Ergon considers partial buy-back of $1.5bn solar feed-in tariffs

Queensland state-owned utility Ergon Energy is considering a proposal to “buy back” at least part of the 44c/kWh feed-in tariffs in a bid to try to change consumer behaviour and deal with some of the major grid constraints that it has on its huge network.

The Queensland state feed-in tariff is predicted by some to cost up to $3.4 billion before it expires in 2028/29, in one of the most generous tariff schemes set up in Australia.

But while the cost burden on consumers is one issue, the 44c/kWh tariff is causing consumption behaviour that is creating major problems on the Ergon Energy grid, many of which are thin wires that are struggling to cope with rising peak demand.

Ergon CEO Ian McLeod says his network has 80,000 households on the 44c/kWh tariff, and because of that tariff they are more likely to maximise their earnings by using little electricity through the day (maximising exports), and then switch on their appliances during the evening peak.

In some areas, such as those around Hervey Bay, one of the areas with the highest solar penetration, Ergon Energy is facing a $30 million bill to upgrade sub-stations and lines to deal with the rising peak demand.

This is causing massive head-aches. So much so that McLeod says it could be cheaper for the network to “buy out” the feed-in tariff from the households, and put them on the 6.5c/kWh tariffs, which would encourage them to use appliances such as pool pumps in daylight hours to get the benefits of consuming solar electricity, rather than exporting it, and to avoid grid charges.

McLeod says a buy back could be paired with initiatives such as home energy management schemes, which could include the installation of battery storage and other demand management devices.

Ergon considered the issue last year, but put the idea on hold when the then LNP government talked of shifting the $3.4 billion feed-in tariff bill (the tariffs last until 2028 unless a household is sold).

Since the LNP is no longer in power, McLeod says Ergon staff are now crunching the numbers on a buyout, focusing on some highly constrained areas to see if the idea makes economic sense.

Ergon Energy, which covers 97 per cent of Queensland by land area, faces a $1.5 billion bill from the 44c/kWh feed in tariff out to 2028, with more than one in 10 of its residential customers on that rate. The total bill for the state is put at more than $3.4 billion.

McLeod says the problem of constrained grids is particularly acute on 35°C days, in areas with a high level of solar PV penetration. He said “hundreds of feeders” are being looked at.

“We want to see if a buyout on the net present value of the tariffs, combined with home energy management systems to help shift the load, …is the cheapest option.” Battery storage, to shift grid demand away from the peaks, was also an option.

“This is where change happens,” he said. “Instead of building transformers and wires and all that sort of stuff … the value goes into the analytics, understanding the data, and understanding the problem and the technology solution.

“Can I manage that constrained grid – can I manage that for two years until when I know the battery nexus point is coming in two years time?”