The Victorian government announced yesterday it will no longer accept applications for the one-for-one 25 cent solar feed-in tariff after September 30. Systems applying after this date will only be entitled to a minimum of 8 cents for a kilowatt-hour (kWh) of electricity they export to the grid.
This export rate will be reviewed each year to reflect changes in wholesale electricity market prices. In addition those on the 25 cent feed-in tariff will revert to the 8 cent rate from the beginning of 2017.
With this decision we now have a situation where householders in every state in Australia pay substantially more for the electrons they import to their home than those they export. In the case of a NSW time-of-use tariff you might pay 45 cents for the electricity you consume, but for any electricity you export (at precisely the same time of day) you will receive 8 cents.
The argument behind this inconsistency is that solar PV output in residential areas does not align with the peak load placed on electricity networks (which make up half the cost of supplying electricity), and so they should only obtain the value of the electricity in the wholesale electricity market.
However what if solar is installed in areas whose network peak occurs around the middle of the day? And what if a household installed a power system that could export at times of peak demand on the local network (for example through use of batteries)? And what about installation of small co-generation or biomass power systems that could generate throughout the day?
Well in every state they’ve just kicked that issue into the long-grass as something to be discussed with the Australian Energy Market Commission at a date unspecified. The Victorian Efficiency and Competition Commission (VCEC) – which recommended the feed-in tariff be cut – also recommended that the Victorian government seek to change the electricity market rules so embedded generators could easily see, and access, an avoided network value.
While the government readily accepted VCEC recommendations to cut the feed-in tariff, it hedged its bets on submitting a rule change request to the AEMC to address network value. IPART in NSW also acknowledged last year that there was a network value that embedded generators should be able to access. But we’re yet to see a rule change request from them, nor have they made a submission to the AEMC Power of Choice review.
Apparently this will all be dealt with through the AEMC’s Power of Choice review, but I wouldn’t hold your breath.
Meanwhile state governments, other than Victoria, continue to resist the full roll-out of smart metering and time of use pricing that might induce households without PV to reduce demand during the evening peak.
So it appears that while PV system owners must be subjected to pure market principles, everyone else is exempted. This could well get worse if installation rates for PV continue to grow rapidly.
In response network businesses will be tempted to shift more of their costs into fixed, unavoidable charges for both business and household customers. So while a PV system today might displace an imported kWh at a cost of around 25 cents, in the future this imported kWh may only cost 15 cents, with the other costs replaced by a fixed network supply charge.
Network businesses will argue this is necessary to recover their largely fixed costs. However it will make peak demand worse if it is charged in a way that customers can’t reduce through cutting their peak demand. This is entirely feasible if there is not a widespread roll-out of smart meters.
If such a pricing structure is implemented, without reforms to allow embedded generators to access network value, the economics of solar PV could be shredded.
Next year there will be no multiplier for small-scale renewable energy certificates (SRECs or STCs). Also it appears federal climate change minister Greg Combet is keen to reduce the cost of the small scale renewable energy scheme and could cap STCs at $30.
Even if the cost of systems dropped to $2000 per kilowatt, an electricity import price of 15 cents per kWh and an export rate of 8 cents would mean systems would struggle to make a positive return after 15 years (assuming loan interest rate of 8 per cent).
Advocates of solar PV should be very careful in crowing about how their technology will grow onward and upward. There are speed bumps waiting for you.