How utilities can kill rooftop solar, just by changing tariffs

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Major US study shows how tariff changes can kill the rooftop solar market. In Australia, the impact of changes to tariffs, higher fixed charges and export restrictions are already being felt.

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A major US study has thrown new light onto just what impact power utilities can have on the development of rooftop solar, suggesting that changes in fixed charges and feed-in tariffs could cut solar deployment by as much as 80 per cent.

The study, from the highly respected Lawrence Berkeley National Laboratory, also casts doubt on the so-called “duck curve”, the change in load profile caused by rooftop solar that has led some incumbents to allege that rooftop solar is “free riding” on the grid.

The study is focused on the US market, which has a different tariff structure than Australia. But the lessons are comparable, because Australia is already experiencing a fall in rooftop solar deployment as utilities dramatically lift the scale of network charges, and feed-in tariffs are slashed or cut to zero, while metering charges are also increased.

The US residential rooftop solar market has been relatively slow to take off, but Lawrence Berkeley says that there could be 175GW of rooftop solar in the country by 2050 – that compares to forecasts of 37GW of rooftop solar in Australia (with less than one tenth the population) by 2035.

solar tariffs LBNLBut even this modest forecast for the US could be severely curtailed if the portion of fixed charges was increased, or the rate of pay (the feed-in tariff) for rooftop solar exports back into the grid was curtailed.

This graph (right) shows the extent to which that could happen. If fixed charges were increased to $50/month, for instance, that could cut installations by around 60 per cent. If the feed-in tariff was slashed to 7c/kWh, that could cut deployment by 80 per cent.

The US currently enjoys low fixed charges and “net feed-in tariffs’, which mean that households get paid the same rate for exports of solar electricity as they do for normal grid power. The US, generally, pay a lot less for electricity than Australians, with the exception of Hawaii (which is now pushing to 100 per cent renewables), and parts of California – which has a 50 per cent target by 2030.

“Our results demonstrate that future adoption of distributed PV is highly sensitive to retail rate structures,” the Lawrence Berkeley authors say.

“Whereas flat, time-invariant rates with net metering would lead to higher deployment levels, moving towards time-varying rates, rate structures with higher monthly fixed customer charges, or compensation at prices lower than the full retail rate can dramatically slow long-term customer adoption of PV.”

The most dramatic impact could be in changes to tariffs. Most US states, despite intense lobbying by incumbent utilities, retain the “net metering” concept. While utilities have argued that the value of rooftop solar is much lower, some studies suggest it is higher. A report commissioned by the regulator in Maine suggests the value of rooftop solar might be three times the value of grid power, when incorporating environmental impacts and other factors.

solar feedbackIn Australia, rooftop solar is valued by the regulator at less than one-quarter of the grid price. In some states, it has no value at all, with any feed-in tariff being branded as “voluntary” for the retailers. In Queensland, the networks are allowed to stop solar households from sending electricity back into the grid.

The Lawrence Berkeley study says that changes to tariffs in the US could have a dramatic impact on the uptake of rooftop solar, simply by making the returns less attractive. A higher feed-in tariff – such as those proposed by the study in Maine – would increase the uptake.

The next graph is also interesting, showing the impact of higher fixed charges – the classic response of utilities in the face of what they call the “death spiral”, and their fear that they will have to recoup revenues from a declining customer base.

This graph shows that solar feedback 2the impact on projected rooftop solar demand of a $10 a month fixed charge and a $50 a month fixed charge.

The latter is particularly damaging. Yet that is exactly what consumers in Australia are facing. In NSW and Queensland, the fixed charges are being increased to nearly $450 a year. For low energy users, such as pensioners and single households, that could amount to nearly 50 per cent of the total bill. In turn, that makes the returns on rooftop solar much less attractive.

For business consumers, the level of fixed charges is increasing dramatically, both in Queensland and in South Australia, where the volume component of the network part of the bill has been reduced to just 3.3c/kWh.

The Lawrence Berkley study does not include the potential impact of battery storage, but in Australia there is a strong view that while tariff changes might make solar-only installations less attractive, it will make solar plus battery storage installations more attractive.

The danger for the networks, then, is to what extent the costs of those technologies falls to the point where solar plus storage can make sense with no connection to the grid. For some it already does. When that equation reaches the mass market, then the grid will have to find an answer to its big problem – it is terribly overpriced.

As for the so-called solar feedbacks into the grid, the study is dismissive. It notes that some suggest that retail electricity prices might be jacked up as fixed utility infrastructure costs are spread over a shrinking base of electricity sales, thereby further increasing PV deployment.

But they argue that this commonly noted feedback effect is mitigated by another, less-recognised feedback effect between solar deployment and the timing of peak electricity prices, which reduces bill savings for solar customers on time-varying rates.

“Currently, solar generation coincides reasonably well with peak wholesale electricity prices in many regions, but as solar generation increases, peak price periods are likely to shift to later in the day.

“Our results indicate that, at an aggregate national level, the two feedback effects nearly offset one another and therefore produce a modest net effect. Their magnitude and direction can vary by rate design and by state, however, highlighting the importance of understanding these effects at the regional level and for different customer groups.”

This has already occurred in Australia, with the demand peaks pushed from mid afternoon to the early evening. Rate design is also changing, supposedly towards “cost reflective” tariffs that recognise the impact, and benefit, of rooftop solar on the grid. But as the APVI, and others, have noted, some of these tariffs are not cost reflective at all, because peak pricing is based on individual households peaks and not network peaks. Because of that, they are simply another grab for revenue.

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20 Comments
  1. john 4 years ago

    Put up the price to have power and lower the cost of usage.
    Simple very astute I pity the low energy users.
    Those in the higher usage brackets will disconnect.
    Nothing wrong with this business plan it will work.

  2. john 4 years ago

    In fact power suppliers can charge 0c for power just charge for connection.
    This may work do not be surprised.
    This kind of thinking is on the extreme end of killing RE.
    If a society has any kind of Government with any kind of backbone this will not be the outcome however it seems that this is the present vision.
    Perhaps just 1 person has some moral fibre within his/her bones and perhaps a little bit of education and knows the outlook with this kind of socially disruptive direction is not exactly good.
    In simple terms what is needed is a clear and morally outlined direction on the power issue not ideologically driven decisions that are rooted in 1880 technology.

    • Neil Frost 4 years ago

      It’s cold here. Free electricity. WooHoo I will never need to turn my heater off again.
      Same for my AC in summer.
      Can the grid handle free electricity?
      I don’t think so. Do you ?

      • Mike Dill 4 years ago

        A 3.3 cent per KWH rate is very close to the raw cost for digging coal out of the ground. If the fixed costs cover everything else, it could happen. Zero is not going to happen as long as there are coal plants.
        What is required is a demand charge for the peak hours of the year, to pay for the grid. Everything beyond that and the fuel costs are profits for the utilities.
        Unfortunately for the utilities, in two or three years I will be able to produce all the electricity I need (and store it as required) for less than the grid access charges.

  3. Clean livin 4 years ago

    This is a discussion we have to have.
    Within 5-10 years, off grid storage will be very cost effective, and most consumers, who can, will leave the grid!

    Unfortunately, those left on the grid, because they either cannot afford the installation cost, or live in apartments that cannot have storage will be hit with MASSIVE infrastructure connection fees.

    Governments will FALL if this is not addressed.

    • john 4 years ago

      Clean
      I am so hearing you.
      Society has a problem and if this kind of cost structure is going to be used then it is on the bottom line not exactly fair.
      Either AUSTRALIA is a fair go nation or a mob of plebs who do not care less about any one else.
      I am of the feeling that the Australians are of the view they could not care less

    • phred01 4 years ago

      Solar development has a long way to go. @ the moment solar panels are about 16% efficient It will become a significant game changer when the efficiency approaches`40%. Battery storage will become more cost effective in the near future. Instead of embracing RE Utilities are in danger being left holding stranded assets with falling customer base. As the world is heading towards an ETS structure price pressures on utilities will be reflected in price increases. The end result will be a major economic upheaval such as Properties that have ideal aspect for solar will appreciate in value significantly. All that one can c there will be dramatic changes in the near future. When reality finally hits the utilities the will be scrambling for distributed solar sources

      • Mike Dill 4 years ago

        The efficiency of a solar panel does not matter much if you have the space for it. About half my roof is still empty.
        Forty percent efficient multi-junction devices already exist, and are used in outer space due to the cost of getting them there.
        Storage WILL be the game-changer.

      • Andrew 4 years ago

        Uni of NSW has already reached the 40% efficiency mark – see https://newsroom.unsw.edu.au/news/science-technology/unsw-researchers-set-world-record-solar-energy-efficiency

        A german company has also reached 46% verified efficiency, and yes that is in the research stage, not the manufactured stage. Sure, it’s years between research development and actual manufacture, but the end is nigh. For coal burning providers that is.

        Or, as Mike Dill rightly points out, you could just put in more to cover the roof.

        And this doesn’t look at the latest research which is looking at things like painting your roof with solar collecting ‘paint’, or just placing film over the roof, or roof tiles and windows that are also solar cells.

        It’s not just disruptive technology, it is the complete destruction of their business model.

  4. Marion Meads 4 years ago

    then we have that defection from the grid. i don’t know why the smart consultants did not include this in their study when it is the next very hot industry a-brewing.

    When battery energy storage system becomes cheap enough, the utilities will lose many customers as the battery energy storage will encourage off-grid with solar and wind. We have to step ahead and pass laws that forbids charging a stranding fee which has been paid for by developers and ratepayers several times over already.

    • Mike Dill 4 years ago

      My guess is that it will be three years before defections become noticeable in the US. In California the ‘combined’ cost per KWH is approaching $0.25 with peak pricing nearer to $0.30. Solar and storage are getting close to that. The problem is the necessity for something during the 2% to 5% of the time when the average battery system will not get enough charge.

      What is needed will be an automatic backup power generation scheme. IF someone will sell one of those that runs for less than $0.50 per KWH, with a relatively low up front cost, it will happen.

      • Otis11 4 years ago

        I’m specing out a system for my brother’s house. We plan to just use a little gasoline generator for the few times it falls short. Better than oversizing the solar array in terms of cost effectiveness.

        Also, I think there’s a good chance battery storage costs will stay reasonably high for the foreseeable future – we simply have limited supply and quickly growing demand. It makes more sense to apply the limited amount of battery power we can produce to cars rather than home storage in most cases. Hope I’m wrong and we have enough all around, but I just don’t see supply ramping up fast enough…

        • Mike Dill 4 years ago

          We will see about the storage cost. The people at Tesla Power have stated that they expect storage to come down 30% in the next three years, once the first gigafactory is up and running.

          • Otis11 4 years ago

            30% I can absolutely see… the “problem” I see is, if it falls by 30%, the market just increased an order of magnitude. Where is all that extra supply going to come from? The gigafactory is a great start, but the market is going to be a lot bigger than that!

  5. ray neff 4 years ago

    There are very few utilities that offer a feed-in tariff in the US, and there’s definitely not a national FiT policy (although I’d certainly like to see one here). What you are referring to above in the US is net-metering that is offered by most states but not all, and is a very different policy than a feed-in tariff. Net-metering simply spins the customer’s meter backwards and any excess energy sent to the grid is usually credited at a retail rate or less. A feed-in tariff on the other hand should pay the customer-generator the full value for all the energy they feed into the grid, independent of what they consume. It’s like comparing apples and kiwis to see which “tastes better”.

  6. Ray Miller 4 years ago

    Looking at the “free market” perspective this is an interesting battle between the “energy industry” and the “users”, perverse and overall negative outcomes seem to be the order of the day. The current system seems to be intent on destroying itself and our society unless some radical surgery takes place on the overall system and all stakeholders work in a cooperate and constructive way to maximize benefits and minimize environmental harm to all.
    Yesterday morning in Australia the wholesale electricity price in two States, South Australia and Tasmania was below 1cent per k.Wh on a very cold morning with snow falling in Tasmania and the wind and water turbines quietly directing massive amounts of energy into the grid, my retail price in the subtropical Gold Coast (Fixed service charge + kWh on my k.Wh usage) was 59 cents/k.Wh. This is the example in which the energy industry and users are reacting to! We collectively have some very challenging decisions to make, delaying is not an option, and the renewable energy no carbon future is mandated.

    The current Australian energy and environment policies are a disgrace and a stitched up sham! When are we going to wake up and put together real policies worthy of our “Advanced Society” that will set us up for the future?

  7. Terry Leach 4 years ago

    In South Australia we have a $22 per month connection charge, which doesn’t seem to be holding back the solar uptake. I’d be interested in the study’s methodology, was it theoretical economic modelling, surveys or examination of real world examples? I think SA’s experience casts doubt on the study’s results, but I haven’t seen the study and I hate how so many people on forums have firm opinions based on very few facts.
    It seems to me motivation is the cost of the system versus the saving in the electricity consumed. Differential access charges for solar PV owners will have an effect as it reduces the saving.
    Such an approach will hasten the exit of people from the grid as storage prices come down, bringing on the death spiral of fewer people paying for the infrastructure making it more economic to leave. Currently I have to export 16 KWh/day to cover my access charges. But if I go off grid (and I can see this being economic within 2 years), to be self-sufficient in winter I’ll have to triple my solar array, waste 65% of my generation and occasionally run a generator. Now that would be a waste of resources, a waste of my money and detrimental to other users. We need some fairly indepth analysis of the issues, rather than a simplistic ‘kick the solar freeloaders, they’re ruining our profit margins’ approach.

  8. Tim Forcey 4 years ago

    As the retail cost of grid-supplied electrical energy goes down

    (electrical energy: what you pay for “energy you actually use”, as opposed to the fixed supply charges),

    then opportunities open up to use that cheap grid-supplied electrical energy for space heating –
    (via efficient reverse-cycle-air conditioner heat pumps It’s cold in my house and the price of gas is going up – what

    and for hot water –
    (via hot water heat pump (Get more out of your solar power system by using water as a … ) or electric boosted-solar hot water, or possibly even with off-peak electrical resistive water heating) …

    whether you have solar PV or not…

  9. B. Fossevik 4 years ago

    US and China urgently need to come to an agreement of removing tariffs on the solar industry. Already US is loosing green jobs and the consumers are paying more.

    With unreasonable tariffs it will take longer time to develop the green econonmy.

    I really hope that the president of US, Mr Obama and the president of China, Mr Xi Jinping comes to an agreement in Washington this September.

    The tariffs must be removed! In the following link you all see how US are loosing jobs because of their own tariff policy: http://www.rechargenews.com/solar/1406116/rec-silicon-slashes-us-poly-output-at-moses-lake

    Do any of you know if the tariffs are on the agenda for the presidents meeting?

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