Cross about subsidies: The equity implications of rooftop solar in Australia

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There are some simple, cheap and equitable solutions to some of the concerns raised about cross-subsidies to and from rooftop solar.

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As readers of RenewEconomy are aware, the boom in rooftop solar PV in Australia has created substantial economic and environmental benefits, not only to individual owners but to the energy system and consumers more broadly.

However, concerns have recently been raised—some resaonable, others verging on the hysterical — by regulators, retailers, networks and welfare advocates that some of the costs associated with subsidising and integrating rooftop PV are being borne disproportionately by those who cannot install them because they cannot afford to, they are renters, or for practical reasons such as having unsuitable roof space or living in an apartment.

For instance, a 2017 report by Australian Council of Social Service, Brotherhood of St Laurence and The Climate Institute noted that

Put plainly, there are concerns that, without significant policy and regulatory reform, the future energy market will create a two-tiered system that favours those who can access and afford distributive energy resources (such as solar panels) and those who cannot, further widening the gap between the haves and the have-nots.

In response to these concerns, the Total Environment Centre and Renew (formerly the Alternative Technology Association) collaborated on a discussion paper which is being released today. It attempts to do four things:

  • Identify the range of economic costs associated with rooftop PV, especially in high penetrations.
  • Quantify the extent of any cross-subsidy, where there is evidence available.
  • . Suggest a set of principles that could guide attempts to address any cross-subsidies.
  • . Applying these principles, propose appropriate technical, economic and policy responses to cross-subsidies.

Our paper identifies two main classes of economic cross subsidies: those relating to government subsidies, rebates and other ‘green schemes’; and those relating to network costs and revenues.

The former are relatively easily remedied—eg, by shifting the cost recovery for green schemes from electricity bills to consolidated revenue (i.e., the tax system), and by targeting rebates and incentives more towards low income households.

Our focus is therefore on the second class of economic cross subsidies. We find that:

  • . Network non-solar to solar cross-subsidies are one of a range of cross-subsidies in the energy system, some of which are more substantial (e.g., from non-aircon to aircon owners).
  • . These network cross-subsidies relate primarily to the loss of network revenues caused by lower grid consumption by solar owners (in the context of their demand being of a level commensurate with non-solar owners) and potentially the engineering costs associated with managing high levels of export in local parts of the distribution network.

A number of strategies can be implemented to target and address these two cross-subsidies, including tariff reform, technical upgrades and dynamic distributed energy resources (DER) management. There are some challenges involved in implementing these, but they are feasible.

Charging solar owners to export to the grid is sometimes posited as another potential solution.

While it could be equitable in the context of a high DER system in which charges are levied for exports that lead to additional network costs and payments made for exports that lead to reduced network costs, it is also the most complex and problematic solution at this point.

We propose a suite of principles that could be utilised to assess the merits of, and potential solutions to, the cross subsidies we have identified and others that may arise in the future. In the current absence of public ownership of most parts of the supply chain, ’causer pays’ is probably one of the most important, although it needs to be balanced by consideration of the public good and fairness.

Also central are transparency and materiality and fairness: that is, cross subsidies should be addressed where they are evidence-based, substantial and regressive or unfair.

In the medium to long term, regulatory reforms may be required to enable more dynamic trading of DER energy and services (eg, arbitraging and voltage and frequency control).

However, these reforms should not be pursued in haste when there are cheaper and easier solutions to deal with current technical and cross-subsidy issues, and when dynamic DER charging carries the risk of unintended consequences.

For instance, here is a shortlist of potential solutions to over-voltage issues (all explained in more detail in the paper):

  • Limit installed capacity.
  • Limit maximum PV exports.
  • Adjust the nominal network voltage.
  • Install equipment in substations to manage voltage fluctuations.
  • Mandate smartinverterswith volt-VAr capability.
  • Allow dynamic DER control by networks.
  • . Introduce time-variant feed-in tariffs and solar sponge tariffs.
  • Charge for solar exports.

Some of these solutions are, we argue, simpler, cheaper, and above all, fairer than others. (Hint: hey networks, get those nominal voltages down! And if you mandate smart inverters, maybe you won’t have to throttle—or try to charge—anyone.)

Finally, we suggest that there is more than one way to skin the cross-subsidy cat, and that welfare and environmental groups should work together to make solar available and affordable to the renters, apartment dwellers and other households currently locked out of the solar market.

The paper is intended to open up to discussion rather than being the last word, so we look forward to a spirited debate on equity issues as the DER revolution unfolds.

Mark Byrne is energy market advocate at the Total Environment Centre.

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