The Victorian pricing regulator, the Essential Services Commission, appears to have dashed hopes that a significant network component could be added to the state’s solar feed in tariff.
In the second phase of a report commissioned by the state Labor government to find a “fair value” of rooftop solar, the ESC has concluded that there is value to the network in rooftop solar, but not as much as many might expect. And even then it is variable on time and location.
The 176-page report released by the ESC on Tuesday puts the network value of the near 1 gigawatt of rooftop solar in the state at just $3 million.
That equates to about $3 per every kilowatt of solar PV capacity in the state. Based on the amount of solar exported to the grid, that represents a fraction of a cent per kilowatt hour.
It is so little, and so variable, that the ESC does not recommend adding any further to the state’s feed in tariff, which currently pays around 5c/kWh for excess solar to the grid, but will rise to between 6.5c/kWh and 7c/kWh after the state government incorporated its recommendations on the climate and environmental benefits of the technology.
A further peak rate, pushing the tariff up to around 8c/kWh or even as much as 30c/kWh in “critical peaks”, may also be added. But this reflects the cost of wholesale electricity in peak times, not the network value.
Indeed, the ESC says some of the solar sitting on around 300,000 rooftops in the state has no network value at all, because it is either located in the part of the grid that does not need replacement assets, or does not need upgrades because it is not congested.
The ESC does, however, see that the network value of solar could rise 20-fold if the solar installations are paired with other technologies – such as battery storage, smart inverters and energy management systems – that can make it “firm” and can add to network security.
But even then the ESC says adding battery storage in some areas will provide no further value to the grid – because of the reasons above. And where it does bring value, it is only at certain times. And to recognise the value that it does bring to areas that are congested or in need of an upgrade will need a new suite of market reforms and signals.
The conclusions will no doubt trigger intense debate from those involved in and around the solar industry, along with those incumbents whose business models are challenged by the new distributed generation technologies.
One of the great debates in Australia about the value of solar, and distributed generation in general, is how it should be valued in the context of the enormous sums invested in poles and wires across Australia in the past decade.
Those investments have pushed the cost of electricity at the household “socket” up by more than double in just five years, pushing the cost of electricity in states such as Victoria to around 34c/kWh.
That is around 10 times the cost of generation from the brown coal fleet in the Latrobe Valley, and about three times the levellised cost of rooftop solar. (Some say it might be more).
With the addition of a battery storage, this provides the remarkable possibility that households will find it cheaper to look after their own power and disconnect from the grid – if not in sun-challenged Victoria, at least in other states where the sun shines more regularly.
The difference with the ESC investigation and other international studies is that the Victorian regulator is looking at the grid as on ongoing asset, and makes no assumption to its changing business model, usage or costs.
In effect, they are ascribing value to rooftop solar in the context of what already has been spent on the grid. If the network is relatively new, or in part where sufficient capacity has already been built, no value is ascribed to the new technology. This line of thinking is not helpful when considering the massive changes afoot.
In New York, however, authorities have embarked on a remarkable transformation called the Reform the Energy Vision, which looks to reshape the grid around distributed generation, and because of that are looking at the value of distributed generation in a completely different light.
After the state’s experience with blackouts after Hurricane Sandy, local authorities recognise that the best way to make the energy supply secure, and cheap, and decarbonised, is through distributed generation.
The report from staff at the New York Department of Public Service agreed with the ESC that the value of solar was complicated, and was usually dependent on time and location. But to give you some insight into how differently the value of solar is treated differently in the states, the “hypothetical” tariff in New York is put at US19c/kWh.
That’s more than double the rate proposed in Australia.
The ESC recognises this, but doesn’t want to go there.
“Given the significant differences between electricity markets in New York State, the UK and Australia, it is not the Commission‟s intention to advocate for the adoption of a distributed system operator model in the Victorian context or more broadly in the NEM,” it writes.
“Such a proposal would need to be part of a much larger discussion about the future of electricity networks, and touches on key debates currently underway about ownership models, contestability and ring-fencing, which are not within the primary focus of this inquiry.”
Perhaps it should be. Someone needs to look into it soon, before consumers are tempted to take matters into their own hands.