Scapegoating solar: Why the QCA’s fixed price proposal is all wrong

Last year, Queensland energy minister Mark McArdle promised that there would be “no fixed charge of any sort on people using solar”. This year, the Queensland Competition Authority (QCA) has proposed exactly that – an increase in fixed charges of $210 per year on electricity customers who have installed PV.

This increase in fixed charges is dressed up as an attempt to make tariffs more “cost reflective”, despite the massive cross-subsidy between Queensland’s urban and rural electricity consumers, and without addressing the fundamentally unsustainable network pricing model.

The QCA makes no suggestion that anyone else should be charged in a more cost reflective way – just PV customers. Is it ironic that a competition agency recommends discriminating against the people who are competing with government-supplied electricity, or is it outright hypocrisy?

The QCA’s proposal seems to be another veiled attempt to reduce solar uptake in the state. Two prior proposals were shot down – the energy industry opposed QCA’s gross feed-in tariff suggestion, and the Queensland government overturned QCA’s proposal for solar-specific fixed charge. Instead, in its final report the QCA recommends forcing solar customers onto Tariff 12, which has fixed charges that are $210/year greater than the prevailing Tariff 11.

Note that the tariff change would be imposed on all PV customers, regardless of the FIT payments they receive (whether 44c/kWh or 8c/kWh). The goalposts would be shifted for existing solar owners, but the effect on the PV industry market will be disastrously concentrated upon new customers.

In residential tariffs across the nation, the fixed costs of maintaining the network are mostly recovered by averaging costs across total consumption. The QCA argues that because solar customers have lower consumption they should pay higher fixed costs to contribute their fair share of network costs. Never mind that energy efficiency produces the same outcomes, nor that air conditioning is the real culprit that distorts the market.

Scapegoating solar will not address the problems, and may be illegal; the QCA’s proposal flies in the face of clause 6.18.4 of the National Electricity Rules which outlaws treating customers with microgeneration less favourably than others – a fact acknowledged by the QCA. The QCA’s proposal will not make charging cost reflective, nor will it reduce the cost of the feed-in tariff; all it does is increase the annual cost of electricity supply for solar customers. This is an underhanded way of applying a fixed charge on people using solar.

In-depth analysis of the QCA’s proposal has been performed using SunWiz’s PVsell solar financial calculator, which is used by over 150 PV retailers. Using an average customer’s load profile and a 3kW solar power system, we find:

• A non-solar customer with an average load profile would be worse off by $217 per year if they were forced from Tariff 11 to Tariff 12.

• If a solar customer were forced onto Tariff 12 they would be 30% worse off, with little they could do about it.

– The bill reduction from a 3kW solar power system is almost equivalent whether on Tariff 11 or Tariff 12, but the customer starts off $210 behind due to the increased fixed charges

– Accounting for this increased fixed fee, the annual saving on the overall electricity bill for a customer with a 3kW system is reduced from about $853 to $599 – a reduction of 30% – which pushes paybacks out to 11 years.

• The customer would have to shift 4kWh of weekday consumption from a peak period to an off-peak period to offset the higher fixed charges.

• Installing solar systems on west- or northwest-facing roofs in an attempt to push solar generation into the peak period produces minimal benefit. A larger system would be required to offset the $210/year ‘fixed cost for solar’, which may exacerbate network impacts.

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This analysis highlights the QCA’s conclusion, “to the extent that a customer has an inflexible consumption profile, mandating that they be billed on a TOU basis could produce undesirable and inequitable outcomes.” Put simply, shifting an average customer to TOU in Queensland results in an increased bill.

So we have a policy proposal which fails to achieve what the QCA wants it to achieve, which harms the PV industry, which is inequitable and discriminatory in many ways, and which would break a very clear promise from the Queensland energy minister. Surely the QCA can do better?

Warwick Johnston is director of Sunwiz, a leading solar industry analyst and consulting firm.

Comments

12 responses to “Scapegoating solar: Why the QCA’s fixed price proposal is all wrong”

  1. Keith Avatar
    Keith

    Not all bad …. it will just accelerate customers going off the grid. I wonder what this does for the economics of storage systems?

    1. Marka Avatar
      Marka

      Totally agree. I would assume this makes storage more affordable

  2. Warwick Avatar
    Warwick

    Yes, the QCA can do better, they could suggest consumers have a larger share of the charges based upon demand rather kWh consumption. What the author and many others in the PV industry fail to understand is that the cost to the network is the cost of maintaining installed capacity and has very little to do with the energy consumption that flows through the meter. i.e. the cost of the network is related to maximum demand not kWh consumption. So, if you genuinely want cost reflective pricing it should be based almost entirely upon maximum kW demand.
    That means that those who promote PV and claim they want cost reflective pricing should advocate for a kW demand charge not kWh charges. Those PV advocates who do not promote demand charges as the solution either don’t understand how network businesses work or have been significantly overstating the level of net maximum demand reduction to consumers from PV.
    I might also point out that a demand charge does the following:
    1) Rewards PV owners if their system reduces their maximum demand
    2) If PV does not change their maximum demand they receive no benefit
    3) Inefficient network customers like air-conditioning will pay more
    4) Is cost reflective
    5) Does not scapegoat PV

  3. Concerned Avatar
    Concerned

    I heard the Minister on the radio the day after the report. He advised that there is nothing set in concrete and it was a basis for discussion. The QCA dose not make policy.

    And Warwick we need the installed capacity as peak use goes far beyond 5pm.I live in Brisbane and the insolation here is poor, like today and yesterday and the preceding days. Little production from my PV and SHW as it has been raining.

    And regarding air conditioning there are many that need same such as the elderly etc. The better idea would be to change building regs to have more efficient housing. That was put to Beattie years ago, and he canned it.

    1. Warwick Avatar
      Warwick

      Concerned, you are spot on in highlighting that peak use of the network is not always assisted by PV and hence networks don’t get a saving on infrastructure spend by PV.
      I would accept that there are some of those who use air-conditioning the most may be on low incomes such as the elderly but this is not unlike those who cannot afford PV (such as renters) or those who are currently cross-subsidised in remote areas of Queensland. In those cases a welfare payment is most suitable as it does not inefficienbtly distort consumer behaviour by not having cost reflective pricing.

    2. Chris Fraser Avatar
      Chris Fraser

      Newman canned efficient building more. Something about complaints of the increased costs of building. Nothing about the riding cost of energy or shortened payback times !

      True, not every homeowner could take advantage of a means of storage to reduce the overall issue of peak that Concerned speaks of. But some could and would. Since there is no proposal that I am aware of to subsidise home storage, any effort to reduce peak should be welcomed by people like Concerned as having a benefit to all users, reducing pressure at peak times and reducing costs of capacity investment.

      But that would be received as bad news at the QCA. They would only go on another witch hunt blaming energy storers for reducing demand, since they would be losing the reason they held for the gold plated version of their grid.

      1. Concerned Avatar
        Concerned

        QCA does not make policy.

      2. Concerned Avatar
        Concerned

        Where does Newman come into this?

  4. Miles Harding Avatar
    Miles Harding

    Are we sure that QCA isn’t really the Queensland Coal Association?
    This is exactly the sort of thing a bunch of coal stooges would propose.

    If anything, all fixed charges should be outlawed, benefiting consumers that reduce their demand and forcing heavy consumers to fairly pay for their indulgences.

    I would be a lot happier seeing so-called smart power thrown out and replaced with a real-time demand sensitive billing system instead of the feeble and dumb stepped tariff arrangement.

    Australia is about 20 years behind California when it comes to billing and smart metering. I was impressed to see a friend’s on-line (web) real time tracking of electricity use in his San Francisco house. The detail was sufficient to see the refrigerators cycling on and off.– all part of the normal service there.

    It’s time to send the electricity meter back and go off-grid!

  5. howardpatr Avatar
    howardpatr

    It would be great to see some retired economists and lawyers come together for the purpose of challenging the likes of the QCA in Queensland and IPART in NSW over decisions that one could be forgiven for government and private elecricity generators and distributors.

    Owners of PV systems should at least expect to get a similar return on capital invested as the generators and distributors.

    The fact that the 20MW installation to be built in the ACT will be paying in the order of 19 cents a Kwh to the owner is a clear indication of how state governments and their stooge organizations are gouging PV owners for the benefit of the fossil fuel industry.

  6. John Davidson Avatar
    John Davidson

    The QCA is quite open about its task being to come up with a “fair and reasonable price” – FOR RETAILERS. Ditto protecting the profits of power distributors.

    In doing the calcs the QCA:
    – Ignores the downward effect of solar PV on the wholesale power price.
    – Charges the same distribution cost for power going from rooftop solar to the next door neighbour as it does for power that travels hundreds of km.
    – Charges rooftop solar the same green cost charged to coal fired power.

    By doing all these strange things it came up with a recommended tariff close to 8 cents/kWh.

    The Qld government’s problem is that 350,000 houses in Qld have rooftop solar. That would be over 700,000 voters.

    1. Warwick Avatar
      Warwick

      It’s interesting that you think that the QCA serves retailers. Perhaps you might care to ask Origin or AGL on that one (http://www.couriermail.com.au/news/queensland/origin-energy-loses-its-legal-challenge-to-overturn-the-state-governments-price-freeze/story-e6freoof-1226540250910). You might also do well to understand that it’s really the job of the AER (Australian Energy Regulator) to be “protecting the profits of power distributors” as they are natural monopolies so it’s the regulators role to determine a suitable level of pricing and consewquently profit.
      In your “calcs” you might care to observe that the “downward effect of solar PV” vaporised in January in QLD and that the QCA had argued that where competition exists in a market it is not a further reason for additional subsidy and that all generation provides this same “benefit”. Furthermore, the cost of distribution is a fixed cost and whether the electrons travel next door or to the neighbour or across the suburb makes no difference to the distribution network…also if it is travelling hundreds of kilometres it is more likely to be transmission not distribution, and in that case you are not paying transmission costs on local generation. The green costs that you likely refer to are large scale and small scale renewable energy schemes which are charged on your metered energy…unfortunately you can’t tag electrons form the source i.e. as a domestic customer how do I know if my electrons came from next door or 1000km’s away? There is potentially a marginal benefit from some cases of improved distribution loss factors from PV which is shared across all consumers in a distribution area but that benefit has already been funded by all consumers through the small scale renewable energy scheme which essentially funds internalised generation & consumption across all consumers.
      The problem the QLD government is not unlike any government balancing a budget, it has to consider the issues of efficiency and progressiveness in the context of vested interests on either side of the “debate”. The current tariff regime is not cost reflective and improving this will inevitably rattle a few cages.

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