Here comes the sun tax for rooftop PV – and it’s not alright

In January this year RenewEconomy published an article from me on the implementation of the AEMC’s Access, pricing and incentive arrangements for distributed energy resources rule determination – aka the “sun tax”.

That article was largely optimistic. Nearly a year later, how’s it looking?

Not so good, at least in relation to export pricing – the most contentious aspect of the rule change.

Six networks are at the halfway point in their revenue proposals to the regulator (the AER) for 2024-29:  Ausgrid, Essential and Endeavour in NSW, plus TasNetworks, Evoenergy and NT Power and Water (the rest are one year behind in the five yearly cycle).

Four of these networks (the three in NSW plus Evoenergy in the ACT) are planning to introduce export tariffs from 2024.

The remainder of this article concerns the NSW networks. (TEC has not been involved in the Evoenergy stakeholder consultation process, and its draft plan is light on details in this regard.)

Being one year behind in the regulatory cycle, the remaining networks in the NEM are in the early stages of user and stakeholder consultations, and will no doubt be watching closely to see how the regulator reacts to these four.

Meanwhile, all three NSW networks have been trialling export tariffs since July 2021.

They are not waiting for the results of these trials before proposing to introduce opt-in export tariffs for all new and upgraded connections from 2024, and opt-out from 2025. So existing solar owners don’t need to worry, for now at least, unless they upgrade their system.

Why the rush?

The Australian Energy Regulator made it quite clear in its Export Tariff Guidelines that it “will not approve two-way pricing proposals unless a distributor can, through the regulatory proposal (including the tariff structure statement) process, demonstrate its need.”

The guidelines then proceed to explain what evidence the AER would need to see, including the network’s ability to absorb more solar exports without new investment (ie, its intrinsic hosting capacity); how users would be impacted by not introducing an export tariff; “evidence of current or estimates of future DER penetration on the network (including rooftop solar and electric vehicles) and how this impacts network costs;” and feedback from customers and other stakeholders.

So, how have the NSW networks gone in responding to this call for evidence? Here are the main justifications they are proffering:

To summarise:

• High rooftop solar penetration is causing, or will cause by 2029, additional network costs, and these costs should be born by the customers who are most benefiting from additional hosting capacity (ie, solar owners).
• Export price signals should encourage behavioural change from solar and battery owners which will help to reduce network costs in the long term.
• Customers and other stakeholders support export tariffs as the fairest way to recover additional costs imposed by DER exports.
• Export tariffs are a relatively simple and cheap way to signal to solar and battery owners to export less in the middle of the day, and more during the evening peak.

Some of these arguments are reasonable. For instance, large areas of Essential’s rural network have high PV penetration (over 30 per cent of households).

The same applies for some parts of the Endeavour network in western Sydney, the Blue Mountains and Illawarra. So maybe there are some problems emerging there which will need to be addressed as the penetration of distributed solar and battery energy increases over the next decade or two.

Ausgrid’s case is the weakest. It has experienced a relatively low uptake of rooftop solar to date. Its main argument amounts to saying, “We don’t have a problem with rooftop PV exports at present, but we might, in some places, in the near future, so we’re going to start charging all solar owners asap so they get used to the idea”. It’s a boiling frog argument: soften ‘em up so they don’t feel nothin’ while we turn up the heat.

Where is the evidence?

But even where the rationale may be reasonable, very little actual evidence has been provided in the public domain (ie, in their draft plans for 2024-29) to substantiate most of these propositions.

Of the three, Essential Energy appears to have done the most work with customers and stakeholders to justify an export tariff, making it a focus of engagement this year. But even then, there is little detail concerning the extent and severity of the problems caused by high solar exports, or of the low-cost options (such as flexible exports) available to fix these problems rather than augmenting the network or introducing an export tariff.

During the course of this year, TEC has repeatedly emphasised to the networks that they do not have a god-given right to introduce export tariffs just because the rules allow for this prospect. The AEMC’s final determination was quite clear:

“Recognising export services as part of distribution services does not necessarily mean that DNSPs will require significant expenditure to expand the network… [T]here are a number of relatively low-cost steps that a DNSP can use to improve its network’s capacity to connect more DER before investing in network expansion…”

Allow me to translate and elaborate. The logic required in order to justify an export tariff goes something like this:

1. Higher future DER exports are likely to cause problems (eg, overvoltage or breaching thermal limits) for networks in some locations at some times of the day and season.
2. These problems cannot be solved by better utilisation of the existing network (eg, via flexible exports, transformer tap changes or “solar soak” tariffs that encourage more daytime consumption).
3. Augmentation—new capital expenditure—will be required to relieve local congestion, and since DER owners will be the main beneficiaries, they should also be the ones to pay.
4. Conversely, where DER exports are reducing network costs (particularly by the discharging of home or community batteries during the evening peak), they should be compensated.
5. Where the revenue from “clipping the ticket” on daytime solar exports exceeds the rebates for evening battery exports, what new infrastructure this revenue will be spent on should be explained.
6. In order for export tariffs to reflect the networks’ projected future costs, they should be time sensitive and location specific.

Also note the AEMC’s reference to “network expansion”. The intent of the rule change was never to correct any existing cross subsidy. It was aimed fairly and squarely at responding to potential future network constraints in an economically efficient and equitable manner.

Unfortunately, all three NSW networks appear to have started work on their export tariffs for 2024-29 without going through the first stages of this process – at least not in the public domain. No detailed evidence of the problems and potential alternative solutions has been given in their draft 2024-29 plans.

The pros and cons of export tariffs were thrashed out very publicly, in the media, as well as well as in the lengthy consultation processes that started in 2019 under the stewardship of ARENA’s Distributed Energy Integration Program and then as part of the AEMC rule change process in 2020. So the networks are well aware of the need to obtain a social licence for imposing export charges.

They may think they have done enough behind the scenes, in their customer and other stakeholder consultations (which, to be fair, in all three cases have been extensive and intensive). But these plans are public documents, and any tariff reforms in NSW which are accepted by the AER are likely to be picked up by the remaining networks in the NEM. So broad assertions about increasing costs, empowering customers and improving fairness aren’t enough.

Instead, we need to see granular evidence of the problems they are trying to solve, such as substation heat maps (to show emerging congestion issues) and cost benefit analyses of non-network as well as network options to respond to any local congestion likely to be caused by high future solar exports.

As the AEMC itself puts it, “a DNSP will need to explain its proposed approach to export-related planning and investment against alternative options” (our emphasis).

From a regulatory perspective, recognising solar and battery exports as a service was a critical step in the transition to a decentralised energy system. That means, amongst other things, using tariffs to signal when and where there is too much or not enough energy being exported back into the grid.

So the rule change is not the problem here. But the integrity of this reform is at risk. Unless these networks either change tack or fill in the blanks, TEC will recommend to the AER that it not approve these tariffs.

My next article will dig into the details of the proposed export tariffs (and yes, there is some good stuff in there from all three NSW networks), and what you can do about them.

Mark Byrne is energy market advocate at the Total Environment Centre. Thanks to Anthony Bell of Engevity for feedback on the first draft.