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Subsidies for rooftop solar – zero net cost to households

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A new analysis from the solar industry has demonstrated that the cost of the small-scale Renewable Energy Scheme (SRES) – which governs rooftop solar and hot water systems – will amount to zero for Australian households – contradicting the claims of the country’s biggest utilities.

The analysis released by the REC Agents Association (RAA) suggests that the gross cost of the certificates used to help pay for rooftop solar is minimal, and offset entirely by the reduction in wholesale prices that solar causes on the National Electricity Market.

The analysis is timely given that the government has finally released the terms of reference to its review of the renewable energy target, and the members who will sit on the panel.

The government is under intense pressure from state governments – the owners of generation and network assets that they are trying to sell – as well as private-ly owned utilities to reduce or cancel the incentives to rooftop solar.

That’s because, as Stanwell Corp has admitted, the proliferation of rooftop solar is reducing demand and pushing down prices, causing it to make a loss. However, the push to remove the rooftop subsidies is usually pitched as a move to remove “household electricity costs”, which usually gets uncritical play in the mainstream media.

The RAA analysis, however, seeks to demonstrate what a nonsense this claim is because the cost of the SRES is expected to halve over the next two years to less than 1% of a power bill. The reduction in wholesale electricity prices delivered by the SRES cancels out any related cost increase that gets passed through to customers.

“This analysis destroys the myth that the Renewable Energy Target is a major driver of soaring power bills”, said Ric Brazzale, President of RAA. “The Renewable Energy Target is low cost and high achieving. It must be maintained to finish its job.”

The RAA analysis uses Australian Energy Market Commission data to show the make up of power bills and the contribution of the two parts of the RET, the SRES and the Large-scale Renewable Energy Target (LRET).

solar ret aemc

 

As the table shows, the cost of the SRES amounts to just 2 per cent of the average household electricity bill, and will fall by more than half to less than 1 per cent within two years.

However, the impact of renewables is also to lower the cost of wholesale electricity prices. The AEMC has recognised this impact and consulting firm SKM quantified it in a study undertaken for the last RET review in late 2012.

That study put the fall in wholesale prices at up to $7.90 per MWh lower to 2022 due to the impact of the RET, with an average  over the modelling period of $6.70 per MWh, or 0.67 cents per kWh. 

The SRES is estimated to account for 40 per cent of the total RET impact from 2012 to 2020, and so it might account for an average reduction in wholesale prices of $2.70 per MWh. (Actually it could be greater given that it operates during the day time peak period). In any case, this is equivalent to 0.27 cents per kWh and exceeds that AEMC’s estimated cost pass through in 2015/16 of 0.24 cents per kWh.

“The reduction in the wholesale price exceeds the cost pass-through on customer bills, which means that residential customers will be better off in future with the operation of the SRES,” the study says.

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  • Andrew Thaler

    So… if the figure above is to be believed:
    Why is ACTEWAGL charging 17c/kwhr in the ACT for domestic tariffs?
    Why is Origin charging 32c/kwhr in southern NSW for domestic tariffs?
    And, as per line above, (and while connected to the same power line), why is Origin charging 36c/kwhr for ‘commercial’ tariffs?
    Origin gouging customers??

    • taiyoo

      Andrew, the title of the table from the AEMC report is “Composition of Electricity Prices (National Average)”. The brackets tell the story.
      Tariffs are structured and priced differently depending on many things – the customer, the customer’s demand profile, the retailer, the retailer’s wholesale contracts, the geographical area, the type of connection, state government cross-subsidies… all these factors (and many more) contribute to answering your “why is X charging Y” question. That’s not to say Origin aren’t gouging, but the cost of many components of their tariffs are out of their control.

      Having said that, there is no doubt the contribution of the RET to tariffs is hugely overblown. If more reports like this one are published it makes it harder for the reviewers to ignore the real costs and benefits. Keep up the great work Giles and the RAA.

  • RobS

    Rooftop solar is so ridiculously cheap in Australia the idea of it still needing subsidy is ludicrous. Unsubsidised it produces power for ~9c/kWh competing with ~30c/kWh retail power and we saw a further ~20% price drop in 2013. How much longer are we going to persist with this desperate perception of reliance on subsidies? The subsidy was slashed between 2012 and 2013 by almost $2/W, in comparison the ENTIRE remaining subsidy for rooftop solar is only 70c/W, everytime such cuts happen the industry goes into conniptions about the certain doom that will befall it if the cut goes ahead and every time the industry and sales have been larger after the cut than before it. Cutting the remaining subsidy will end much of the political pressure and opposition to solar and the price effect will be engulfed by ongoing price drops within a few months, if the subsidy is phased out over two years the price cuts will easily outpace the subsidy cuts.
    If solar’s biggest advocates don’t start believing solar can survive without subsidies then how on earth will anyone else?

    • Aydin

      Unfortunately going solar means you will be paying approx $0.035/kwh during peak. A quick analysis shows that the current prices for solar setups aren’t low enough to encourage people to install panels (initial investment cost) and then end up paying premium rates (ongoing costs) to the utility companies during peak-periods.

      • juxx0r

        I don’t know how you did your quick analysis, but a proper analysis shows that unsubsidised solar has excellent rates of return.

        • Aydin

          Not for working families.
          Solar generates power while none is used as you’re at work. You come home and start using power and are charged peak rates.

          Plug in your usage figures for the last year into your smart meter with costs for peak & off-peak and see how much “better-off” you are.

          Don’t forget; You pay and install the solar panels but the utility companies buy the excess power from you at a minuscule amount. You come home from work and the utility companies sell this power they have just purchased off you back to you at the premium rate.
          Your investment; your power; but you end up paying through the nose for it.

          Where’s the benefit ?

          • juxx0r

            Even if you only use 20% of the power you generate, payback is within 10 years, IRR is 12% and you come out in front.

            Where else can you get a tax free 12% IRR? I’d love to know?

      • RobS

        A quick analysis actually says the complete opposite.

        http://www.energybank.com.au/solar_pricing

        Lets round up costs and efficiency losses to get a pessimistic assumption on solar costs

        5kw is now ~$12,000 unsubsidised, producing ~4,500 kWh per year over 25 years = 112,500. Subtract 15% to account for efficiency degradation = 95,600kWh.

        $12,000/95,600=12.6c/Kwh Clearly cheaper than retail grid power.

        Those 4.500 kWh annualy are worth ~$1,260 at current tariffs of 28c which means the system has fully paid for itself in just over 9 years even if there are no further power price rises, if prices continue to rise then likely closer to 7 years. $1,260 gives you an IRR at current tariffs of 10.5% tax free, show me any other investment with a guarnateed 10.5% tax free return and improving as power prices rise.

        • Aydin

          1. When I’m at work, I don’t use the power the solar panels create.
          2. When I arrive home from work, I use grid power as the solar panels are not generating what I require.
          3. TOU peak power from the utilities is approx $0.35 kwh

          Your calculations assume a perfect solar usage scenario, where we stay home during solar generation and use nothing at night.

          • RobS

            My assumption assumes a 1 for 1 feed in tariff, a common scenario including the system my utility uses. If you receive less than 1 for 1 FiT then yes increasing self usage is beneficial however its fairly easy to increase self consumption, most appliances have timer start systems eg dishwashers, washing machines dryers etc which you can set to start during the day to consume your own production, similarly you can use slow cookers to shift cooking power consumption to the most beneficial time during the day.

          • JonathanMaddox

            Yep. Unfortunately the argument that domestic solar is a great private investment doesn’t hold much water if the FIT rate is just a fraction of the retail rate. Such a regime fails to realise much potential societal value from solar PV since it is not credited for its peak-slashing capacity.

            This, of course, is what the incumbent generators are afraid of: the headline says *households* have a net zero cost; the larger established generators however are receiving far less than they planned to, for power during hours of sunshine.

          • RobS

            In today’s world of automated and electronically controlled appliances Its not nearly as hard as people think to shift demand to a time when your system is producing thereby increasing self consumption and avoiding poor feed in rates. However as you point out that encouraging self consumption ignores the benefit of feed in to the grid in mid afternoon at peak demand. The political pressure to reduce FiT’s is a throwback to a time when utilities lobbying power held far more political influence than solar home owners, now that solar penetration is passing 20% in most states and growing faster than ever we will soon see the votes of solar owners becoming increasingly influential and that will swing the political influence back towards favoring solar.

          • Isaac

            Consider investing in a hybrid system that charges your batteries during the day, once full, excess power is exported back to the grid. When the sun goes down, you start using your stored power.

            Although, these systems may currently be a little bit too expensive. It’ll depend on what feed in tariff you’re currently on to make it worth while.

          • RobS

            These are definitely the future and the utilities strategy of trying to give bargain basement prices for excess solar production will directly stimulate people to go towards these systems which ironically I expect will have the unintentional effect of further damaging the utility business model hastening their demise. However the reality is these systems are presently only justifiable for remote cabins etc where they actually offset diesel generated power which costs ~$1/kWh, I suspect it will be 3-5 years before the economics justifies hybrid systems in on grid settings.

          • Isaac

            Someone quoted me drawing energy from a storage system would be around the 60c/kWh mark. So, for customers on the PFIT in Victoria (66c/kWh), installing a grid connected storage system where ever you are could be a feasible option.

            But yeah, another few years and it’ll be a much better deal for more people.

          • RobS

            I’ve seen figures of closer to 30c/kWh from storage, and solar producing at ~12 currently and heading towards 10c/kWh means once we see retail rates head towards 40c/kWh solar + storage will be economical, of course this number drops as the cost of solar and storage drops and we will likely meet in the middle ~35c/kwh, once that point is reached the economics just get better and better.

          • Gina Mckenzie

            A few words for you Aydin,1. timers: on pool pumps, hot water heaters, fridges, washing machine, tumble drier, dishwasher, slow cookers, rice cookers, ie shift most of your electricity consumption to the time your solar panels are humming in the bright light of the day. 2. Batteries: electric car, laptops, phones, tablet computers, solar storage batteries, 3. Thermal storage: hot water heaters, subfloor heaters, ice in freezer, ice storage assisted airconditioners. 4 efficient night time electricity use: LED lights, LED television, sealing,wall and floor insulation, double glazing. 5.PassivHaus design: insulation,glazing, orientation of windows for sun angle, screening of windows with awnings, plants,reflective films. 6: lifestyle choices: early to bed early to rise, midday meals, short hair – short showers! Shop when the weather is hot! Drink water at night not coffee or tea. People do some of these things naturally when they install rooftop solar, they become mindful of their electricity consumption. This effect has also contributed to reduced electricity consumption on a national scale. The big ticket items are pool filtration, hot water heating, house heating and cooling, dish and clothes washing and drying. These are very amenable to time of use planning without much capital cost.

    • taiyoo

      Agree that the sooner renewables are free from the diseased embrace of the succubus that is Australian federal politics the better, but price drops of $0.70/W to the cost of solar “within a few months” of the RET being canned is ridiculous. A 2 year phase out would be better, but its still unlikely we’ll see that level of price reduction in that time (and unlikely the phase out will occur considering the many midnight policy changes over the years). Without a doubt PV modules have been the source of PV system price drops, but I’ve seen a few articles suggesting global demand is catching up with supply and prices should firm up this year. For a standard grid connect PV system I can’t see where else that $0.70/W is going to come from. There has certainly been no change like that in any 2 year period (in real or % terms) to the cost of other components or labour.
      The damage a loss of a 15-25% capital discount would do to ANY industry is immense. Viable projects will become marginal, marginal projects will become unviable. Customers will pull out, companies will shut down, jobs will go. To suggest the industry can just carry on business as usual without the RET is naive.

  • MrMauricio

    Roof top solar (adding up to 9% to capacity)has also reduced the incidence of blackouts during recent heatwaves-saving industry closure and household inconvenience during extreme peak usage.Has this been included in calculations??