Grattan’s policy recommendation welcome, despite litany of errors

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Grattan reports gets future policy direction largely right. It’s the past where they have made many errors.

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We certainly agree with the recommendations of the Grattan Institute report because they are the same as the Australian PV Institute and others have been putting forward over the last two years.

roof-top-solar-generationEssentially, this is that cost-reflective pricing, getting the regulatory environment right, extending RIT-D (network incentives) to cover replacements not just augmentations, tying capital expenditure to better demand forecasts, and formalising asset write downs are essential for the future.

It’s what we have argued since 2012. We just wish that the Grattan Institute had engaged in a dialogue with us to discuss their assumptions about PV and cost-reflective pricing, because there are a number of errors in their estimates of the costs of PV.
The first is that they don’t take into account the fact that all mainland distribution network operators (DNSPs) in the NEM, apart from in Queensland and since July, 2014, in NSW, operate under a weighted average price cap (WAPC).” This means that the fall in revenue driven by reduced electricity use is actually borne by the DNSPs, not by customers as they say. This applies to $3.7billion of their costs to customers.

Another problem is that in parts of the report they assume that the domestic load profile during the annual network peak is the same as the average for the year.

It is actually very different and the peak occurs earlier in the day, between 4.30 and 6pm, when in summer PV is still generating. As shown by many published papers as well as network sources such as Ausgrid, PV does in fact reduce annual peaks on most distribution networks. In their latest Distribution Annual Planning Report, Ausgrid actually incorporated the impact of PV into their demand peak forecasts.

Regarding the subsidies such as capital grants, the SRES and feed-in tariffs, they fail to mention that, as far back as the Photovoltaic Rebate Program (PVRP), such measures have not simply been to subsidise a technology or to achieve short-term least-cost GHG abatement, they have always been for industry development.

These measures have worked, as indicated by the fact that they are now steadily decreasing, and will be zero for new PV systems as of 2020. It would have been useful if they had compared this to the subsidies paid every year to the fossil fuel industry – which I would suggest is arguably well established and so should no longer require subsidies.

There has been a lot of work does in this space, including in peer reviewed journals, for example work by the CSIRO which said that DG (mainly PV) would result in a net welfare gain to Australia of $130 billion through to 2050.

Grattan’s concerns about the potential negative technical impacts of PV have been dealt with time and time again, including by the CSIRO, which concluded that such impacts can be readily managed.

This has been echoed by a number of network operators. Recently the Energy Networks Association released the report ‘Enabling Embedded Generation’  which provided examples on how embedded generation such as PV supports the grid and said that in many cases any impacts can be managed with simple or low cost responses.

Also, their example of a cost-reflective tariff (CRT), which they used in their 2014 report Fair Pricing for Power, is not in fact a CRT. A CRT would have a demand charge based on the customer’s demand at the time of the network’s annual peak.

What they recommend is a demand charge based on the customer’s demand peak every month. This isn’t CRP, it’s revenue raising. Ironically enough, having network tariffs more like the Grattan model will actually increase the uptake of batteries and so reduce network revenue even further.

Rob Passey is treasurer of the Australian PV Institute.

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