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Why new solar tariffs could drive a man to diesel

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Two years ago, Queensland cotton farmer Ian Brimblecombe installed a 30kW tracking solar system near his irrigation pump site in, in the heart of Barnaby Joyce country. The solar panels worked so well that he decided he wanted to add an extra 30kW, to offset the costs of his considerable energy needs.

But then he got a shock. Under the new tariffs put together by the state-owned utility, Ergon Energy, Brimblecombe was facing a massive increase in energy costs – even if he did put more solar up to generate his own electrons. The tariffs of 29c/kWh at peak and 10c/kWh at night had been replaced with a new 10.6c/kWh flat tariff, accompanied by increased fixed charges – meaning that the economic incentive to put in more solar was all but wiped out.

But it gets worse. Brimblecombe has two pump sites. One, with a 200kW electric motor (plus the 30kW solar), used 97,000kWh last year. At the second site he has a 70kW motor and used about 86,000kWh last year. He planned to put another 30kW of solar at this site and was in the process of increasing this to a 220kW electric motor.

But if his usage goes over 100,000kWh, he becomes a “large user” and loses the solar tariff of 44c/kWh.  That would nearly quadruple his bill from $20,000 to $74,000. “So next year I will probably replace the electric motor with a diesel motor, unless I can get a decent tariff that reflects time-of-use pricing,” he tells RenewEconomy.

It seems to be part of an increasing pattern of behaviour from energy utilities, and Brimblecombe is not impressed. “Unless we can fight these tariffs my only option is to go to a diesel engine on my pump,” he says. “We really need some smart economist to come up with some better tariffs that rely less on demand charges and charge more for usage at peak times. With these current tariffs, businesses will just go off the grid.”

And it’s not an isolated case. Despite the rhetoric from state governments about rising electricity costs, the state-owned utilities in NSW and Queensland, in particular, are denying their customers the opportunity to invest in their own equipment to reduce their costs – not just by changes to solar tariffs, but by framing general tariffs in such a way that solar could no longer be used as an offset.

Geoff Bragg highlighted the issue in this piece for RenewEconomy a few months ago, when he wrote about the “solar squeeze” being applied by Essential Energy in the same manner to its commercial customers in NSW. And the Australian Photovoltaic Association recently focused on the growing reluctance of utilities to connect commercial-scale solar in a submission to the Australian Renewable Energy Agency.

The APVA says there is evidence that network operators, as well as retailers and generators, are increasing their opposition to distributed generation such as commercial solar, because of reduced sales and the so-called “merit order effect’.

It says restrictions have been placed on new PV installations in some areas, significant tariff reductions have been offered to customers applying for PV connections, and major barriers have been placed on commercial PV installations. And they get away with it because the APVA says commercial installations have no grid connect mandate or guidelines and no policy support.

It cites one instance where a proposal for a 30kW system was quoted a connection cost of $100,000 – with no explanation given or required. In other cases, there were delays of a year or more between submitting applications and getting feedback.

Why would utilities act in such a way? Quite simply, to protect their business models.

The APVA says that the levellised cost of energy for commercial-scale solar is now equal to, or lower than, publicly available retail electricity prices. Unlike residential solar, commercial-scale PV systems better match commercial loads, and could therefore be very useful in peak demand management and to minimise grid exports. And commercial systems were larger, increasing the market and decreasing prices faster through economies of scale.

However, any significant reduction in electricity consumption, especially per customer, will put increasing pressure on the utilities’ traditional revenue and business models, which depend on kWh sales for the bulk of their revenue.

The APVA notes that if Australia installed more than 8GW of rooftop PV by 2020, as it would with only 15 per cent growth per annum in the coming eight years, this would represent around 5 per cent of total electricity demand. But because most would be in the form of distributed generation on the commercial and residential networks, it would radically change demand patterns and network requirements. Some private forecasts put the potential of rooftop PV at up to twice that amount.

“If kWh (kilowatt hour) sales continue to fall, one response to maintain retailer and network operator revenue may be to increase service availability and network access charges,” the APVA noted (as happened to Brimlecombe). “However, customers are unlikely to respond favourably to increasing bills as their electricity use decreases,” it added (as is also the case with Brimblecombe).

The APVA said new regulatory arrangements need to be put into place as soon as possible to cater for this new market to avoid “perverse customer behaviour” and “uncompetitive practises from the incumbent gentailers. “

The APVA aims to develop a standard ‘default’ connection procedure which can be used in all states and territories, and some transparency in the process and for finding out what the issues and costs are at a site. It complains that these processes are protected as “commercial in confidence”, but this effectively blocks new market entrants.

It also wants the utilities to publish their “hot spot” maps so the industry can see where network expenditure is likely to be required over the next five years, and hence where energy efficiency, renewable energy or demand management could be cost-effective to implement.

Brimblecombe would simply like some of the new retail tariffs, which propose peak rates of 38c/kWh and discounted off-peak rates to be extended to commercial customers.

“If I could replace Ergon Power at, say, 30c/kWh for five months of the year while I am irrigating and get 8c for the rest, that would probably be worthwhile,” he says. “What we really need is storage so we can time shift our peak from midday to 4pm to 8pm and get the new peak tariff of 38c, which Ergon have just proposed for residential users.” And if that doesn’t work, a combination of diesel, storage and solar will allow him simply to wave the utility goodbye.
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  • http://www.remotenergy.com Barrie Harrop

    The answer is simple get off the grid.
    Its no wonder we have been rushed with http://www.remotenergy.com

    • Peter Davies

      Yes, but for a further reduction of 80% of the remaining diesel we have often considered that a hybrid Wind/Solar/Biomass system would have a lot of advantages with the zero fuel cost of the first two and the peak lopping/load following capacity of the latter.

    • Mart

      But what are the societal costs of a significant exodus from the grid, especially in relation to lower-income households?

      In California at least they are discussing the practicalities of a zero-net-energy-buildings, distributed-generation electricity grid future. Wouldn’t that be a better approach for the majority of the Australian population?

      See http://www.rmi.org/rmi_pge_adapting_utility_business_models

  • http://thisnessofathat.blogspot.com.au/ Gillian

    It looks like NSW govt is aware of this issue. Their draft Renewable Energy Plan has Action No7 –

    Support mid-scale solar PV by identifying opportunities and working with electricity distributors to enable uptake of solar technologies where they are most cost effective.

    So maybe they’ll put a spoke in the wheels of electricity distributers who are busily protecting their business models.

    • Peter Davies

      The key phrase here is “…where they are most cost effective”. The Utilities models as cited in the article make Solar “not cost effective”. Sort of a Catch 22 strategy. Utilities will also argue that rural users such as farmers also have the highest per connection line cost.

      In our case we have been told by a regional utility that they would limit renewable connections to 10% of branch line capacity “for technical reasons”. As most branch lines are only 1-2MWe capable then on any given branch the 10-50 users might have to draw straws to see who can get connected…

  • Chris

    “If all you have is a hammer… if all you do is poles and wires…”

    This article is trying to highlight the wrong problem and has missed a bigger issue, shame. Maybe the focus should be why are we investing in grids to remote communities when there are better, cheaper options?

    Perhaps someone should add up what it takes to string up a wire (and poles) to get to these towns or farms. Then to maintain them. Then to expand their capacity because someone wants to run a big TV, air con. Then to keep them running during floods, storms, and heat waves.

    Maybe what should be happening to remote locations is cut from the Grid. Maybe it is cheaper for the state to just deploy Solar , gensets, wind in remote towns or sites rather than maintaining a set of wires to these locations. Maybe carting LNG to remote locations is better where they have generators?

    I can do this on the back of an envelope sitting 3000 miles away. (in my aircon office)

    Queensland spends a fortune on its grid in remote locations to have some bloke connected. With todays distributed energy technologies – we should reconsider this old world view.

    To then write about a feed-in is missing the bigger more expensive question……… !

  • Jo Muller

    As Ian Brimblecombe is an irrigator, storage should be no problem and could be relatively low cost. Instead of storing energy he has just to move the water to a higher level when he has spare energy available.

    For instance using solar powered pumps to pump water in an elevated storage tank, either on a hill or as a kind of a water tower will do the trick.

  • Peter Davies

    We have found utilities to be very good at giving every assistance…short of help.

    There is no reason though to look outside of renewables to get off grid for applications like pumping. The alternative to diesel is a biomass gasifier such as Real Power Systems P/L, successfully publicly demonstrated again at the Zero Waste Australia’s Innovation Expo held in Queanbeyan last week. One of the companies development units was “idling” outside the building flaring enough clean gas from wood waste to run a 60kWe genset. The same unit has run ag residues in other trials.

    Systems like these can replace 100% of the energy required if running spark ignition industrial engines or 80% of the distillate fuel if you want to make better use of an existing diesel pump engine.

  • http://www.remotenergy.com Barrie Harrop

    If the wind speed is say an average (proven with data) of 6m/sec we are opex/capex about 24cent per kwh ,expect this to reduce as price of turbine is coming down,we can feed in solar and balance wind/solar/diesel- to give base load power 24/7.
    Current remote energy costs diesel is about 50 cents per kwh+ expect as fuel rebates reduce considerable higher.

  • David

    I wonder if more businesses might consider leasing options for commercial solar to connect to their premises instead of the grid? Does anyone know if there are tax advantages in using a lease option?

  • http://pragmatusj.blogspot.com.au/ John D

    Our power supply system is a good example of the common problem of pricing systems not matching cost systems. The reality is that power supply cost is dominated by fixed costs with only a minor amount actually depending on kWh delivered. This even worse when renewables are used because the cost of fuel disappears.
    If we were being rational we would prioritize spending on local renewables and energy storage for locations where this expenditure delays the need for capital expenditure on the distribution or remote generating systems.

  • John M

    Will the new PV import tariff reduction agreed to at APEC reduce the cost of domestic solar installations in Australia?