NSW energy burnt by the sun

The east coast electricity market is struggling to keep up with demand and carbon policies, but slashing the price paid for NSW solar PV generation won't solve its problems.

Throwing the baby out with the bathwater is not an adequate response to the ongoing shemozzling of the NSW solar bonus scheme.

The latest regulatory proposal to slash to a new low the feed-in tariff for the program, launched by Premier Nathan Rees in 2009 and gutted by his successor Kristina Keneally when it became a runaway problem, has attracted calls for the 'broken' east coast electricity market to undergo radical repairs.

The problem is not the market; it is the sheer inability of governments to design and implement a program of this sort.

The so-called 'national' market of NEM (it does not embrace Western Australia or the Northern Territory) has performed pretty well over 15 years and has delivered highly competitive wholesale power prices, very high levels of reliability, a substantial amount of generation development (until recently) and investment in inter-regional high voltage transmission.

That the market has to deliver a whole heap more in the next decade to meet the requirements of new demand and carbon policies is undeniable.

But overturning how it works to achieve some notional green nirvana is simply stupid.

The market’s two big current problems are that a continuing surge in peak power demand and the urgent need for investment in networks – after a five- to seven-year period in which regulators held down capital outlays to keep prices low – have required $35 billion expenditure in the wires business, adding substantial end-user price increases to the cost of green schemes.

The actual breakdown of the 17 per cent increase in NSW household power bills imposed last July for 2011-12 was 1 per cent for generation, 6 per cent for the renewable energy target and the solar bonus scheme, 9 per cent for higher network charges and 1 per cent for increases in billing, metering and marketing cost rises.

The networks wanted to spend a lot more – the Australian Energy Regulator slashed their bids for 2009-14 capex by more than $5 billion.

When higher network charges now in train are added to a range of carbon costs already in place or about to happen plus impending price rises for gas and coal in line with international trends, east coast power bills are likely to double between 2011 and 2017 – to the consumers’ rage and politicians’ lack of solutions.

Fortunately, there isn’t a government on the east coast running around seeking to pull the market structure to pieces, although they are, through CoAG, pushing the watchdogs to improve its performance.

Whatever rooftop solar power can contribute to easing the cost burden for a minority of New South Wales’ three million residential account holders (a third of the national total) – and this is a fiercely debated issue – could not be delivered by devising and introducing a scheme described by the NSW Auditor-General as "without a proper cost benefit analysis or an overall business plan.”

His verdict in late 2011 was that the Rees/Keneally government approach did not include obtaining value for money.

The NSW Independent Pricing & Regulatory Tribunal, in its latest review of the scheme, says that a 5 to 8 cent per kWh return this financial year from retailers to solar PV householders exporting energy to the grid would be "fair and reasonable” when the companies’ costs are taken into account.

IPART also believes that the value of the solar power will be higher in the new financial year following the introduction of the Gillard government’s carbon price.

Of course, 5 to 8 cents is a far cry from the original 60 cent/kWh feed-in tariff or even the 20 cent level to which a panicked Keneally government slashed it less than a year after it was introduced, but IPART has set out in detail why this is what the power is actually worth.

It has also made a point of noting that the claims for output from the rooftop arrays by the environmental movement and PV marketers are typically lower in situ – because the claims are based on tests run on units operating under optimal conditions and their real performance depends on a range of factors, including the extent to which are they are shaded during the day.

In the deeply leafy north-west of Sydney were I live I pass homes during my walks that are practically buried in tall trees with the solar suppliers’ signs still proudly displayed to boast that the householder is doing his or her bit to save the planet.

The power distribution businesses have pushed back against the solar spinners’ claims that exports to the grid can save them three cents per kilowatt hour by pointing out that, in fact, in suburbs where there has been a high take-up of PVs, their costs have gone up as they struggle to deal with sustaining the right voltage levels for the area as a whole.

In the Greater Sydney area, they add, PV arrays provide no system-wide benefits in meeting winter peak demand because they are not able to export to the grid.

In pursuing the blame game over this issue, green commentators and the environmental movement seek to vilify the mainstream electricity suppliers and the market structure, but the other side of the coin, as former senior bureaucrat Michael Lambert pointed out in a government-wide audit undertaken for Barry O’Farrell, is "lack of rigorous program evaluation” for the solar bonus scheme and other NSW Labor adventures in incompetence.

Tearing up the east coast electricity market won’t solve that problem.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.

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