A shot across the bow of self-consumption solar | RenewEconomy

A shot across the bow of self-consumption solar

Sharpen your cutlasses and prepare the cannon, a proposal by network operators could halve the benefits of solar PV.

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Following the winding back of premium feed-in tariffs across Australia, there has been considerable debate over the value of solar exports to the grid. In recent months the NSW IPART, SA ESCOSA & Victorian VCEC reports have all placed a value of between 5 and 10 cents/kWh for energy exported to the grid.

The solar industry has argued that greater value should be placed on exported energy because of its potential to assist the network, but to date has been unable to persuade regulators.

There has been much less discussion of the value of solar energy consumed on site. We may have thought solar was safe behind the meter, but perhaps we need to think again. At a recent “Renewable Energy Round Table” hosted by the NSW Office of Environment and Heritage, a representative of network operator Essential Energy raised an approach that if implemented could have wide ranging implications for the Australian PV market. It was a shot across the bow of solar.

Solar Squeeze

I was fortunate to give a presentation to the round table on the prospects for commercial PV in the New England North West region, one section covering what I call the “solar squeeze” of large commercial electricity consumers.

Under a NET metered installation, when the solar energy is consumed as it is produced, the saving generated is equal to the retail price per kWh paid for the electricity, as the customer buys less in from the grid. For a small commercial electricity customer, this can be as high as 30c per kWh on a flat rate tariff, or even higher at peak times of the day under a Time of Use tariff. For large commercial electricity users however, the charges are broken down into relatively low charges per kWh for the energy, plus high charges for network use based on the peak demand (KVA) reached during a billing cycle.

For example, a small commercial user could get a benefit of 30c/kWh for self-consumed solar energy, whereas a large commercial user may receive as little as 10c/kWh due to the way they are charged for their electricity – the solar squeeze. The chances of the monthly peak demand KVA being reduced significantly by solar generation is a game of chance rather than any predictable return; there may be a saving but it would likely be small and ought to be regarded as a bonus benefit.

As a result of this disparity, I am aware of at least one solar leasing business that has eliminated large commercial demand tariff customers from their plans for the foreseeable future. I know from experience it is much harder to make the investment numbers add up for those large commercial customers on demand tariffs, unless there are other driving forces such as internal energy efficiency or green targets to be met.

It is inappropriate that large electricity consumers will miss out on the benefits of solar if this disparity is not corrected by some form of regulatory change, or an overriding FiT arrangement.

The following graphs illustrate the difference between small and large commercial solar savings. (Regional NSW Essential Energy area, 30kWp solar system installed for $2.50/W including GST & STCs @ $23, 4.0kWh/kWp/day, 85% consumed on-site, 15% exported, small commercial flat rate $0.30/kWh, large commercial demand tariff $0.10c/kWh & assumed no reduced KVA demand charges, $0.08 credited on exports.)

So, back to the Renewable Energy Round Table…

Following my presentation and during one of the open floor sessions Col Hackney of Essential Energy referred to my presentation and commented that the large commercial demand tariff customers are billed in a way that more accurately reflects the real costs of the energy, separate from the network charges, and the solar savings from self-consumption were more appropriate. He argued that small commercial users ought to be charged in a similar way; “We’ve got to get the pricing right and the sooner the better to minimize the number of unhappy people who will install solar expecting that sort of return.”

If this were to happen, you can see from the example, savings achievable from a commercial self-consumption solar system are more than cut in half, as I expect the potential market would be.

Anyone who currently installs solar as a small commercial user on a tariff in the range of 20 to 40c/kWh would be in for a rude shock if their tariff was switched to a 5 to 10c/kWh charge plus large standing charges or peak KVA penalties. The savings from slowing the meter down would be decimated. Imagine the reaction from a customer who had just signed a 10 year lease agreement.

Now I’ve just been talking about commercial solar here, because that was the subject of my presentation and the reaction from the network operator, but imagine if this same argument were moved across to the residential sector. Our customers might find themselves paying 8c/kWh plus $7 a day to be connected to the network or peak demand penalties perhaps? Supplying their own kWhs with solar wouldn’t make sense.

Changes to charging arrangements would no doubt involve NEM reform and state government regulatory changes, but all are currently in review. The future of the Australia PV industry could be in the balance.

Sharpen your cutlasses and prepare the cannon, the next battle could be about to begin.

Geoff Bragg is chairman of SEIA NSW

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12 Comments
  1. Warwick 8 years ago

    This seems like an “own goal” for PV. It is mentioned in the article that “The solar industry has argued that greater value should be placed on exported energy because of its potential to assist the network, but to date has been unable to persuade regulators.” Yet later in this article it states “The chances of the monthly peak demand KVA being reduced significantly by solar generation is a game of chance rather than any predictable return; there may be a saving but it would likely be small and ought to be regarded as a bonus benefit.”

    Surely then the network businesses must be right? Largely it is the capacity in the network in kVA that drives the capital investment so if PV is actually reducing demand at times of maximum demand then demand (kVA) pricing will be the way to go…

    • Matthew Wright 8 years ago

      Warwick,

      The case for why Solar is better than cost neutral is due to Merit Order Effect (MOE) not reductions in network peak some of which occur after the sun goes down. PV is a great peak eliminator knocking out 85% of peak events on the NEM. Which flows to big $$$ savings for consumers.

      Matthew

      • Warwick 8 years ago

        Matthew,

        This article is highlighting how the personal investment for PV is less compelling for larger installations due to the fact that charges are based upon energy and demand not energy alone. The article concedes that PV has a limited effect on maximum demand hence little reduction in network charges. Given that the energy prices are lower for a larger customer, the investment horizon for solar is longer.

        It pretty much proves the point that solar can be effective at reducing energy bills as it can displace the cost of energy + network but as the scale becomes larger it needs to be closer to wholesale energy costs to be competitive. As panel prices fall and the economics improve, we should see this possibility improve.

    • Geoff Bragg 8 years ago

      Hi Warwick,
      To an extent, the networks do have a point.
      What is unfortunate is that solar has the ability to shave the top off peak demand for, say 25 days of the monthly billing cycle, (providing support to the network) but it only takes one peak demand event at a time when the sun isn’t shining to be penalised the same as if no solar were connected at all. i.e. the network receives benefit for 25 days out of 30, and the customer receives no benefit for this.
      Customers can be charged for example 75KVA or the monthly maximum KVA or the maximum KVA registered in the last 11 months, whichever is the greater, charged at $30/KVA .
      Bearing this in mind, if you were lucky enough to reduce the peak KVA reading in a given month, it would take 11 months to have any financial benefit.

      The system just isn’t capable of registering the benefit solar may be supplying a reasonable proportion of the time.

      • Warwick 8 years ago

        Geoff,

        Unfortunately, the network is built for dealing with anticipated maximum demand. i.e. the capital cost of building the network is for the maximum, not the second or third highest demand. So, if you don’t reduce demand at the maximum, you’re doing nothing for reducing the capital requirement of the network. The network only sees the demand at the meter, so if PV or batteries or demand side management reduce the peak demand, then the network customer should see a reduced cost.

        Obviously, the networks have a maximum demand (either in kVA or kW depending upon the state) which is usually charged on the basis of the highest figure in the last 12 months. One may argue that it seems unfair that you have to wait 11 months before you have seen a reduction in your bill but perhaps the networks may be justified as they don’t know whether a reduced demand was due to better load management, mild weather or other factors.

  2. Gary06 8 years ago

    Good discussion Geoff. Apart from the reference to different power costs to users, there is the inherent cost of maintaining the distribution network. While we have $billions put to putting broad band cable in the ground across the country, electricity wires are left dangling in the air, and power poles are daring motorists to crash into them. Greater extremes of weather are breaking the wires and power outages will be longer and more frequent as the network ages. Spain, one of the economically unstable EU countries, has seen sense in improving local storage capacity. It’s power management goals are a long way in front of us, and might potentially be a source of technology beyond lead batteries.

  3. Craig Askings 8 years ago

    I’m sure some of the battery manufacturers would not mind this scenario if it unfolded. Put some local energy storage behind the meter to shave the top off your KVA peak penalties.

    • Scott 8 years ago

      Yes that is the opportunity.
      Just need the battery costs to follow the PV costs downward.

  4. Warwick johnston 8 years ago

    Such a change would require further rollout of smart meters, plus massive energy market reform. It will take a brave (or foolish) politician…

  5. Tirthankar Banerjee 8 years ago

    This is the reality. Energy cost is only a part of the price paid by large consumers for their electricity. One way of reducing the power bill would be a combination of solar, some storage and intelligent demand management. My preliminary calculations show a potential demand reduction of about 30% for commercial customers with mainly day time loads.

  6. Jeremy Waller 8 years ago

    Short of banning home solar installations these small scale systems will proliferate to the increasing advantage of the home solar owner.

    What is stopping the home solar owner from disconnecting his/ hers system from the grid and using batteries to store the energy for use. Currently devices like the SMA ” Sunny Island ” and Victron Quartro fit the bill very nicely.

    With the current tariffs using all the energy generated (not exporting any energy) will reduce noticilly the owners bill and reduce demand to the degree that prices will be lifted to maintain profits.

  7. Alastair Leith 8 years ago

    Same game Telstra et al have been playing on landlines that people use in less volume than pre-mobile. Monthly fee has probably doubled in last decade which must greatly exceed CPI. Long suspected Utilities would ask regulators to follow suit if rooftop SolarPV gets it;s teeth into their Govt guarantied (and sponsored through privatisation) profits.

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