Australia’s power generators and electricity network operators are viewing the rapid falls in the cost of solar PV and an anticipated surge in installation with an increasing level of concern.
The potential of solar PV to deliver cost-effective options for home and commercial consumers has been apparent to many in the industry for some time.
The report delivered by the Victorian Competition and Efficiency Commission into solar feed-in tariffs merely confirmed this, and offered it as a potential excuse for the utilities’ apparently lack of enthusiasm to ensure connections for solar PV and other forms of distributed energy.
While plunging costs are good news for consumers, who can turn to solar PV in increasing numbers with the emergence of innovative financing solutions, it is a massive headache for the incumbent generators and network operators, who are about to witness business models built up over decades being shredded by a technology that is as disruptive to the electricity industry as mobile phones were to telecoms.
A couple of graphs that have come to our attention in recent days illustrate the problem – and the challenge – in different ways.
The first comes from Bruce Macfarlane, at energy and carbon market advisory firm Exigency. It seeks to estimate the impact of the anticipated growth of solar PV in Australia – on the demand profile on the National Electricity Market.
Australia has just over 1.5GW of solar PV installed on rooftops now – so there is little apparent impact on the NEM as it stands. By 2020, when the percentage of households with solar PV is expected to treble from around 7 per cent now to 19-20 per cent, the impact is significant.
By 2030 and 2035, it takes a large slice out of the generators’ earnings pie – an impact that has already been established in Germany, which has 25GW of solar PV and counting, and which we documented in our piece “Why generators are terrified of solar.”
It should be remembered that the profit projections – and the debt repayments – built into the Australian generators’ financing models depend almost entirely on the “super dividend” they receive when peak demand surges and the cost of wholesale electricity rises up to 10-fold for just a few hours of the year. A large deployment of solar PV will quite literally throw a spanner in those works.
The second graph highlights the concerns of the network operators, who are caught in the crossfire between centralised and distributed generation, because they are no longer too sure where their future revenue might come from.
This graph comes from a VCEC submission from electricity distributors Citipower and Powercor. It illustrates what happens with tariffs and rooftop solar. Citipower and Powercor say the pink line represents the electricity generated, the purple line the effective subsidy by other consumers, but then it describes the blue area – which represents the electricity generated by the rooftop system owner – as an “indirect subsidy,” because it represents the usage that the network is unable to recover from PV customers during the current regulatory period. i.e. the implication is that owners of distributed generation are being subsidised for not using the grid.
Citipower and Powercor use it as an argument in favour of gross tariffs rather than net tariffs, attempting to tie the owners of distributed energy to the grid, and their electricity tolling booths. Essentially, what it is saying is that the current tariff structure – with a modest fixed component and associated variable component – is unsustainable if solar PV installations continue at current numbers. They need to find a way of maintaining a network with an increasing variation of demand and supply, both in quantum and location. In some ways, it is a similar conundrum to that faced by fixed line telephony a decade ago – how do they spread the cost of increasingly expensive infrastructure among an ever decreasing number of users?
This, though, is just one part of the jigsaw that regulators and market operators are going to have to get on top of, as solar PV and other distributed technologies – not to mention the storage possibilities of electric vehicles, and the savings of energy efficiency measures – become increasingly disruptive to the incumbent oligopolies. So far, they – or more particularly the pricing regulators – have shown little gumption in taking on the established interests and, in the case of VCEC, simply wanted to handball the connection issues back to Canberra. But at least they raised them.
Same old, same old
It was interesting to note in some submissions to VCEC that some old chestnuts are still being traded around as fact, despite evidence to the contrary. Of particular interest was the submission of brown coal generator Loy Yang A, dated just one month after its announced purchased by AGL, which had already adopted the rhetoric of its putative owner, labeling solar FiTs as “inequitable” and “regressive”.
It also quoted the Productivity Commission’s report that put an “abatement” cost of solar PV at up to $1,043/t. Sadly, it seems to have missed out on the PC’s admission in December that it got these figures badly wrong, and the abatement costs were no more than $497/t, and possibly as little as $177/t – and, others would argue, rapidly decelerating and effectively zero when there is no FiT at all.
Just to put the costs of the various green schemes in perspective, here’s another graph from Exigency highlighting the relative inputs from transmission, distribution, retail costs, and the renewable energy target, feed-in tariffs etc. It shows that household PV subsidies have had only a minor impact on household bills and feed-in tariffs are expected to add 1 per cent to average tariffs in 2013, according to the Australian Energy Market Commission’s own forecasts.
And here’s another graph from Exigency, which we publish simply because it is a really good summary of where the states are at with their feed-in tariffs, and it’s a mighty handy reference. Victoria, obviously, is about to change. And keep a watch out for Queensland.
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