Victoria regulator proposes 29c/kWh solar export tariff in peak period

Victoria regulator proposes 29c/kWh solar export tariff in peak period

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Victoria regulator proposes 29c/kWh “peak” tariff for solar exports between 3pm and 8pm – a move that is likely to increase the business case for household battery storage.

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One Step Off The Grid

The Victoria energy and pricing regulator has proposed a peak period tariff of 29c/kWh for rooftop solar exports back into the grid, in a ground-breaking recommendation that could help change the way consumers think about their solar assets, and encourage battery storage.

The recommendation from Victoria’s Essential Services Commission recognises the value of encouraging rooftop solar to be fed into the grid at times of peak demand, and is part of a wholesale rethink about the structure of solar tariffs in the state.

Last year the ESC, under instructions from the Victoria Labor government, factored in a 2.5c/kWh social cost of carbon, effectively a $25/MWh carbon price, into the state’s solar feed in tariffs – the first time the “benefits” of rooftop solar had been valued in an Australian tariff.

It was also asked to value the network benefits of rooftop solar, but this work is still ongoing because of the complexity of the task, and the geographical variation, and it was asked to value the “environmental” benefits of solar, but also found that too hard to quantify.

The introduction of a peak tariff for rooftop solar is a huge development, given that all solar tariffs up till now had been structured on a flat rate.

It will come into effect for the hours of 3pm to 9pm each weak day. The “shoulder” tariff – from 7am to 3pm, and from 9pm to 10pm, – will be 10.3c/kWh, while the off-peak tariff- from 8pm to 7am – will be 7.2c/kWh.

The ESC expects that the offering of a “time-of-use” solar tariff will become compulsory over time, but there will be a transition period where retailers can offer a “single rate” FiT of 9.9c/kWh.

Both the single rate and shoulder tariffs are well below the 11.3c/kWh tariff currently in place, but the ESC says modelling provided by ACIL Allen argues that day-time wholesale electricity prices will fall in coming years, due to the increase in solar projects.

This includes the continued addition of rooftop solar at record rates, the construction of the state’s first large scale solar farms (at least 190MW in coming years), and new large scale solar projects (2,400MW) in states like Queensland, South Australia and Victoria.

This will reshape wholesale prices in the state – and this graph above shows just how dramatic it might be, with ACIL Allen saying the exit of Hazelwood, and the addition of solar, will push down prices during the day, but result in significantly higher prices in the evening.

Hence the recommendation of a time of use tariff. The ESC expects this could encourage households to shift demand, use appliances like pool pumps, earlier in the day, be more efficient in the evenings, and possibly to encourage battery storage.

James Clinch, manager of regulatory reform at the ESC, said a “critical peak” price for solar exports was also considered, but not included due to uncertainty over the impact on retailer contracting practices.

Critical peak tariffs, which would provide payments well in excess of 29c/kWh to reflect the jump in critical peak pricing, when prices can soar to $14,000MWh, of 1,400c/kWh.

Clinch noted that the growing impact of solar – both rooftop and large scale – will have an impact on wholesale markets, and for the first time the forecast weighted average wholesale price when solar is generating (6.8/kWh) is lower than the forecast average wholesale price for 2018-19 (9.1c/kWh).

“What customers do in reponse is matter for customers,” Clinch told One Step Off the Grid in an interview. “Our enquiries show that one outcome is that customers will have an incentive to export more at peak periods and that has overall efficiency benefits.

“Essentially, they are making more efficient use of their solar assets and supplying energy at time of  high demand.”

He said the opportunities for the consumers were to load shift, to orientate their panels to the west, rather than the north (to produce more later in the day), to change demand patterns, or to install battery storage.

Darren Gladman, the director of energy independence for the Clean Energy Council, said the shift to time varying FiTs would improve the business case for batteries without the need for any subsidies, and said other states should follow.

“Time-varying feed-in tariffs will provide an incentive for investment in batteries, leading to a reduction in electricity costs to other consumers,” Gladden said in a statement.

“By paying the fair value of electricity fed into the grid at peak times, households and businesses will have the incentive to invest and will support the system by providing power when the system needs it most.

Gladman noted a previous Productivity Commission report that estimated peak demand in NSW lasted for just 40 hours per year (or less than 1 per cent of the time) but accounted for around 25 per cent of retail electricity bills.

“By providing an incentive to households and businesses to generate at peak demand periods, the electricity bills of all customers will be reduced. Other states should follow the Victorian Government’s lead and pay battery owners a fair value for the electricity they feed into the grid at peak periods.

“Time-varying feed-in tariffs enable households and businesses to compete to supply power at peak times. Electricity in Victoria will be cheaper and more reliable as a result of these sensible feed-in tariff reforms.”

This article was originally published on RenewEconomy’s sister site, One Step Off The Grid, which focuses on customer experience with distributed generation. To sign up to One Step’s free weekly newsletter, please click here.

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  1. trackdaze 3 years ago

    If my back of the eyelid calcs are correct thats $290 a Mwhr well below the $14,000Mwhr peaks.

    Worth doing.

    • Peter F 3 years ago

      Probably but 29c for 1,560 hours a year is a bit of an overkill for a few half hour periods at $14,000. However if it encourages west facing panels and batteries it will improve grid stability

    • Greg Hudson 3 years ago

      The max rate of 29c does not give you access to the $1.40/kWh ‘peak’ rate anyway, so it is irrelevant. Even if it did, the peaks last for such a short time (usually only a few minutes) that you would never get $1.40 anyway. Your return may PEAK at $1.40, but will rapidly slide down to well under the peak rate. Also, you need to consider the effect that existing wind/solar/batteries (from SA) + the huge output of all the residential batteries that will come online is going to have on the peak rate. Most likely you would never see a $1.40 rate ever again anyway (IMO). Mind you… Enough residential batteries could enable the existing brown coal power stations in the Latrobe Valley (Vic) to be shut down well before they ‘need’ to be.

      • trackdaze 3 years ago

        thoughy said its much better for all than the network being supplied at 14k per megawatt.

        • Greg Hudson 3 years ago

          If you take a close look at $14k/MW peaks, you will find that the bidders ‘never’ actually hit that figure. It can be close (say 13.98k for example and this iwhy (IMO) the maximum peak should be dropped from $14k to $5k. This would halt all gamers dead in their tracks, and significantly reduce the cost of power to the community.

  2. Ian 3 years ago

    This will be an interesting exercise, considering the cost of electricity at this peak time is higher than the FiT. During the day when solar might be in excess to a household’s needs, this excess can be stored in batteries, or sent into the grid or the solar panel output can be throttled back to just balance demand. Generally if batteries are full, or there are no batteries, the grid provides a virtual load resistance ie a dump for the extra electricity. Not many will install extra solar panels just to feed electricity into the grid at the modern solar FiT’s. An excess of rooftop solar is to supply the household’s needs on suboptimal days. The surplus electricity exported makes no difference to the life span of the solar panels, and would be wasted anyway.

    Batteries are considered to have a finite cycle life (say 5000 to 7000 cycles). Why relinquish some cycle life for a FiT that might be less than the cost of the battery per cycle? Even if the peak FiT was 20% more than the cost per battery cycle life would this be worthwhile considering the hassle of replacing batteries?

    • Finn Peacock 3 years ago

      Yup. Simple arithmetic shows this does not incentivise batteries. But why let maths get in the way of a good story.

      • neroden 3 years ago

        Depends how cheap the batteries are, doesn’t it? At Tesla’s bulk rate of US$250/kwh capacity, assuming 5000 cycles, their batteries cost US 5c/kwh delivered. Starts being commerically viable maybe…

        • Ian 3 years ago

          Oh , goodie, let Ozzies at such near-freebies. Unfortunately our access to powerwalls is over $1000/KWH. 5000 cycles is 13 years. The rapture will occur before you get economical break even. You need 3 to 5 years max break even to consider FiTs to be worth while

      • baseload renewables 3 years ago

        Could you please share your arithmetic? Thanks.

      • baseload renewables 3 years ago

        I’ve just done my arithmetic based on Powerwall 2:
        Assume 3652 CDCCs over 10 years, at 100% DOD and 100% RTE at 13.5 kWh/CDCC, and no degradation over 10 years
        Assume excess solar is sent to batteries during offpeak/shoulder; no cost of the solar hardware is factored in to this arithmetic;
        Assume the cost of sending excess solar to the battery rather than back to the grid is the current FiT of 11.3 c/kWh
        Assume 29c/kWh exported
        No factoring in for NPV
        Income over 10 years = 3652 x 13.5 x (0.29-0.113) = $8726.45
        So, the break-even cost of Powerwall 2 needs to be substantially below this to account for RTE, degradation, and NPV.

        • baseload renewables 3 years ago

          Getting to 10K over 10 years with these simple assumptions
          requires FiT of 31.6 c/kWh or export of 15.5 kWh/CDCC.

  3. baseload renewables 3 years ago

    Is this a solar export tariff or a general export tariff? Put another way, if the peak period ends after the sun goes down, can I still use my battery to export to the grid and get 29c/kWh?

  4. Morph3us 3 years ago

    Good for Victoria. In WA, when you fit a battery, you can tip yourself over the 5kW threshold and disqualify yourself from any FIT. So we have a dis-incentive to fit batteries. When will our regulators and policy makers get serious about the renewable energy market? I won’t hold my breath.

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