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Network tariff changes to slash rooftop solar uptake by half

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South Australian Power Networks is proposing a new form of billing known as “demand tariffs” that it expects will cut the uptake of new rooftop solar systems by half in the state over the next five years, but could encourage more battery storage and electric vehicles.

SAPN unveiled its proposed changes this month as part of a move to “cost reflective” tariffs. The new tariffs – which the network wants to make compulsory from 2017-2020 – will focus on the maximum use by consumers in any month, but overall use outside of those peak times will become relatively cheap.

Critics of the scheme say the new demand tariffs are being structured in such a way that they will penalise solar households, push up their bills, and make solar less attractive for those yet to install.

They say the networks are simply trying to shore up their revenues. Networks in Queensland have lifted fixed network charges, while NSW networks are considering a “solar tax” on exports to the grid.

As SAPN itself admits, it does not want to accept less revenue. “It (the grid) won’t shrink if we just use it less,” it says.

But this goes against years of driving towards energy efficiency, and it also underlines the massive cross subsidy paid by city users to regional users (70 per cent of the cost for 30 per cent of the use) and the cost of building the grid to meet a few hours of peak demand driven by air conditioning use.

SAPN – which earlier this year tried to impose a special $100-a-year network tariff on solar households – appears to agree that demand tariffs will hurt solar. Under the modelling it has done, the uptake of rooftop solar will fall by half over the next five years, although it argues that over 20 years there will be little difference.

sapn solarSouth Australia currently has nearly 200,000 households with rooftop solar, and the highest penetration in the country, at 28 per cent.

More than 7 per cent of demand is met by rooftop solar over the year, and more than 25 per cent on some days (see graph on the right).

Within a decade, the state was tipped by the Australian Energy Market Operator to meet all its daytime demand with rooftop solar on some equations.

The SAPN move to demand tariffs will change that forecast. Under the existing tariff, rooftop solar PV is expected to surge over the next decade, trebling the number of installations to nearly 600,000 by 2024. (See graph below).

sapn solar uptakeBut under the proposed changes to a demand tariff (see table below), SAPN expects growth over the next five years to be halved, adding just over 100,000 news systems in the next five years from more than 200,000 under the current scenario.

sapn demand solarBy 2024, the number of rooftop solar PV systems under the demand scenario is still trailing, but regains most ground by 2034.

However, in this scenario, the uptake of battery storage is accelerated, although it still only believes widespread uptake will happen from 2019 onwards. Battery storage will enable consumers to avoid using more electricity from the grid at peak times. The uptake of electric vehicles also accelerates under the demand tariff arrangement, although it is not clear why.

Earlier this year, SAPN introduced demand tariffs for large commercial users – at more than 160MWh a year. That meant that the electricity usage component of its network charges fell to just 3.3c/kWh, just one-fifth of its previous peak rate, but businesses were instead hit with hefty “demand charges”.

The solar industry says that the system disadvantages solar because the demand tariffs are extended to 9pm in the evening – when the sun is not shining. But the tariffs don’t focus on peak network demand, just on peak demand from individual users, which can happen at different times.

Rob Passey, from the Australian PV Institute, argued in July that cost reflective tariffs must be what they are labeled as – truly cost reflective. He says these tariffs, proposed by SAPN, are not and are instead focused on maximising revenue.

The new demand tariffs  will mean higher network charges for the bulk of households and small businesses, and particularly for those with rooftop solar.

This graph below shows the increased network tariffs hit mostly those solar households at the lower end of annual consumption. As SAPN notes, the outcome for solar households is “less favourable” than for those without PV. It says that solar households have already been “over-rewarded” from their investment.

consumer retail

For businesses, the result is the same. According to the SAPN modelling, the majority of small businesses at the lower end of consumption will be hit with higher charge – more than one-third of them with 50 per cent higher network charges – because, while their consumption is low, much of it comes within the peak periods of 4pm to 9pm.

small business sapn

The solar industry has long argued that tariffs should focus on air-conditioner usage, the primary cause for the big increase in network spending in recent years. SAPN does not appear to have an answer to this problem, saying in its document:

“Stakeholders have reiterated the point that a major contributor to the peak demand issue is air conditioning use in residential homes. How should we allocate the burden across residential vs business customers?”

  

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  • Peter Campbell

    Why not just time of use tariffs?
    A person who uses lots in the evening peak pays for the network that supports that use.
    A person who uses lots off the peak pays for what they consume but not a premium for the network, since the network would cope easily with their usage.
    A person who gets some modest battery storage to carry them and perhaps their air con through the evening peak does not put a strain on the network.
    Aircon that runs off peak or from solar and stores the ‘coolness’ in a phase change material or a well-insulated building with thermal mass would become attractive.
    Time of use tariffs seem a fair way to reflect real costs without introducing perverse incentives to avoid solar, energy efficiency, battery storage and so on.

    • Ian Lett

      Your suggestion makes good sense Peter. But SAPN are looking to maintain revenue, not to listen to good sense.

    • John P

      SAPN is not in the business of delivering electricity, it is in the business of delivering PROFITS. That is the whole point of the neo-liberal version of capitalism that we now have to put up with.

      • Peter Campbell

        OK, they want to make a profit. Where I am in the ACT the electricity rates are regulated and the electricity retailer has to make a case to the regulator that the pricing is reasonable. They have not gone bankrupt yet. Prices are held to a level that allows a profit but not an obscene profit. I have willingly signed up for the time of use tariff option. Although prices are higher at peak times timers on the dishwasher and electric booster for solar hot water puts their use off peak. I am rewarded with cheaper bills overall reflecting the fact that it costs the retailer less to supply me with what I am using and I put less strain on the network. Although I pay less, I also cost less, so I assume I remain a profitable customer.

      • Jacob

        We could vote for the Greens or the stable population party but the voters are too stupid to.

        • John P

          Quite so, Jacob, and many of us do.
          But until the ‘sensible centre’ try thinking before they vote, we will be stuck with one or other of the two conservative parties.

      • MaxG

        You seem to have said it better then I can…
        I wonder every day why people do not get this… sheeple after all.

    • JeffJL

      Time of use is good, but demand charges are poor. This company is just moving the pieces around the board to make the most money.

  • Neil Frost

    A last ditch money grab that will encourage a lot to leave the grid. Death spiral here we come.

  • BsrKr11

    and you wonder why people are pessimistic…

  • BsrKr11

    it is like climate change doesn’t even exist, no rush, we’ll just push out the uptake of solar for a decade or more…

  • Barri Mundee

    We need a not for profit retailer!

  • Ian

    This is the best news I have heard yet! Demand charges are just the incentive we need to encourage battery storage. A demand charge is based on a household’s peak usage , presumably updated on a monthly basis. The peak would generally occur early in the evening. The average consumption rate would be 2kwh and for very short periods might go to 5kw. Simply install a load limiting switch to physically prevent going over a certain peak KWH and install sufficient battery storage to cover the excess demand. The battery need not be large: depending on the duration of peak usage it could be as small as 1KWH , this does not even need to be charged using solar energy, it can be charged at a time when demand is low such as late at night or during the day. Demand charges will also encourage load management, these can also be automated. There is no need to run certain large loads simultaneously. Water heaters, pool pumps ,fridges, washing machines and the like can be staggered in their use. Fixed connection fees kill solar and storage , demand fees may well lead to a flurry of innovation in the renewables plus storage industry.

    • Miles Harding

      Thus could also open up a new area of household smart device management. I think I see a job or two here!

      The down side to all of this is that the revenue of the network is legislated to be constant and the state adjusts the tariffs to make it so, so this will evolve into a miserable zero-sum game over time.

      Only those consumers below the norm will have any advantage and then only until the high consumers catch up, so it’ll be our task to encourage the ‘norms’ to be energy morons so that we can continue to enjoy a comparative advantage.

    • hydrophilia

      I agree: demand charges give people the incentive to change behavior.

    • John Herbst

      I assumed you were joking when I read your first line. By lowering the consumption charge, Demand Tariffs remove the best and easiest method for customers to act efficiently. Individual Demand reduction doesn’t actually result in Network Peak Demand reduction, and may even increase it due to the increased consumption effect (like how an all-you-can-eat buffet stimulates over-eating).
      Your expected contribution to the network peak is best estimated by kwh over the peak period. If the peak is 5 hours long and a customer uses 5kwh over that time, the expected effect on network peak is 1kw. It doesn’t matter if the customer uses 5kw for 1 hour or 1kw for 5 hours. This is a surprising result to some, but is a basic principle of statistics. The first customer may contribute 5kw to the peak, but there is only a 20% chance of that occurring(5*0.2=1kw expectation). The second customer will contribute 1kw with certainty, so the two customers have the same expected cost to the network. Since peak Demand doesn’t actually lower the expected cost of the network, it actually works against efficiency, lowering the value of consuming less peak energy.

      • Ian

        Thank you for your reply to my comment. Are you saying that peak demand is calculated over a 5 hour period? As you say 5KW over an hour would be indistinguishable from 1 KW over 5 hours. The point is that load and demand management behind the meter would probably still be worth while. Batteries with a load limiting device or just a load limiting device would minimise an individual consumer’s demand tariff. For a state like South Australia where renewables have already caused the closure of most FF generators what does it matter if people have an all-you-can-eat fest at the expense of the network!

        • John Herbst

          Hi Ian, I’ve replied to your questions in order, and your last point is very interesting.

          I was just using 5 hours as an example, but I think the proposed peak window is 4pm-9pm, so yes it would be the highest 30-minute interval over a 5-hour period. It doesn’t matter how you chop it up, nor how long the peak period lasts, as long as there is a roughly equal chance of the peak occurring anywhere in the period. The SA network peak actually occurred at 3:55pm this year, suggesting the proposed period is too late in the day.

          I’m not sure what you mean when you say that demand management would probably still be worth while. If it is worth while for the customer but provides no benefit to the network, that indicates a tariff structure problem (it’s not cost-reflective). Customers should receive incentives to use their batteries in the most efficient way possible, and Demand charges don’t provide the right incentives at the right times. Customers may spend money and effort flattening their peaks without lowering their peak consumption. This investment could have gone toward actual efficient behaviour. Batteries are certainly part of the solution, but Demand has customers using them in incorrect ways.

          Your last comment is possibly efficient, but I believe we aren’t ready for all-you-can-eat structures just yet. Despite SA having few generators, we also have the ability to trade energy with other states. Therefore our consumption of renewable energy means less clean energy exported or more fossil fuel electricity imported, increasing fossil-fuel consumption in either case. If all of Australia were 100% renewable, there would be a strong argument for electricity plans which look like mobile phone plans with included usage and all the demand-stimulation that comes with it. The one caveat is that electricity is an essential service, thus we must ensure that driving up network costs does not result in higher prices for those who have great need for only a small amount of electricity. I don’t think it’s clear which way the scale will tip on that issue.

  • James Hilden-Minton

    Is SAPN prepared to compete with Silicon Valley? Consumers will arm themselves with technology to cut demand charges. If SAPN over reaches with demand rates, it could wind losing even more revenue to smart devices and batteries. If there really is economic value in smoothing out demand, SAPN will get that. But if this is just a ploy to suppress rooftop solar, it well could backfire.

  • MaxG

    If you look at the root cause, there is no other conclusion than to put the grid back into public hands and make an end to all these ways of profit-taking and maximisation. — I keep on dreaming, or rather enjoy my off-grid system 🙂 and stick up the middle finger.

    • John Herbst

      …and treat it like an essential service rather than a government revenue stream. Currently, virtually the same problem is happening with the state-owned networks.

    • JeffJL

      Even our IPA member in parliament (the Treasurer in WA) is not making noises about selling the network here.
      I’ve said it before. Mike Nahan is my favorite IPA member.

  • hydrophilia

    So many ways to look at this!
    1) The utilities need to provide for the peak load, so should charge for time of use rather than peak demand…
    2) A solar household is using the grid as a giant free battery, so ought to pay for that. Demand charges make sense.
    3) If demand charges become too high, folks will defect from the grid and that will benefit no one: utilities will go broke and take a huge amount of capital spending down the drain, consumers will spend far more than otherwise needed large amounts on their own household systems. And this will all tie up capital that could be far more effectively used elsewhere to reduce carbon emissions.

    • JeffJL

      Point 2. I get paid 7c for the power I put into the system. I pay 25c to get the power back. That is a charge for using the battery. It ain’t free mate.

      • hydrophilia

        Yes, you are 100% right: that cost differential pays for use of the “battery”. Over here I am far more used to “net metering” where we often only pay for the annual difference in what we produce and what we use. In our case, we might never need to pay the grid a cent, but we DO need it when our systems don’t cover our short-term usage…. and ought to pay demand charges.

        • JeffJL

          Ahh, my ignorance shows. Not everybody on this site lives in Australia.

          I believe demand charges are defined as a cost levied on a maximum power consumption over a short period of time. Thus you could get caught paying for 6kW at midnight as the pool pump, reticulation, hot water and fridge comes on even though the system is not under pressure.

          Time of use charges (charging more per unit at high use times) are a good idea and I fully support those.

          • hydrophilia

            Two points of view: should demand charges reflect the cost for the network at the time the demand is made (essentially a congestion charge) or should it reflect the value the user gets by having the network available? These points could be argued in good faith.