How retailers are profiting from your solar rooftops

For the last four years there has been bitter debate about the “fair value of solar” – centering mostly around the rate that householders should be paid for excess electricity from the rooftop solar modules that is exported back into the grid.

This has been a hot debate ever since the “premium” feed in tariffs were removed and replaced with “net tariffs”. Electricity retailers have more or less argued that they shouldn’t pay much more than the wholesale price of electricity that they might get from a coal fired power station.

The solar industry argues that retailers are getting a massive free kick if they buy excess electricity from one household for 6c-8c/kWh – and then sells it to the neighbour for 24c-30ckWh.

So what happens to the difference. Where is the net gain and who is pocketing it?  New analysis of the generation and network costs of electricity bills by Bruce Mountain, of Carbon Market Economics, suggests it is the retailers.

Mountain presented a series of graphs to argue his case. The most crucial one is this, comparing the network charges and the non network charges of electricity bills along the eastern seaboard.

Screen Shot 2013-07-26 at 9.08.21 AM

Apart from noting the higher network costs of some utilities, Montain poses this question: If the implied non-network charges (apart from Ergon, the regional Queensland network provider) range between 14 c/kWh and 25 c/kWh – and solar PV exports are typically paid around 8c/kWh, what explains the difference?

He says the rationale is avoided cost of generation, ancillary services and losses. But if 8c/kWh covers the avoided generation costs, what about the remaining 6c/kWh to 17 c/kWh of non-network charge?

“Some of this,” says Mountain, “is competed away on market tariffs, some is (renewable energy certificates) and a little is retail cost, but the remainder is margin – higher than reasonable in some cases it might be suggested. Is there a case that embedded generators should receive some of this?”

He notes that retailers like to claim it is their margin to keep, but the owners of rooftop solar complain that the retailers are monopoly buyers who capture all the rent from their production. It likens the dispute to that between supermarkets and farm suppliers.

On the issue of network charges, Mountain argues that the installation of rooftop solar is anything other than a net gain because it decreases the need for future investment in network, reduces transmission losses and optimises the length of the network.

“It is hard to see that embedded generation is any other than a net economic benefit in most cases ,” Mountain says. Any additional expenditure, such as tap changers on transformers, is relatively minor.

And so he questions the push for higher fixed tariffs, particularly the argument that solar households should be hit with higher fixed tariffs, because they are using less electricity from the grid.

“Arguments for higher (higher fixed charges) to compensate for lower consumption are dubious at best,” he says.

“Does anyone recall hearing the argument for lower unit rates (or lower fixed charges) when households increased consumption or demand?”

And he wondered, when large manufacturers reduced purchases of electricity because they wound back manufacturing activities, where these businesses hit with higher fixed charges to make up the losses. If not, then why should households?

 

 

Comments

9 responses to “How retailers are profiting from your solar rooftops”

  1. Warwick Avatar
    Warwick

    I’d suggest it’s more complex than this and that the retailers don’t actually make anywhere near the profits that are suggested by the “raw” numbers. If the profits were as high as suggested then the retailers would seek to acquire these customers yet many in the renewable industry point out that retailers are avoiding solar customers.

  2. Mick Avatar
    Mick

    Hi Giles, I would be interested to know how this break down is calculated (specifically the “implied non-network costs”)… The “network charges” seem a bit low, particularly for Victoria (compared with say AEMC nuumbers) and the overall cost seem a quite high.

    …. I really can’t understand why arguments for increasing ‘fixed charges’ are “dubious at best”. There are very clear and logical reasons for changing tariff structures – it creates a lot of distortions. Quite simply, if you use the grid, you should have to shoulder the burden to pay for it. Ideally, the ‘fixed charge’ should be capacity based – depending on how much power you demand and when you demand it. It is otherwise quite unfair.

    ….”When large manufacturers […] wound back manufacturing activities, were these businesses hit with higher fixed charges to make up the losses?”… Probably not, but neither should they because they already pay on a cost reflective basis! The ‘retail’ price for large contestable sites (like manufacturing), is entirely different to mass market retail pricing. “Energy costs” are typcially be between 6 and 8c/kWh, and Network costs are charged on a capacity (MVA) basis (and there are other cost e.g. metering costs, market costs, environental costs that that are also either fixed or variable). If they they reduce their consumption, they will not be hit with highed “fixed charges” (nor should they as they are already paying a cost reflective price for the connection!).

    I would agree that the descrepance between households and manufactures pricing shouldn’t exsits – but for entirely different reasons: Households should also have a capacity based charge!

    1. bruce mountain Avatar
      bruce mountain

      Mick

      Quick reply: all calcs done using actual 2013/14 tariffs whether for NSPs or regulated retail, and all calcs using average household electrical consumption.

      On your tariff points, agree that tariffs should reflect usage. But this does not take your far – its like saying everyone should pay their way. We can all agree to that but reasonable people have very different views on what constitutes an economically efficient tariff design, and then how cost should be specified and allocated to implement that design.

      Hotelling in the 1930s suggested tariffs should reflect only short run costs and the government pick up the tab for the endowment. Did not get very far.

    2. Colin Nicholson Avatar
      Colin Nicholson

      There is already a model to apply in the situation. Every street becomes an ENO. Unless there is a high penetration of PV in that street, it will never export any electricity to the grid. And everybody will essentially be paying (or saving) at the weekday peak rate and the weekend rate. The traditional ENO would have all the wires running to a meter box at the end of the street, and some sort of body corporate to operate it. Ironically smart meters allow a VENO (virtual embedded network operator) street by street. The Body Corporate still has to look after the polls and wires in the street. So all the rules and logic is already in place.

  3. Miles Harding Avatar
    Miles Harding

    I would argue that the description above is incomplete. If network charges are to attributed to PV generation, it is important to know exactly how much of the ‘network’ actually involved in the energy as it moves from PV source to consumer.

    Within the property, the nett feed-in tariff correctly reflects the fact that the network plays no part in PV energy consumed within the customer’s domain.
    What of the remaining energy that is exported, where does it go?
    Is it safe to expect that this energy will do to the nearest consumer? I believe so.

    With PV penetration in the order of 10% across the country, most of this energy will go next door or up the street a short distance. It is unlikely that very much will ever make it to the first transformer. This is at odds with the supply authorities that seem to assume that the energy is magically transported back to their generator, then to makes its way through the network to the consumer next door!

    Electrical engineering theory tells us that the energy will take the shortest path, so the network charges are largely a fiction that suits the profit motives of the retailers to the detriment of their customers.

  4. Johan Avatar
    Johan

    What does not make sense to me is that this articles looks at the feed-in tariff compared to what the residential consumer pays for electricity. That is not what should be compared here. Clearly, a retailer would not be interested in paying more per kWh from solar PV systems than it would from other generation in the grid (even if that grid electricity is GreenPower or hydro). Whilst I wish feed-in tariffs were much higher than what they are today, one must look on the supply side here – if electricity can be bought at 8c/kWh from generators, it would not make sense to have a feed-in tariff much higher than this (unless other regulatory factors could act to drive up the FiT).

  5. E Mail Avatar
    E Mail

    Here in Hawaii we pay .44 per kwh. Home generating stations receive nothing for their power generated, instead we are billed (approximately $20) per month for the privilege of feeding electricity back into the grid!

  6. JohnRD Avatar
    JohnRD

    We can grow vegetables in the back yard and sell direct to consumers.
    There is no technical/safety reason why solar PV owners couldn’t run a line to neighbours and sell power at a win/win price.
    But I am sure that there is some monopoly protecting rule that will make selling power to your neighbour illegal.

  7. JohnRD Avatar
    JohnRD

    The QCA report on solar PV says that the network charges the same per kWh to move power from our place to the neighbour as it does for moving power from Central Qld to Brisbane.

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