Victoria turns the tide on value of rooftop solar and feed-in tariffs

Solar households in Victoria can look forward to feed-in tariffs that might net them more than 30c/kWh at times of “critical peaks” in the future, but the significance of the new tariff arrangements announced by the Victorian government this week go further than that.

For the first time since the generous, and in most cases over-generous, solar bonus tariffs were ended in most states, authorities are looking to reward rooftop solar owners for the environmental and network benefits of their systems, rather than through a narrow prism of treating them like mini coal-fired generators.

From next July, solar households in Victoria will be the first in Australia to receive a feed-in tariff that directly reflects an environmental value, and a time of use component, and this will then be followed up by a component that adds in the value of rooftop solar to the network.

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The new framework will mean that the average price paid for solar exported from the grid will rise from around 5c/kWh now to between 6.5c/kWh and 7c/kWh. This reflects the avoided greenhouse gases, and in the absence of a carbon price, is based around Victoria’s energy efficiency scheme.

The price might go higher, to around 8c/kWh to reflect “peak rates” – from between 3pm and 9pm. But could also go to 30c/kWh or more in moments of “critical peaks”, when wholesale prices jump that high.

There are, typically, around 20 or more such critical peaks a year (half hour periods). However, the formula for this aspect and how that might be passed on to solar households is yet to be worked out.

The new prices will come into effect next July. The 70,000 or so solar households on the transitional and “standard” FiTs will transition to the 5c/kWh tariff when those schemes end on December 31. There will still be 89,000 early adopters who will continue to receive their 60c/kWh tariff until 2024).

The network benefit will be added in from July 1, 2018, after a report from the Energy Services Commission is completed next year. It is expected that this should add a few cents to the tariff, although this will be a particularly interesting exercise.

In most states, network operators have conceded that rooftop solar either reduces the peak, or narrows it considerably, and solar advocates have long argued that these benefits should be reflected in the tariff paid to solar households.

However, when pricing regulators in the past have been asked to identify the network benefits, such as the Queensland Productivity Commissions, they have said they could see none.

It was interesting that the ESC asked to separate those deliberations from the environmental ones. It was also interesting, and disappointing, to note that the ESC could not find a way to value environmental benefits, other than climate change, that could arise from using more solar – such as less particulates in the air from coal generation.

There is no doubt that its report will likely set a precedent for other states to follow, and that is the importance of what is happening in Victoria, given that mandatory solar tariffs are generally being removed, and indicative tariffs only raised when rising gas costs drive up the price of wholesale power.

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The particularly galling thing for solar customers who have installed solar in recent years has been the reality that they have been receiving peppercorn prices for their solar exports, while that same output has been sold to neighbours at four, five or even 10 times the price at peak periods.

This differential is one of the driving factors behind the big push towards battery storage. As battery storage costs come down, consumers will find it makes financial sense to store their excess electricity in a box (a battery) for use later on.

Many will be watching how these time-of-use tariffs evolve. The next step, of course, is to see how battery storage can then be exploited, either individually or en masse via “virtual power plants” that can then be used to address peak demand, contribute to grid stability, and even avoid grid upgrades.

There can be little doubt that most of the premium solar tariffs instituted by the states were too generous for too long. Most should have been better managed, scaled back in price more quickly, and should not have locked in such high payments for 20 year periods as they did in Queensland.

But the response has swung too far the other way. Under pressure from utilities, pricing regulators and governments slashed the feed-in tariffs to reflect only the wholesale price of electricity, adding in some minor credits for avoided line losses. Other benefits such as network, environmental and social were ignored.

Some utilities have gone further than that, proposing demand tariffs that appear to unfairly penalise solar households, or even proposing solar “taxes”, either higher costs for network connections or “taxes” on the solar exported back to the grid.

Victoria energy minister Lily D’Ambrosio describes the new tariffs as a “step change” and a significant move to providing a “long-term sustainable pricing framework” for those who choose to invest in solar. What will be interesting to see is how this will be developed along with battery storage, which will be an important component of any high renewables scenario that the government is planning to implement – Victoria wants 40 per cent by 2025.

The Australian Solar Council says it welcomes the move as a “useful first step”, and it will be watching what happens to the network component, which could be significant given that networks are increasingly looking to solar and storage and other technologies to reduce network spending.

“It’s a fairer price, but not yet a fair price,” CEO John Grimes said.

The Clean Energy Council’s Darren Gladman says the recognition of the role that solar power plays to reduce emissions is also a welcome move from the government.

“This new system is simply better recognition of the true value of solar power when it flows back into the power grid. This will also help to provide an incentive to install home battery systems, which are coming down rapidly in price but still outside the reach of many working families,” he said.

Comments

14 responses to “Victoria turns the tide on value of rooftop solar and feed-in tariffs”

  1. Rob Campbell Avatar
    Rob Campbell

    Hooray, for the first time someone is talking about cost reflective import and export tariffs, At 30cents, batteries are a neat fit and it also means that a unit dweller without solar can purchase a battery storage unit, store solar energy at peak generation times from anywhere and use or export when the price is high – lets keep this conversation going Giles.

    1. wmh Avatar
      wmh

      Twenty half hour periods a year (10 hours a year) won’t pay for all those batteries, neither will 8c/kWh for 6 hours a day when self consumption will save 56c/kWh.

      1. Ken Dyer Avatar
        Ken Dyer

        What you fail to understand is that a 3 KW system will generate in excess of 1 megawatt a quarter for nothing. What this means is that for a 2 person household, for the first time, the return on investment will start eating into the gold plated network charges Victorians are being slugged with. Batteries will improve that situation by time shifting energy to peak times as and when required. And of course they are getting cheaper by the day, with full payback on a standard sized system down to less than 5 years in some cases.

        1. Rob Campbell Avatar
          Rob Campbell

          So what don’t I understand, the whole premise of what I am saying is that when all customers have the opportunity to absorb excess grid energy and then have an incentive to self consume or export then the demand profile on the grid starts to level out. Even with prolonged bad weather the ability to use what would otherwise be spinning reserve in the morning hours would still have a good chance of leveling out demand. We end up with a web more than a hub and spoke. The networks can start spending money on other things rather than expansion of networks to handle the stability issues with embedded generators.
          We have a long way to go but this is a start.

        2. wmh Avatar
          wmh

          1 megawatt-HOUR at a FIT of 5c/kWh pays you $50. Against this is your fixed cost of grid connection and the cost of whatever energy you draw from the grid. The other major costs are the opportunity cost of the batteries and the future worth of their replacement cost

      2. Ian Avatar
        Ian

        Wmh, you maybe right about the economics, or lack of economics of exporting battery stored electricity but the ability to have two way traffic with the grid may still be useful. For example, one might want to discharge the household batteries in the morning peak to make way for the day’s solar production. Or, one might not be at home for a few days or weeks and instead of letting the solar power and battery storage go to waste the batteries can be allowed to continue their daily cycle routine but the power exported at an advantageous peak time.

        1. wmh Avatar
          wmh

          It just gets down to economics – whether the payback for selling energy into the grid covers the fixed cost of grid connection (currently for me $83/ quarter)

          1. Ian Avatar
            Ian

            Generally battery plus solar systems are designed for daily cycling purposes. Any little hiccup, like days of inclement weather will severely constrain electricity usage by that off grid house. There are 5 solutions to this problem of prolonged poor solar irradiance. 1. Over design the pv system to produce reasonable amounts of energy on cloudy days and obviously far too much on normal days. 2. Install enough battery storage capacity to handle these occasions, batteries are the expensive component and thus the limiting factor in solar/storage systems. 3. Use mobile battery storage to buy in electricity from a remote outlet. (EV to household for short) 4. Have some sort of ff generator backup 5. Suck up the grid charges and stay connected to the grid.

            If option 5 is chosen, then two way traffic with the grid will be worthwhile, even if the FIT is small , just because the solar and battery equipment is already installed for daily solar power shifting.

            You’re right, why bother being connected to the grid just to export at a paltry 6 to 30c/kWh , but if the grid connection is maintained for other reasons, then why not export energy at times.

    2. Ian Avatar
      Ian

      Are you saying that a household can export electricity at any time , presumably from any source such as grid electricity bought at a low price stored in batteries and then exported at a higher price at peak export tariff times?

      If that’s the case, then these tariff changes are very progressive. ( but probably not very economical for households given the small price differential between off peak imports and peak exports)

  2. MrMauricio Avatar
    MrMauricio

    People are not going to stuff around waiting to get a cent here and a cent there by mid 2018!!! They will get OFF the grid!!
    Networks and these ESC commissions,who are merely their tools, JUST DONT GET IT!!!
    The true value of solar and wind power has been calculated to be above 40c in the U.S-because that is the true COST of coal generated power when environmental,heath,mine and power station rehabilitation water diversion for cooling and climate costs which are all borne by the wider community are factored in.

    1. Terry J Wall Avatar
      Terry J Wall

      Mr Mauricio, you are bloody right. I am a NSW Hybrid solar 6.5 kw power producer with a 6.5 kw battery. I am so close to telling AGL to f..k off, disconnect from the grid, that I am having palpitations of excitement, to be able to shove my finger up the a..e of corporate greed. Before I do it, I am trying to grow as many warts on that finger, before I put it to use.
      As for Turnbull, after so much hope that he might be just one chance of being a leader, we find he is NOT listening to the average middle man and acting on common sense, what an “OBAMA” flop he has been. He suffers from the selective hearing problem too (can only hear the spin from lobbyists).
      Can you imaging it: still subsiding the fossil fuel industry, no price on carbon, destroying the job producing innovations that Aussies have been so good at, not even enforcing the rehabilitation of open cast mines, not recognizing the leaking methane from fracking; he has shirt fronted the future of humanity as clearly as Abbot threatened. I hope he believes in hell, cause that is where he will end up.

      1. chickeee Avatar
        chickeee

        all you need is a bigger battery

    2. Rod Avatar
      Rod

      You are spot on.
      If the retailers don’t wake up soon and offer a fair FiT people will leave the grid and once they have gone, they won’t be back.
      The loss of higher FiTs is a green light for people to add more panels, shift their loads to daytime and consider storage. High supply charges will be another catalyst.
      Mass defections are not good for the grid or society but people will act out of frustration and in their own self interest. Good luck charging people for NOT using your poles and wires too!

  3. Phil Avatar
    Phil

    If the cost of rental for a smart meter is $100 , then for the extra 2 cents per kwh you are getting you need to contribute 5000 kwh worth of solar to the grid at the Older lower rate to pay for the rental.

    That’s the first 13.6 kwh per day on average and then your getting more on what you would have been getting without smart meter rental .
    Some in Vic pay less for smart meter rental and some pay more

    In NSW and QLD there are few smart meters , and with many getting 4-6c per kwh contribution and “first dibs” on any solar as its net and not Gross metered .

    You have to crunch all the numbers to make sense of the whole package if your ahead or behind.

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