Selling solar in an evolved energy market

Yesterday we got a glimpse into the future of the energy market, as the Australian Energy Regulator starts to grapple with how to regulate the proliferation of new models to sell energy.

For the last couple of years, companies like Sungevity have been installing PV systems and leasing them back to home owners and businesses for a fixed period. But now there are companies including Electriq, ClearSky Solar Investments and Express Solar that are selling the energy generated by the systems to consumers as well.

They sometimes do this at a flat rate; otherwise at a discount to the rate consumers are paying their normal retailer, with whom the consumer retains a contract to supply energy when the sun isn’t shining. Ownership of the PV system reverts to the hosting homeowner or business within seven to 15 years.

This sale of energy puts these companies in the AER’s sights, as they overlap the role of traditional energy retailers. So yesterday the AER released an issues paper on solar power purchase agreements (PPAs).

The AER already has a Exempt Selling (Retail) Guideline, which is made under the National Energy Retail Law, and which was updated in July this year. It covers the registration processes and consumer protections applicable to different classes of energy sellers who qualify for exemption from the onerous fiduciary and compliance costs and requirements that fall on full or authorised retailers. It does, though, list a raft of consumer protections that sill apply to exempt sellers.

The exempt guideline applies mostly to embedded sellers like caravan parks and retirement homes, plus residential and commercial landlords, who on-sell energy to their residents.

There have been some problems in its application in Melbourne in particular, with some new apartment building developers becoming the sole energy suppliers to tenants. Although the Retail Law and the exempt guideline don’t apply in Victoria yet, the AER has good reason to be cautious.

Basically the AER's line in the SPPA issues paper is that if the service is an add-on to your contract with an authorised retailer, the company can get an individual exemption via the exempt retail guideline; but if they are the sole energy provider they will need a full retail authorisation.

From a consumer protection perspective this is entirely reasonable. Energy consumer groups have fought for years for adequate protections for vulnerable consumers, especially, so they wouldn’t want to see new entrants avoiding these obligations by qualifying as exempt sellers.

As well as PV system sellers, the AER’s proposed position should benefit community solar and private precinct-scale co- and tri-gen projects where the generator is not providing all of the consumer’s energy.

This could also help low income households which can’t afford the upfront capital cost of PV and storage systems. Some landlords are already selling the energy exported from PV systems they own to tenants at a discount to the energy they buy from their normal retailers.

But it does raise a couple of issues for the future. One relates to storage. When these companies start selling batteries as well PV systems and the energy they produce and store, there will be little or no need for consumers to maintain a contract with a big retailer. The way the AER sees it now, this would mean the PV/storage supplier would have to get a full retail authorisation. I suspect that in practice, these companies would then revert to selling the hardware rather than the exported energy, to avoid the costs and hassles of becoming a full retailer.

Another issue relates to the broader emergence of energy services companies (ESCOs) that will seek to occupy the space, (which doesn’t really exist yet in the National Electricity Rules), between network, retailers and prosumers (producer-consumers). As peak demand and overall consumption fall, networks and retailers will have to become ESCOs in order to survive. To date, they have mostly displayed a reactive approach to this prospect, with attempts to ramp up fixed charges and discriminate against PV owners to attempt to recoup a similar amount of revenue from less volume.

An example of a form of ESCO we don’t have in Australia: in Germany there are about 600 energy cooperatives, including Greenpeace Energy eG, with over 30,000 members. There is no mechanism for energy cooperatives to emerge in Australia, because they would basically have to set up as full retailers, which is difficult to do without about a million dollars in the bank, experience in the industry, and so on.

Whether energy is sold for a profit is one of the AER's main criteria for determining if a seller can gain an exemption, so we would hope that the fact that energy co-ops are not for profit should weigh in their favour. On the other hand, there is no doubt they are selling energy and are in direct competition against existing retailers, most of whom invest most of their money in fossil fuel generation through their PPAs and gen-tailer arrangements.

So the challenge for energy consumer groups like the Total Environment Centre is to encourage regulators to help us encourage the emergence of new energy models that will result in lower emissions and increase consumer empowerment without removing consumer protections.

If you are now thinking, “Well, that’s another reason to encourage people to go off-grid”, you might be right. How we can do that without burdening those remaining on the grid with higher bills to pay for network assets with long lives will be the subject of another article next month.

Finally, in another hurdle for solar businesses, the AER’s Exempt Selling (Retail) Guideline is only currently in force in NSW, ACT and South Australia, so companies wanting to introduce innovative selling models across the nation, or even across the NEM, currently have to deal with multiple regulatory frameworks. (Talk to your state minister about that.)

The AER is accepting submissions on its issues paper until Friday, November 22.

Mark Byrne is energy market advocate at the Total Environment Centre.