Owners of household rooftop solar PV systems in Queensland face the possibility of dramatic changes to their electricity tariffs as the state pricing regulator looks for options to limit what it says are escalating costs of the feed-in tariff, and rising impacts on networks.
The Queensland Competition Authority delivered its final report on a fair price for solar on Friday, and made several key recommendations, and left open the possibility of others.
These include gross feed-in tariffs, the removal of any compulsory tariffs in the state’s south-east corner, and the imposition of time-of-use tariffs for solar customers. It also revealed that the Department of Energy Supply and Water (DEWS) had proposed limiting the amount of output from rooftop PV that could receive the feed-in tariff. And it sanctioned the right of utilities to refuse solar PV connections.
The recommendations came after it calculated that the cost of the now defunct 44c/kWh feed-in tariff paid for exports from rooftop solar systems back into the grid could total $2.9 billion over its 20-year life. This was arrived at after Energex, which operates the network in the south-east of the state, estimated that more houses than it expected would take up the tariff, and these households were installing bigger systems.
The Campbell Newman government brought the 44c/kWh tariff to an end last year, but gave households many weeks notice of the July 10 closure – sparking applications from more than 100,000 households, continuing the long tradition of governments, regulators and utilities grossly underestimating the attraction of solar PV.
Energex last year said it had expected that 25-30 per cent of these applicants would not follow through with a purchase. But Queensland households are clearly keen to lock into the tariff, and Energex has now reduced that estimate to between 10-20 per cent.
Not only that, the utility has noticed that the average system size in Queensland jumped to 4.5kW in the December half, blowing out its previous forecast of an average 2.6kW. And its estimate of the number of customers becoming ineligible because of moving house (when the tariff becomes redundant) has fallen to 4 per cent from 6 per cent.
Indeed, the scheme is now expected to cause 1,098MW of solar PV to be installed in Queensland at its peak in 2013 under the 44c/kWh tariff – 130 times the original estimate, according to the QCA. Energex also estimates that around 13,000 households a year will add rooftop solar, even without generous tariffs.
Households installing rooftop solar PV now can obtain an 8c/kWh rate, but this expires next year. The big debate in Queensland is what should happen then. QCA wants the cost of the current tariff to be passed from state-owned distributors to privately owned retailers.
It recommends a 7.55c/kWh tariff for exports in the future, well below the solar industry demands of between 11.9c/kWh and retail parity, but says even the 7.55c/kWh rate should not be mandated because of the level of competition in the south-east of the state. However, QCA does concede that Ergon should be required to pay export tariffs of between 8c and 14c/kWh in regional and remote areas, depending on the location and the price of energy.
The QCA findings have been controversial because the regulator has refused to calculate the benefits of solar PV on a network, and its downward impact on wholesale energy prices. It says these are either too hard to calculate or should be reflected in separate network cost assessments done by the Australian Energy Regulator.
The solar industry argues that this paints an unfairly biased assessment of the impact of solar PV. It notes that the QCA has campaigned heavily against what it sees as cross-subsidies from non-solar households to solar households, but has waived through larger cross-subsidies that allow retailers extra money to offer discounts to some consumers.
It has also ignored the cross-subsidy created when one household installs an air-conditioning unit: one $1,500 air conditioner is estimated to add $7,500 in costs to the network, according to the Federal Government’s energy white paper. The situation in Queensland is further distorted by the subsidy that reduces the real cost of electricity in regional and remote areas, and by artificial caps on consumer prices introduced by Newman last year.
Critics of the QCA say it is effectively protecting the billions of dollars in network investments in recent years. It is a situation highlighted by its attitude to solar users in Mt Isa and Cloncurry. This is an isolated network that gets its electricity from the Mica Creek coal-fired power station. The value of the power purchase agreement is confidential, but QCA says the estimated cost of energy is a massive $141/MWh –more than twice the national wholesale price.
But, because of the contract signed by the state-owned utility (Ergon), with the state-owned generator (Stanwell Corp), Ergon is locked in to buying a certain amount of electricity from Stanwell. So QCA argues that there is no benefit from exporting solar from households back into the grid. It suggests no tariff at all for such exports, but if there should be one, it should be 6.3c/kWh, and makes the point that this would amount to a subsidy.
But given the nature of the secret contract between two state-owned corporations, the cost of which is passed on to consumers, exactly who is subsidising who?
Meanwhile, the QCA ignores both private and government assessments of the cost of large-scale solar and wind farms, saying that their average cost of generation is “much higher”. This is despite findings of the likes of Bloomberg New Energy Finance, which said that the cost of wind was already much cheaper than new-build coal or gas.
QCA uses its judgment to suggest that the suppression of wholesale prices is temporary, and “should not be considered”. Analysts at investment funds UBS and Macquarie Group, and most international generators and even the former US Energy chief, Stephen Chu, agree it is permanent.
While the Newman government has said it will not revoke the 44c/kWh tariff, the QCA reveals that DEWS has requested it to examine other options for managing the ongoing costs of the scheme.
“DEWS suggested that, while the 44c/kWh rate is locked-in under legislation to 2028, there may be some flexibility to minimise costs by …. potentially implementing a cap on the volume of exports that may be eligible for the feed-in tariff, among other cost control options.”
QCA says there are various options on how this could be done. “However, this is really a decision for Government,” it said.
But as we pointed out last month, Newman is potentially playing a dangerous game of solar politics. Energex estimates that it will have 1,280MW of installed solar PV on its network by 2021 – and nearly two-thirds of this will come over the next few years, even without the generous export tariff, because households see it as a good hedge against rising electricity prices.
Energex says the increasing number of PV owners consuming their own generation will reduce total distributed consumption from its network by up to 1051.7GWh per year over the period to 2017-18. It says this will increase network prices by up to 4.6 per cent per year. Similarly, Ergon Energy has estimated that in-house consumption will reduce total distributed consumption by up to 288 GWh per year over the period to 2017-18, and that this will lead to network price increases of up to 2 per cent per annum.