Since covered in an article in the Australian last week, sparks have been flying about the Australian Energy Market Commission’s (AEMC’s) stated ‘strategic priorities’ for the future development of Australia’s National Electricity Market (NEM). The NEM spans the entire east coast of the country, connecting all states from Queensland to South Australia to Tasmania; the AEMC sets the rules for the NEM.
The main focal point of the strategic priorities document for the Aussie solar industry is the section pertaining to the emergence of distributed energy systems–particularly solar photovoltaic (PV) systems–and their impact on the utility business model. Retail electricity tariffs, suggests the AEMC, require updating to come into alignment with the new reality of widespread rooftop solar adoption.
Reading between the lines, ‘tariff restructuring’ would likely mean that Australian solar system owners would pay more for access to grid electricity than their non-solar counterparts. Although it is not yet clear if they would be singled out, if all grid-connected electricity consumers would be affected–or if there would be some other arrangement entirely–the feeling is that the utilities seem to believe that the ‘problem’ is with solar, and needs to be fixed.
Renewable energy & solar power advocates have reacted with outrage at the idea, which could limit the financial benefits of investing in solar power just as the solar industry appears to be entering a period of cautious equilibrium. Clean electricity campaigners 100% Renewable Energy, for example, referred to the prospect as an attempt to ‘tax the sun’. Meanwhile, NSW parliamentary secretary for renewable energy & energy innovation Rob Stokes took to an op-ed in the Sydney Morning Herald, decrying the idea of separate tariffs aimed specifically at solar system owners as ‘a really bad idea’ and ‘unfair’.
Do non-solar homes & businesses really subsidise those who own systems?
If retail tariffs specifically targeting solar system owners are eventually introduced, it would signify retrograde motion in the policy environment for distributed energy, sliding backwards past the mere reduction of subsidies for small-scale systems and into what could be seen as difinitively anti-solar territory. Previously in Australia, the conversation focused on whether non-solar homes and businesses were effectively subsidising solar system owners through their electricity bills–the cost of solar feed-in tariffs and the federal renewable energy target are spread over the bills of all retail electricity customers. With the closure of virtually all of the feed-in tariffs once on offer from various Australian state governments, however, the ‘cross-subsidisation’ story enters new territory.
Those who install systems now are rewarded at a rate of only about 6-8c/kWh (depending on the state) for electricity that they export to the grid–widely determined to be the ‘fair & reasonable’ value range for solar electricity from distributed systems. This has resulted in a situation in which those who go solar must focus on ‘self-consumption’ of their solar power, avoiding export to the grid as much as possible; why would they want to sell the electricity for 8c/kWh when its offset value is nearly 3 times that? But homes and businesses across the nation grasp the value of this proposition and are making the switch to solar even in the absence of generous feed-in subsidies.
The problem with solar (in the eyes of the AEMC)
The argument from from the AEMC is not completely unreasonable when looked at from a utility perspective. The business model of a utility–which, after all, sells electricity–is threatened by broad uptake of distributed generation systems like rooftop solar. First of all, there is the issue of falling electricity demand, which has occurred at least in part as a result of more households and businesses generating their own power. Falling demand means less electricity sold, which could translate into shrinking revenues for utilities.
Secondly, there is the issue of the makeup of electricity tariffs–which are comprised of generation, network, and retail components. Most importantly in this context, electricity must be distributed & transmitted to end customers, and the infrastructure required to do so costs utilities and network companies money to build and maintain. At the moment, in many cases, the 3 types of charges are bundled into neat, ‘per kilowatt-hour’ units–$0.23/kWh, for example. There may also be some fixed daily charges, but the assumption is that homes and businesses with a grid connection will have a certain minimal amount of electricity consumption that justifies the utility’s supplying them with electricity.
What the AEMC seems to be suggesting is an ‘unbundling’ of these different price components of electricity–and possibly singling out solar PV system owners. This, the argument goes, would eliminate the ‘inequity’ between those who can afford solar systems (and/or energy storage systems) and those who cannot. Unless a solar system owner manages complete energy independence and by disconnecting from the grid entirely, they will still have the grid as a backup for when their system doesn’t meet their needs–which might only occur a small sliver of the time. Again, the argument is then that solar PV system owners will not pay their fair share of the network costs, forcing up prices for others.
Reactions from solar advocates
Several commentators have pointed out the absurdity of the AEMC’s argument. As Mr Stokes notes in his op-ed, ownership of AC units has had a massive impact on network infrastructure spending at the expense of those who do not own them–yet no one has suggested that they be forced to pay more for the electricity that they use. “The installation of cheap, imported airconditioning units in hundreds of thousands of households in recent years is a big contributor to the rise in capital spending by networks to enable them to meet peak demand,” he says. He also says that changing the tariff structure now would be like pulling the rug out from underneath those who already own systems. “In the past few years, more than 1 million households have installed solar panels on the understanding that they would pay the same amount for electricity they buy as everyone else.”
Climate Spectator’s Tristan Edis expresses bewilderment at what the AEMC is suggesting. His analogy: “Say, for example, you decide to sell your car and instead get about on your bicycle. [The] logic is that you are getting an unfair gain (“overcompensated”) unless you pay the petrol retailers and road authorities for the income they have lost when you go it alone.” In a separate article, he also points to forthcoming research from the APVA about how the uptake of solar may actually be insulating all households against the price-inflating effects of AC units–something that the AEMC should surely take into account when considering tariff restructuring in the future.
RenewEconomy’s Giles Parkinson is colorful in his repudiation of the AEMC’s stance–noting that anyone who undertakes energy efficiency & conservation measures is in effect committing the same sin as solar system owners. “How about those installing LED light bulbs, or more efficient pool pumps?” he asks. “What about those swapping their plasma TVs for flat screens, or who have decided to upgrade their air-conditioning? Or even those empty nesters who have reduced their consumption because the kids have grown up and moved on?”
100% Renewable Energy & Solar Citizens moved characteristically quickly into action, setting up a “Don’t tax the sun” petition and pointing out how the AEMC’s outlook is clearly skewed towards the incumbent utilities. Compared to ‘poles & wires’ infrastructure expenditures, which make up 70% of the average Australian power bill, “solar is a small portion–less than 6%–but it’s constantly being scapegoated by the AEMC and other bodies who don’t want Australians like you to have control over your power. They’re misrepresenting the truth and making us the bad guys – when it’s really big energy companies that are making the cost of electricity increase.”
So what’s next for solar PV in Australia?
It is not yet clear what sort of action the AEMC will take with regard to tariff restructuring, but the fact that there this issue is causing such a stir is a reminder that rooftop solar is a new, disruptive technology, and that current infrastructure was not developed with it in mind. Utilities are currently wrangling with a new reality, and the solar industry is attempting to get the recognition it deserves.
The most realistic ‘best-case’ scenario for solar owners would be for the status quo to remain the same (a return to generous feed-in tariffs would probably fall into the ‘unrealistic’ category). The worst case scenario would be for homes and businesses to witness a switch to billing in which network costs are decoupled from consumption and fixed at a daily or monthly rate–much in the same way that Sydney Water bills its customers. This sort of decoupling of electricity usage with the end-bill would certainly not go down well with electricity consumers, who would then lose control over their ability opt to save money by using less electricity.
© 2013 Solar Choice Pty Ltd
He is now the communications manager for energy technology startup SwitchDin, but remains an occasional contributor to the Solar Choice blog.
James lives in Newcastle in a house with a weird solar system.
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