Victorian households could soon be paid next to nothing for the rooftop solar energy they export to the grid, after a proposal from the state pricing regulator to slash the minimum feed-in tariff from 3 cents per kilowatt-hour (kWh) to to 0.04c/kWh, starting in July.
The Essential Services Commission revealed on Friday it was proposing the minuscule new feed-in tariff as the minimum flat-rate amount retailers should pay for solar exports in the 2025-26 financial year, as the number of rooftop PV systems installed in the state gallops towards 800,000.
The regulator’s reasoning is that the consumer driven boom in rooftop solar has driven down wholesale electricity prices so much during the day that there is very little value for it on the grid – at least not during the daytime peak.
Rather, an excess of rooftop solar on the grid in the middle of the day – the infamous solar duck – is regularly sending demand to new record lows and threatening to cause headaches for the energy market operator, AEMO.
According to the report accompanying the draft decision, the ESC has estimated wholesale electricity costs for the flat minimum feed-in tariff to be
negative 2.4 c/kWh (–2.4), which is 3.0 c/kWh lower than last year when the forecast was 0.64 c/kWh.
In contrast, the report says wholesale electricity prices are much higher in the early morning, and from early evening into the night when solar exports are low. This means that wholesale electricity market retailers are buying small volumes of lower-priced daytime electricity (over four hours) and larger quantities of high-priced morning, evening, and overnight electricity (about 20 hours).
And while it might look like solar households are being punished for driving down the cost of energy for everyone, the move to further slash solar feed-in tariffs is just another step – albeit a rather steep one – in the direction the market has been headed for some time now, where rooftop PV value lies in self-consumption and storage and not exports.
In other words, as the ESC puts it, rather than hoping to earn something in the vicinity of the retail price for electricity for rooftop PV electrons, the best bet for solar households is to avoid paying the retail cost of grid power by self-consuming the electricity they generate.
“For a customer on the Victorian Default Offer, the retail price ranges from approximately 26 to 35 cents per kilowatt hour, depending on their distribution zone – these are the actual costs that solar customers avoid,” the regulator says.
Meanwhile, the ESC has also put forward two draft proposals for time-varying minimum feed-in tariffs, where customers are credited between 0 cents and 7.5 cents per kilowatt hour, or 0 cents and 6.5c/kWh, depending on the time of day.
This means that solar households could, potentially, earn more than twice the per kilowatt-hour amount for the energy they export to the grid outside of the peak generation hours in the middle of the day, as demand increases and solar supply decreases.
As you can see in the table below, the highest potential proposed rate – 7.5c/kWh – would only be available to households with batteries (including batteries on wheels) who can export stored solar to the grid overnight. But a comparatively decent feed-in tariff (FiT) of 5.85c/kWh is also on offer for between 3pm and 10pm on weekdays.
The trouble is, this is not the current reality for many solar households, who consume very little power over the course of a regular weekday, but rather start switching on the most energy hungry appliances when then get home from work.
The jump to an almost non-existent flat-rate solar FiT is also a huge concern for the solar industry, not to mention government renewables targets, for its potential to put a major dampener on demand for new installations – particularly while home batteries remain financially out of reach for the majority of households.
“This is a worrying day for solar installers,” says Tristan Edis from Green Energy Markets, “but it should be seen as great achievement,” he adds.
“The technology that renewable energy critics dismissed as a token bit of expensive virtue signalling has brought wholesale energy market prices down to an average of zero across daylight hours.
- “It really makes you wonder how anyone can be arguing that renewables are pushing up prices when solar (in combination with wind) has pushed wholesale energy prices to zero across most of daylight hours.”
Edis says the next key task for industry and government is to pivot to batteries and other tools that will help consumers to shift power demand out of the peak period and into daylight hours.
“This includes better insulated homes and air conditioning so that homes can be heated or cooled during daylight hours in advance of people getting home, as well as electric heat-pump water heaters.”
Matthew van der Linden, the founder and CEO of solar focused retailer Flow Power, says it’s important to stress that the ESC’s draft decision has also published minimum feed-in-tariffs options that would reward customers for exporting electricity into peak windows and overnight.
“Working with customers to help them use more electricity during solar hours and encouraging them to invest in batteries and EVs is going to be key to transitioning our market to a renewable one,” he told Renew Economy on Monday.
Matt Rennie, the co-CEO of advisory Rennie, says the slashing of the flat-rate FiT is a “good call.”
“For people that can or have afforded solar installations in the past, the new signal is to buy a battery and store the lost power,” Rennie writes on LinkedIn.
“This will help payback periods, which have been stuck at 10-14 years and may (as prices unfortunately keep rising) provide a means for either investment in cost avoidance by households that can, or for government to direct subsidies towards batteries for those that can’t.
“Good signals drive innovation, and this will open up new products in the [virtual power plant] space and the ability to extend and examine the economics of storage honestly and transparently as the game gets more serious,” Rennie says.
Sohail Hasnie, former principal energy specialist at the Asian Development Bank, says the new FiT reflects the rapidly emerging renewable energy market reality and says this should translate into good news for consumers.
“One could argue that, for all practical purposes, the value of a kWh during sunlight hours in Victoria is rapidly approaching zero,” he writes on LinkedIn.
“As batteries become more affordable, we are moving closer to a scenario where abundant, zero-marginal-cost electricity could effectively provide ‘free’ electricity for residential customers. Ultimately, everywhere!”
Feedback on the ESC’s draft decision closes at 5 pm on Friday 31 January 2025. Comments and formal submissions can be made via the Engage Victoria website. The regulator says it will review feedback and release a final decision by February 28, 2025.
