How solar PV is turning utilities against consumers

It the solar industry ever harboured any illusions about the challenges it is facing in imposing itself on a sector that has been virtually unchallenged for more than half a century, then they were certainly shattered by a series of attacks on their industry from utilities and pricing regulators over the last few weeks.

It is now clear – if it wasn’t before – that Australian energy utilities are moving decisively against the proliferation of solar PV in an attempt to protect their revenues and business models, as we predicted they would back in June. This is the claim of the solar industry, and they point to numerous examples of tariff changes, network impediments and the lobbying and influence over regulators.

Last week’s revelation that the Queensland pricing regulator was contemplating a tariff that could effectively kill the attraction of solar PV to households struggling under the weight of rising prices from the grid, was proof enough. The attempt by TRUenergy to bring a halt to the deployment of both wind and solar – citing the potential of both to cripple the conventional energy industry – is a further sign of the desperation of those utilities struggling to adapt.

There is no doubt that the debate over clean energy has moved beyond day to day concerns around climate change (even if it should not), and now that technologies such as solar can deliver electricity at equal or lower prices at the socket, the issue of technology cost is also nearly redundant. The battleground has moved to regulation, and policy decisions on the framing of tariffs and how to reflect the true value of producing and consuming energy. And it’s largely played out out of the public eye.

What is required is a new way of looking at the energy system. The hub-and-spoke model, like fixed-line telephony, is creaking under the strain of the so-called “self consumption” market and the ability of customers to produce their own energy.

And the regulation has gotten off to a bad start. The premium tariffs designed to give rooftop solar a kick-start and help reduce its “soft costs” – those for installing, pricing and maintaining the systems – were so badly managed in some key states (NSW, in particular), that utilities seeking to defend their territory and business models were able to gain the moral high ground and win favourable tariff structures under the lofty goal of protecting disadvantaged consumers.

Most tariffs in the country are now structured around a net tariff, which enables a household to use the electrons they produce to offset their consumption and rising retail prices from the main utilities. But any excess production is sold back at a peppercorn rate (under the guise of network and other costs) to the retailers, who then sell it to a nearby customer for between two and four times as much.

However, the utilities have been quietly pushing for an even more draconian measure to be introduced – a gross tariff, which will require households to sell all their output to the retailer and then buy it back at an inflated price.

The Australian Photovoltaic Association says state and national electricity regulators are taking the easy way out, and focusing on ways to stop the PV uptake from affecting their existing market arrangements, rather than acknowledging the disruptive nature of current developments and the urgent need for new market structures to be implemented.

“Regulators are focusing on maintaining the income and profits of incumbent distributors and retailers, rather than on assessing ways and means to achieve the best long-term outcomes for the Australian public,” the APVA wrote in a submission to the QCA.

It wants net metering arrangements to be the norm for residential and commercial customers – in effect, treated the same way as energy efficiency or demand management – until such time as electricity tariffs are cost reflective and suitable changes are made to provide an active market for distributed energy services. It describes the QCA recommendation as an effective subsidy from the owners of PV systems to retailers and presumably to all customers, if and when retailers do pass the savings on.

“Forcing PV owners onto gross metering isn’t going to solve the problem, it will just disadvantage people trying to produce low emission electricity, become more self-reliant and hedge against future electricity price rises,” the APVA writes.

Geoff Bragg, from the Solar Energy Industries Association, says the action of the utilities are self defeating. By refusing to give a “fair value” of solar, the utilities are simply encouraging the self consumption market to grow.

This would be made worse with gross metering because it would simply create a perverse outcome where consumers will purchase less kilowatt hours from the grid, by combining solar PV and on-site storage “By more people effectively leaving the grid, connected only as a backup,” he writes in the SEIA’s submission to the QCA. “This will lead to the very situation such a policy is trying to avoid. They (the retailers) will price themselves out of the market.”

Bragg said it seemed clear energy networks and retailers who made their money by selling kWh appear to be positioning themselves to block out PV where possible. “The problem is that regulators appear to be encouraging this behaviour, at the expense of a technology of the future which holds benefits for all.”

The Clean Energy Council also joined in on Tuesday, saying the proposed gross tariff was “anything but” fair and reasonable. “Installing rooftop solar panels is one of the best ways households can save money on their electricity bills because it can significantly reduce the amount of electricity they need to buy from the grid. Changing to a gross scheme now would change all of that,” policy director Russell Marsh said.

Other measures being contemplated (and introduced) by network operators include increasing standing charges, or placing a limit of the capacity of solar PV on a network. They won’t be reassured by this Californian study that suggests that local rooftop solar could account for 100 per cent of local demand – far beyond the 15 per cent rule that is normally cited. It fits, though, with the idea of  “virtual” power stations that the CSIRO has promoted.

So does technology – and the interests of consumers – win out in the end? It was the question put by Alan Pears earlier this week in this excellent piece, on whether utilities will adapt or die. And it is the very same question that is being put across the world.

In the US last week, GreenTech Solar reported that the CEOs of five of the biggest solar companies and investors were asked at the conclusion of a solar conference about their predictions for the US industry out to 2022. They ranged from 45GW to 75GW, from just 5.7GW now, with storage becoming economically viable, and commonplace, within two to four years.

Venture capitalist Nancy Pfund, the managing partner of DBL Investors, said it would be like the early adoption of cell phones. “Solar isn’t there yet, but signals are everywhere of mass adoption.” But she wasn’t too optimistic about changing business models to adapt to that. “It took 100 years to build a dumb grid. Don’t hold your breath for a smart grid.”

SMA America president Jurgen Krehnke drew on the analogy of the MP3 player and how disruptive that was to the recording industry. He saw a completely new role for utilities as managers of transmission and distribution networks. “Completely new business models will emerge. It will happen.”

Which begs the question: what happens to the vertically integrated retailers (who combine retail and generation)? As Peter Marte, the head of Georgia-based Hannah Solar, said: “Southern Company is a fourth branch of government in the Southeast. It is not going to go away.” Solar companies in Queensland and NSW would recognise that problem – the network operators and some retailers are not just the fourth arm of the governments, they are owned by the state governments.

At least the US industry got a great pep-talk by former president Bill Clinton, whose best advice was to “make sure in this political season that the candidates in both parties know what you’ve done” – which was the creation of more jobs than the coal industry and the availability of cheap energy. This is a point that RenewEconomy made several months ago.

“You are going to bring America to a tipping point,” Clinton said. “You just need to bear down.” Sooner or later, he promised, “people will see this is good economics, helps in the climate change struggle and improves national security.”