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AGL Energy describes solar household tariffs as a “scam”

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AGL Energy has described tariffs that affect households with rooftop solar PV as a “scam”, and has alleged that non solar households are subsidising solar households to the tune of billions of dollars.

In an extraordinary attack on rooftop solar, AGL Energy (Australia’s largest generator of coal-fired power), said solar households were being cross-subsidised by other homes, and inferred that there was already too much solar on household rooftops.

A research paper prepared by in-house economist Paul Simshauser was first presented in October, but released to the Australian Financial Review on Monday before a wider public release. (It can be found here on the AGL blog).

According to the AFR, Simshauser said subsidies paid for by non-solar households – such as feed in tariffs and the small-scale certificates that deflect the upfront cost of systems – are a “synthetic tax”, and a scam.

“This is a scam but it’s hidden,” Simshauser told the AFR. “If you don’t fix the problem, the rot will only get worse.”

The attack by AGL Energy comes less than a week after it claimed it wanted to transform its business to help solar and storage, although its forecasts for solar and storage technology showed a much slower deployment than most people expect.

This new attack, however, is just one of many on the solar industry by incumbent generators, retailers and networks. They are concerned that the proliferation of rooftop solar – and the impending impact of battery storage – will upset their business models.

Credit: Sam Parkinson

Credit: Sam Parkinson

They are looking to change tariffs to compensate for a loss of revenues, as one of many strategies to limit the deployment of solar. AGL Energy, and others, have argued that the small-scale renewable target should be cut; networks have prevented solar from being installed, forced homes and business to reduce their size on their systems, imposed limits or prevented them from feeding solar power back into the grid, and paid a desultory tariff for exports, which in some states is now voluntary.

This is despite being warned that the proposals that they have for addressing the issue – hiking fixed charges – are inequitable to low-income households, go against the energy efficiency gains sought for the last decade, and will probably accelerate, rather than solve, the death spiral that will encourage more users to install solar and ultimately, disconnect from the grid.

The existence of cross subsidies has long been noted, but were never much of an issue when it involved air-conditioning, because that added to demand from the grid and coal-fired generators – and was used by networks to justify the investment of  billions of dollars to meet peak demand, and by companies like AGL to invest hundreds of millions in gas peaking plants.

Now that solar has arrived and is reducing demand from the grid, the generators and the network operators are up in arms. As the AGL paper notes: “Unlike the air-conditioner, the flow of kWh through Solar PV units reverses rather than adds to total flows, and so tariff instability has become a serious problem.”

But as the Institute of Sustainable Futures has said, that peak demand never arrived, partly because of the impact of solar, but those network costs for meeting it are very present. Amazingly, the networks are now collectively seeking approval for another $45 billion to be spent over the next five-year regulatory period.

Network costs account for around half of consumer bills, and the cross-subsidy from air conditioners (from households without them) is estimated at $700 a year, by the Australian Energy Market Commission.  But AGL Energy’s analysis waves away the cross-subsidy for air conditioners because it says so many homes already have air conditioning.

But it says that “hidden subsidies” are driving marginal investments in solar PV capacity above the (otherwise) efficient level – in other words, there is too much solar.

AGL describes these hidden subsidies as an “avoidance” of network charges. If solar households consume less from the grid, then they pay less in network charges. AGL, and other network operators, want to stop that because it is driving “marginal investments in solar PV capacity above the (otherwise) efficient level. “

Including federal and state tariffs, and its estimates of the impacted of “avoided network costs”, it puts the cross subsidy from non solar to solar households at $236 per household.

It proposes a system of “demand” tariffs that would reflect that maximum demand that a household would draw from the grid. It is based on the assumption that solar households do not actually reduce their maximum demand, because – it says – solar does not coincide with peaks.

That assumption is disputed by many, and ignores the fact that households can apply a range of devices and techniques – such as monitoring, management and battery storage – that can reduce those peaks …  Switch on appliances while the sun is shining for instance.

Some modification of tariffs appears inevitable. What upsets the solar industry is that analyses such as AGL’s, and that of the Energy Networks Association of last week – is that it ignores the benefits that solar can bring to the network. In no tariff proposal are the benefits of solar – its reduction on wholesale prices, the avoided cost of transmission, distribution or emissions reduction reflected – unlike in the US where it is a major component.

Recognition of the benefits of solar is a fundamental part of the proposal by the Institute of Sustainable Futures to calculate solar tariffs based on a ”local generation credit” or a “virtual net wire”.

Key to the ISF – and other analysis – is that consumers should not be beholden to repay forever the costs of the over-investment in the networks justified by the need for rises in peak demand that never occurred.

Yet this is exactly what AGL Energy, and the networks lobby, are advocating. As AGL Energy notes, if the demand charge is not raise high enough networks would be unable to recover their regulated revenues. This is the fundamental flaw – the incumbents are unwilling to countenance a writedown of an asset that is being undercut in cost by new technologies.

Solar Citizens National Director Claire O’Rourke said in a statement the majority of the average electricity bill in Queensland is network charges, the poles and wires, that makes up almost 50% of power charges in the state.

“AGL’s report is the latest attack on solar from the big power companies who stand to make a $70 billion windfall if the Renewable Energy Target is scrapped,” O’Rourke said.
She noted that several analyses conducted during the year, including modelling commissioned by the Federal Government’s Warburton Review, found the RET would bring down overall energy prices for all Australian households by 2020.

“Laying blame on solar owners for the rise in power bills is misguided to say the least. Australians want more solar and renewables, not less because it just makes sense.

   

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  • barrie harrop

    Within the next 3 years when solar storage become viable ,the disaffected solar owners will desert the grid in droves ,it will not be a good time to own poles & wires then,expect lots of stranded assets.

    • Michael Huang

      Only if people want to set up a time bomb in their garage. I certainly don’t. To me all these talks about off-grid, micro grid, power storage seem to be more of a commercial pitching than reasoning. To have an idea of what it means to you, look no more than rain water tank in your back yard. Use less water, still paying more, plus the upfront payment of a huge water tank and less open space. Central grid has existed since electricity was invented for a reason. The economy of scale. Today the problem does not lie with the grid. It lies with the gold plating as a result of the guaranttee return of capex. Chnage the tarriff structure from guaranttee return of capex to cost recovery, electricity prices will drop. Mini grid, self-relient grid, battery storage are not the solutions. You will end up use less electricity, paying more, plus having a time bomb in your garage, and making provisions for backup and maintenance. Do you still think you are better off?

      • barrie harrop

        Home storage of the future.
        Some time bomb.
        CONVENIENT ELECTROMOBILITY – ANYWHERE AND AT ALL TIMES.
        http://www.bmw.com/com/en/newvehicles/i/i3/2013/showroom/charging.html

      • Marka

        How would the stored electricity in your battery be useless? And what makes the batteries a timebomb?

      • Douglas Hynd

        the grid is an artifact of technology and economics not an immuitable reality and will change in character and significance as technology and economics changes. Change is on the way – what the outcome will be who knows but I doubt we can rule anything in or out – and the solution will differ according to circumstances

      • Ken Dyer

        I think you are either seriously uninformed about PV battery storage, or perhaps you believe AGL’s propaganda.

        Here is a link to just one example of Australian development, http://www.redflow.com. Their share price has risen 150% in a year, and they are now going into full manufacturing mode in the USA. Here is another one, http://bosch-solar-storage.com/, equipped with lithium-ion batteries with a life of 25 years. Bosch surely would not install a time bomb in your garage? They would not stay in business very long! And backup? A little petrol generator should do the trick.

        Just like mainframe computers and dumb terminals, central grid power centred around coal burning generators was installed because nothing else existed. Just as the personal computer connected to a distributed network was the disruptive technology, so to are PV systems disrupting the old model. Regardless of the payment model, stranded assets will occur, and dinosaurs like AGL will have to rethink their business because PV is here to stay.

        My rain water tanks live under the eaves, and provide me with free water to wash my clothes and my car, flush my toilets and water the garden. Unlike sunlight, which we have an abundance of in Australia, water is precious and must be conserved.

      • Chris Fraser

        Michael i am sorry to hear you’re paying a fixed charge for at least some of your water. Most charges are per kL for water and fixed charge for sewerage (shit can’t be metered accurately). Now please tell more about timebombs.

      • Harry Verberne

        If you are worried about a time bomb in your garage maybe you should park your car on the street. After all, the petrol in the tank could catch fire or explode. Unlikely? Yes of course but it illustrates the absurdity of your claims about batteries- all without the slightest evidence.

        Mind you, I am persuaded that most people ought NOT go off grid but if the likes of AGL make it more attractive to do so to avoid extortionate network charges then I will join the exodus.

        • Michael Huang

          My understanding is gentailers such as AGL just passed on the network charges by the grid owner, which is a state monopoly.

        • John Arentz

          I will do it just to spite the greedy bastards….

  • Robert Johnston

    I hate to say it as he seems to be a very nice guy at a personal level – BUT – the scam here is Simshauser attempting to continue to pass himself off as an economist rather than the lobbyist he has been forced to become. Surely he has lost all professional credibility as an economist when it comes to energy policy and its analysis at an economic level. This guy is Chief Lobbyist for AGL, make no mistake, even the Government Relations staff report to him! I guess this is what happens you plow your personal wealth into your employers stock. Simshausers time as CEO of Babcock and Brown Power should have taught him not to drink so much of the Corporate Cool-aid, if he had not at BBP he might not be putting his economist credibility on the line to this extent at AGL. Lets not forget that electricity generation from solar is not a cause of peak demand, electricity usage is.

  • Peter Campbell

    “…and the cross-subsidy from air conditioners (from households without them) is …”
    I think that first ‘from’ should be a ‘to’.

  • Michel Gormly

    I’ve been feeding solar-generated power back into the grid for three months but received no credit on my Energy Australia bill. Turns out I had to “contact them for a solar quote”, but no-one told me that. They claim that, otherwise, they don’t know my system is there. As if the meter-reader doesn’t notice a whacking great inverter under the meter. Ausgrid came and inspected it, but Energy Australia don’t know about it. And they won’t pay me back retrospectively. I fed them 1352kWh and used only 852, and have to pay them $234 for the privilege. I’m furious.

    • Mags

      Stay furious and move to Powershop! You’ll be happy then, and get a higher feed in tariff.

  • dhw

    I’m sick to death about the concept of threatening the utility ‘business models’. It’s not someone’s business model that’s threatened, it’s everyone’s affordable energy supply. Even with impending viability for some individuals, far less than everyone can install a PV & battery system, the result is a very serious economic and social problem if prices have to rise to cover the lost network revenue. I’m 100% for renewable energy and the grid is 100% critical to us achieving 100% renewable economy, stop attacking it. If you don’t think we need tariff reform then you need to read more.

    • Pedro

      Thought the article was about AGL attacking PV owners. Those who operate/manage the grid and large power supply need to come up with a business model that keeps them in business. They have the resources, financial and intellectual to build a network that incorporates distributed generation and storage. So why aren’t they doing it, when small business and householders can?

    • WR

      Prices wouldn’t have to rise to cover the lost network revenue if the networks had invested responsibly. It is the network providers who overinvested by about $15-20 billion over the past 5 years. All you are doing by supporting them is encouraging them to overinvest by the same amount over the next 5 years.
      Hopefully, the regulator (AER) will have enough sense to knock back the network companies’ $45 billion spending proposal this time around. If they do, then everyone will save money. And part of those savings will be due to people investing in solar who have reduced peak demand on those hot summer, heatwave afternoons that much of the network spending was supposedly addressing.

      • Alan Baird

        Yeah it’s a bit rich networks are complaining after so comprehensively rorting the “system”, as sick as it now is. THEY engineered it and they want everybody to be dragooned into paying more. Insufferable whiners. Still whinging despite being outed AT LONG LAST.

  • Chris Fraser

    “Amazingly, the networks are now collectively seeking approval for another $45 billion to be spent over the next five-year regulatory period”. This was the amount spent on the transmission system between 2007 and 2012 and makes up 50% of our current tariffs. Presumably, those who really want this investment to be constructed (with the added reward that the investors get an above-investment rate of return) assume that we want our energy bills to go to 150% of what they are now and that’s before one extra kWh is delivered.

    • Alan Baird

      And no demonstrated need for all this extra “investment” (rorting) but hey have a go. Nothing changes…

  • Tim Buckley

    The scam is AGL publishing lobbyist material labelled as “economic research” and pushing their self interest over the electricity users of Australia. As Giles has said, the paper takes as a “given” a grid revenue neutral assumption – which only holds if the government feels they should be rewarded for massively overinvesting in the grid because of false forecasts of volume growth, ignoring economics 101 that if you push the retail price up materially, demand will decline … materially.

    Why should solar users be attacked because the government has massively overinvested in the grid? Only a self-serving owner of outdated fossil fuel power plants would push such a line.

    The other scam is charging retail customers with solar the cost of installing a smart
    meter, but then not allowing the customer to use the real-time information it provides to adjust their own behaviour to match demand with self-generation. Lets transition our grid towards the inevitable future rather than trying to defend the antiquated model of the last century.

  • Harry Verberne

    Not taking AGL’s allegations about solar seriously but the best “cure” for any significant cross-subsidies is for more homes to install solar until we reach the point where the majority of homes have solar?

    • Mags

      Yep Harry, happily they are still getting installed in the thousands every week.

  • Macabre

    AGL proudly considers itself Australia’s oldest company. Its heritage is gas and it fought tooth and nail against the NSW government to prevent the wide deployment of electricity 100 or so years ago. History is repeating itself.

  • Jock Alexander

    Far too many typos, please get a sub-editor, or simply use spell-check. Really lets down the otherwise good journalism.

  • john

    The problem for AGL is the narrowing in the gap between the base price of dispatched power and peak power as shown here.

  • drjas

    A little less hyperbole on both sides would help the discussion. The problem with such studies based on ‘typical’ consumers is the distribution is so skewed they are never typical. Simshauser did a better job demonstrating this (and how hard it is) in his last paper (AGL WP No 41) that rpoduced a cost curve for a population of 640,000 consumers. This cost curve approach has been used by government for years (not that Simshauser acknowledges it).
    The basic assertion of both papers is the same: pricing kWh for cost driven the kW doesn’t work, because it’s consumers behaviour in a few specific hours that really counts. The cost curve studies (inc No 41, where the operative component is critical peak pricing) demonstrate huge cross subsidies between consumers across and within consumer groups. Broadly these cross subsidies are paid by consumers who make low demands of the network during network peaks to those who make high demands. Some of the most important conclusions of cost curve studies are that a) there’s no correlation with total annual consumption volume (high volume can be low cost and vice versa, its that behaviour that counts) and b) vulnerable customers are no different in general, but more likely to benefit from cost-reflective pricing than not.
    These customer segmentation cross subsidies includes technologies, but Simshauser doesn’t know which of the 640,000 customers have AC and/or PV. If he did, he could show that *on average* AC users (not owners, you actually have to switch the AC on during the peaks) are higher up the curve, and on average PV users are (probably) lower down the curve.
    Gold plating and declining demand isn’t the permanent problem either, its just the reason why it’s viable now (together with cheap digital meters) to worry about applying to residential consumers a measurement/charge applied to larger commercial/industrial users for a century. Fast EV take up could reverse the future network scenario in 2-5 years (i.e. as fast as we’ve seen the decline).

    It’s cheap of AGL/AFR to turn this into a technology argument – it’s about efficient pricing of the network, real price signals to consumers and their corresponding real choices in response to those signals. For every customer who has to pay more or change their behaviour under cost-reflective pricing there’s one who pays less, changing nothing. And the network revenue is stable, because it is actually related to their costs.

  • Greg Keane

    So a major COAL user is complaining about losing revenue due to many people having SOLAR panels ….. AWWWWWWWWWWW DIDDUMS !!! Suck it up precious

  • Mags

    If you are in Victoria, just change to Powershop and move away from these incumbent suppliers. We have saved about an average of 40% each month since moving from Origin to Powershop. If you can, do it. It is easy, their system is good, easy to use and efficient and puts you in control of your energy usage. It is a different and better model than the incumbent suppliers systems. The incumbents are cheating the public and lying about the renewable industry, as above. Renewables are making their business models redundant and they don’t like it.

    Powershop is the future.

  • Leigh Ryan

    Well now AGL has given us the answer to competition and it should apply across the board, when you start a business an average of the profit the same businesses make across Australia should be applied to your business, if you fail to make that profit the consumers who used your service should have to pay extra to make up for your loss, this is an awesome new business model that should be applied to all business in Australia, especially Ford & Holden, now let’s also apply this model to wage earners, if you fail to earn the average Australian wage, the Government should have to pay you the difference, WOW i think this business model is awesome.

    • Parsley

      That is brilliant Leigh, but I think the wage earners in private enterprise who earn less than the average wage should have it made up by corporations, not government.

      • Of course, as long as all consumers who purchase less than the average number of any consumer good are forced to buy more of that consumer good to meet the average.

        • Parsley

          Well that would mean the end of capitalism, good, it is not working anyway

          • sarcasm right? I fail to see how legislatively enforced, ever increasing consumerism that is not remotely coupled to any actual human need or even desire would be a better system than capitalism by any measure other than “fastest way to guarantee human extinction”.

          • Parsley

            The efficiency we are told that capitalism has is reflected in the fact that 9 out of 10 businesses fail every year. If they are not efficient they will not make it and should not expect the taxpayers to bail them out. What we have here is AGL a monopoly player doing everything to make sure its profits are guaranteed and consistent, now that is not even your basic definition of capitalism. Not being sarcastic at all, the capitalism or corporatism we have today is not working, certainly not for the 99% of people who live under it.

          • That doesn’t mean capitalism isn’t working, it means it has not been fully implemented. Doing a quick google of the regulatory body the AGL is appealing to shows the body is highly corrupt and not subject to market forces. From what you’re saying, it sounds like a good idea to subject *more* things to market forces, not less.

          • Parsley

            Hardly. Too many inequities in capitalism and it cannot tolerate full employment, What I am saying is that under this system of corporate capitalism, you don’t even have the basics of the failed system of market driven forces. Much better to have utilities owned by the public like they used to be, because the motive of profit is taking too much away from efficiency and too much away from the public who owned all of this in the first place. Classical and Neo Classical economic models have never worked, unless you are a rich parasite.

          • are poor parasites ok?

          • Parsley

            Gee, now who do you choose? Rich parasites who funnel away billions by sending them to tax havens and also borrow money to live off so they do not have to pay any tax (and claim those loans as deductions) or poor parasites who are less than 1% of the total, getting $200 per week on Newstart or $400 per week on DSP??? Decisions, decisions. I know who actually hurts me more, the rich parasites who use the roads I paid for, the utilities I paid for and the hospitals I paid for and pay nothing for them (and then get them at bargain based prices when right wing governments privatise them). And remember this system cannot function on full employment so you will always have some on welfare or do you want them to becomes criminals who break into your house? Only a sycophant or a wannabe rich person would support the rich parasite class

          • what about middle class parasites? can you show me an independant study that backs the 1% figure?

          • Parsley

            Try reading this one
            http://www.smh.com.au/it-pro/drag-on-welfare-is-not-the-poor-but-the-comfortable-20140610-zs3c7.html

            And this for the stats (cannot get recent figures as the Coalition government has reduced services)

            “Table 1 reports on the outcomes of reviews for the three year period 2006–07 to 2008–09. Of note is the fact that typically, only 15.7 percent of reviews led to cancellations or reductions in payments. Of these, as few as 0.8 percent were referred to the Commonwealth Director of Public Prosecutions (CDPP); with 0.5 percent being prosecuted.” http://www.aic.gov.au/publications/current%20series/tandi/421-440/tandi421.html

          • I actually don’t know what your argument is. I’m trying to clarify. If it’s just “rich people are bad” then I’m not buying it.

          • Parsley

            I never said ‘bad’ I said they were parasites and my argument is about how monopolies like AGL think they should be guaranteed a profit which is against even the basic tenets of capitalism. You have tried to divert the discussion into some kind of relativism which has no reference to what have been trying to say. Saying that I have to provide evidence which I have done and then claiming you do not understand me and reducing this to a ‘good’ bad’ discussion is either evidence of your ignorance or evidence of your intent to deliberately obfuscate the original discussion. If I am being forced to provide evidence and justify what I say, then that applies to you too and so far you have provided nothing more than facetious repetition of my comments and a somewhat veiled attempt to vindicate corporate exploitation.

          • I think I agree with what your core argument then. Nobody should truly expect to be exempt from capitalism only when it suits them. OTOH it makes perfect sense in a capitalist system to try and exploit sympathetic regulators in order to get an edge against the competition, even if it involves saying sensationalist and entitled things they don’t 100% believe.

          • Parsley

            So basically we can agree on that point, good

          • Parsley

            Trying to divert my argument by widening the scope is pathetic. You can now provide factual arguments defending the rich, I wait in anticipation

  • Parsley

    Enough is enough. I have already had a lot of arguments with AGL over my solar power, beginning with the mess up of my eligibility for the solar bonus scheme (I bought my solar panels 4 days before O Farrell closed the system and they did not honour the contract so I missed out on it). I get 0.08 cents for my solar energy and they charge 0.28c for their electricity. When I asked them where my solar excess goes to, I got a vague reply ‘back into the grid’, so I said you then sell my electricity for 0.25c which they profit from, that is who is ripping off the neighbours. I pay nothing for electricity thanks to my excellent solar system and I have warned AGL, the minute I have to pay for it is the day I go off grid because they have been making a profit from me since 2011. I suggest ALL solar owners organise one day to co ordinate ALL of us turning off our solar. now that would scare them.