Solar attack on air conditioner subsidy

Forthcoming research suggests PV could be helping combat the cross-subsidy costs imposed on electricity consumers by the rise of air conditioners.

Concerned that owners of solar PV systems may be unfairly hit by a special charge to recover electricity network costs, the Australian PV Association and think tank The Centre for Policy Development have released a preview of research results they intend to publish next year.

This upcoming research seeks to quantify the impacts of rooftop solar on other householders’ electricity bills, and suggests solar may help soften the blow of cross-subsidies given to air conditioners.

Regular readers of Climate Spectator would be aware that the rise of household air-conditioners from about 20 per cent of homes at the turn of the prior decade to around 70 per cent of homes now, has been a major driver of increased peak demand on our network infrastructure. The extra costs of upgrading networks to cope with this air-conditioner demand have been borne by all consumers rather than the specific household who installs the air-conditioner. This is because electricity charges for the most part aren’t based on a household’s demand during network capacity peak periods, but rather the total amount of kilowatt-hours they consume over the year.

However, while air-conditioners have imposed significant extra costs on consumers, the APVA and CPD find that installation of solar helps to reduce the burden of this air-conditioner subsidy. The chart below shows the preliminary results of their research for two independent datasets from NSW households. Assuming 20 per cent of households install an average sized air-conditioner on the standard electricity tariff, the annual electricity bills of customers that do not have air-conditioners increases by $76 to $88 a year. If households on the same network also install a 2.5kW PV system, the increases faced by other customers’ due to AC would be between $3 to $26 lower.

Impact of solar PV in lowering the annual cost imposed on consumers from air-conditioner installation

Graph for APVA and CPD solar and AC costs

Source: Forthcoming report from Australian PV Association and the Centre for Policy Development

The ability of PV to reduce peak demand is based on actual PV output during the distribution and transmission network peaks, which corresponded to 20 per cent and 54 per cent of PV-rated capacity, respectively, for dataset 1, and 11 per cent and 43 per cent respectively for dataset 2. 

The APVA and CPD say their research suggests the idea of imposing a blunt charge on households simply for having solar installed, which has been floated by the Queensland utility regulator, would therefore be inappropriate. 

The full report providing details of the modelling approach, as well as outcomes for PV with batteries, solar water heaters, and general demand reduction will be available in early 2014. This will include analysis of how time-of-use and demand charge tariffs affect different classes of consumers.

The research recommends restructuring tariffs such that all households would pay a separate levy based on their peak demand (a ‘demand charge’). They believe this will provide better incentives for efficient use of new energy technologies such as energy storage, electric vehicles and smart energy efficient appliances.