ultimately us consumers ) from rising network costs. also lowering yearly max demand means less responsive and maintained network systems are required and are getting less of a stress test when demand does peak. Those costs are always being passed on — even when costs are somewhat fictionalised by networks going to government cap in hand each year. They’re passed on by the retailers so it needs to come off the bill when the costs are reduced by a home using PV, demand management and EE to lower their peak load and total usage. Paying a better price for PV is one way of making that return.

  4. Isuzu 5 years ago

    Where does the taxpayer contribution to the many solar systems fit in?

    After all, those people with solar power systems were mostly financed to a large extent by taxpayers so how are they to be compensated?

    The low income people who can’t afford to buy solar systems but perhaps still contributed through the tax they paid can’t be ignored.

    • john 5 years ago

      The systems are not and were not mostly financed by taxpayers.
      Large FIT payments were put in place and should have had a reducing scale granted.
      Proactive retailers should get in the market and finance solar and storage so they still have a revenue stream.
      The grid has been built so has to be paid for so equitable methods of payment have to be found that do not unduly penalise the low energy users.

    • Pedro 5 years ago

      The STC rebate is not financed by taxpayers. It is funded by those companies with a carbon pollution liability under the RET. I think that the RET increases electricity prices for all by about $0.02/kWh. Those same FF generators could have easily put in utility scale RE projects long ago and reduced or eliminated their RET liability and drove down the price of STC’s.

      You would also find that a larger percentage of low income people who are not renters tend to have a PV system to reduce their bills. I think the argument that PV is too expensive is a bit weak especially considering all the financing options that most PV retailers offer these days.

      • Jonathan Prendergast 5 years ago

        The cost of STCs when I see it on bills is 0.438 c/kWh or $0.004/kWh, so 4-5 times less.

        • Pedro 5 years ago

          Thanks for the correction. That is way better than I thought. So for a consumption of 20 units/day that would be around $32/year or 8 coffee’s. Sure looks likes the RET is going to send Australia bankrupt.

          • Jonathan Prendergast 5 years ago

            The bills i have seen also see the energy portion of bills reducing from 8-9 c/kWh 4 years ago down to 4-6 c/kWh. The RET and energy efficiency as induced an oversupply which is saving the Australian community billions on their energy bills. The RET can take some of the credit for that too. So, overall it has seen a net reduction.

  5. Les Johnston 5 years ago

    The windfall profit – difference between 6c and 25c or thereabouts should be returned to the Government or taxpayers who assisted with funding the initial investment in PV installation. Experience has also shown that mining companies have not be required to set aside sufficient funds for mine rehabilitation. By not doing so, future generations will end up paying for today’s consumption. Does this sound fair? It is about time that these matters were tackled seriously.

  6. trackdaze 5 years ago

    Im sorry to say I think the best arrangement is for non contracted prosumers to be paid at the prevailing wholesale rate. Maybe there should be some marginal additional increase for green incentive and exports generally reducing transmission costs by supporting local grids

    Most already have a choice to export at wholesale or consume deferring retail costs this will be further broadend with battery storage.

    • Matt Schlutz 5 years ago

      That doesn’t capture any of the following benefits;
      1-Transmission cost savings (production has a strong correlation with transmission peak, but not usually distribution peak). Network capture.
      2-Reduction in wholesale prices, and in particular volatility. Other customers capture.
      3-Reduction in average distribution loss factors to all customers. Other customers capture, and/or Electricity Retailers
      4-Environmental benefits. All of society captures

      The wholesale market is simply not a good fit for pricing solar. It doesn’t contemplate the type of market that exists today, and the many other benefits that are captured by others.

  7. energygeek 5 years ago

    Interesting discussion. Why can’t electricity retailers compete on the feed-in-tariffs they can offer? Wouldn’t that solve the problem?

    • Rob S 5 years ago

      They do in South East Queensland

  8. david lymn 5 years ago

    Retailers pay vastly fluctuating prices for electricity from generators depending on demand. At times it can even be negative. The average cost is about 5c kwh, but that is no defense for retailers charging over 40c kwh. It amuses me that the price in the ACT is less than half of SA but they’re buying from the same generator. The market is clearly skewed to the big end of town. Laws do not allow me to write a contract with a big private consumer to buy all my surplus electricity at say 20c kwh and yet as a registered energy generator I should be allowed to. The whole supply system needs a rethink and reconstruct.

  9. Ian 5 years ago

    The next stage in the renewables revolution is to increase solar uptake by businesses, to increase utility scale wind power and to encourage storage. Behind the meter storage and energy efficiency can be promoted by a simple change to the tariff structure. That is, scrap the connection fee and introduce instead a peak use fee. We are told that the cost to the networks, is to provide sufficient capacity to supply peak demand. A holiday house with a large air conditioner might on average use the same power as a struggling family of four but their peak demand is so much higher. The peak tariff can be escalated according to the size of the peak. For the poor pensioner with a peak demand of 2KW it could be cents per KW peak demand and for the large shopping centre where daytime demand might be in the MW range they can be charged a lot more proportionately for their peak usage. The networks claim that they need adequate compensation for providing capacity, well then, let them charge for peak demand and not for connection fees. This change may not suit the network operator’s current behaviour modifying tariff strategy, ( namely a high connection fee and relatively low per KWH fee tends to discourage solar uptake) but peak fees are more fair.

    initially solar power is beneficial in that it reduces the daytime peak demand but as more solar penetrance on the network occurs so a new imbalance occurs with an early morning and early evening peak, behind the meter storage can change that and tariff structures should reflect that. A high peak demand fee will encourage peak shaving, a time of use and time of production tariff using a smart meter can fairly compensate people for their contribution to reducing the variable demand on the grid, a third method would be to retain the current FiT but allow any form of generation or storage to export power, perhaps retaining a 5KW maximum. The use of smart meters has not been encouraging so far, so peak network fees coupled with unlimited time of export for FiT would be the easiest and fairest tariff structure to use.

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