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.

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?