A shot across the bow of self-consumption solar

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