The Queensland Labor government held out hope for a better deal for rooftop solar households after its surprise election victory earlier this year.
Apart from its campaign position of 50 per cent renewable energy by 2030, it also promised a “fair price of solar”. But it may have to overcome resistance from its most senior bureaucrat in the department of energy to achieve that.
Paul Simshauser, appointed in July to head the Department of Energy and Water Supply, has just published a new paper that attacks the “transfer of wealth” from households without solar to those with rooftop solar.
Controversially, the paper also recommends new tariff structures that will see network fees fall for those households with air conditioning but no rooftop solar. Simshauser suggests that, under his model, network fees should rise for households with rooftop solar but no air conditioning.
The recommendations are sure to upset those in the solar industry, who are concerned about a range of initiatives in Queensland. This includes the sharp rise in network fees, the reduction of feed-in tariffs to just 5.3c/kWh, and the lack of recognition for the value of solar.
Simshauser is a former chief economist for AGL Energy, who once famously described solar tariffs as a “scam.”
The language used in his latest paper is more judicious, but it still got endorsement from Richard Tol, the controversial economist who advises the climate denial lobby group, the Global Warming Policy Foundation, and was retweeted by the likes of the Galileo Movement, the GPWF equivalent in Australia, and climate contrarian Bjorn Lomborg.
The thrust of Simshauser’s arguments are that tariffs need to be changed, and to use “demand” tariffs so that they become “cost reflective”.
Few people, and certainly not in the solar industry, argue with that. The question is, how to ensure that these new demand tariffs are constructed in a way that are in fact, cost reflective, and not just a revenue haul for the networks.
And this goes to the problem with Simhauser’s analysis, and those of others like him – such as the SA Power Networks, which proposes a similar regime, and the NSW networks, who have introduced an even more regressive regime known as declining block tariffs that reward people who use the most energy with lower prices.
Their first assumption is that the network revenue should be protected, despite overwhelming evidence – as highlighted by Mark Byrne’s excellent analysis on Ausgrid – that those networks have been overbuilt, based on misplaced assumptions about rising demand, and therefore should be written down.
The primary reason those networks were overbuilt was because of the growing use of air conditioning. The federal government way back in 2012 conceded that this represents a massive cross subsidy, with every $1,500 unit of air conditioning adding around $6,000 to network costs.
Networks were happy with that because it meant more revenue, and Simshauser doesn’t want to increase network fees for those homes with air conditioning and no solar PV.
He wants to lower them. Instead, he wants to increase network fees – by up to $225 a year – for solar households, who will face rises in network fees whether they have air conditioning or not.
Under his “three-part” tariff system, network bills for households with no solar and no air conditioning will fall by $152.49, network bills for households with no solar but with air conditioning will also fall by $44.75.
Simshauser says such households are “beneficiaries of implicit air-conditioner subsidies but bear the incidence of implicit solar PV subsidies.”
On the other hand, network bills for solar households would increase by $89.50 and by $225.27 or +27.8 per cent, in the case of solar households with air conditioning.
Part of his justification goes to graphs that he says show that rooftop solar PV misses the peak by a big margin, thereby contributing very little to network augmentation.
But figures can blur the true situation, as we pointed out when SAPN used a similar argument to defend their demand tariffs, a move SAPN concedes will likely halve the uptake of rooftop solar in the next few years, if adopted.
It is also interesting that there is so much focus on supposed cross-subsidies between solar and non solar households, and not the even greater subsidies between city and regional homes, or from air con use and no air con use.
In Queensland and Western Australia, the cross subsidy to homes in regional centres is enormous, totalling between $500 and $600 million a year, and up to $1,000 per household.
And nowhere in Australian regulatory circles are the “benefits” of rooftop solar included in calculations of a “fair price.” Benefits such as the ability to meet peak demand, avoid network augmentation and avoid environmental damage. These benefits are automatically included in the US, particularly in California where regulators have rejected the push by utilities to slash solar tariffs.
The solar industry says that if a demand tariff is to be set, then it should be on the network peak, not the customer peak, which can be completely different. That will also provide an incentive to change their behaviour. In Queensland and other states, some solutions may be as simple as encouraging west-facing solar arrays, or even using daylight savings.
Muriel Watt, from UNSW, says the current push for demand tariffs looks and smells like a revenue sweep by networks. What happens when customers then move to storage and/or load management and the overall revenue to networks and retailers drops again? Will they find new ways to claw back revenue?
“We need to get rid of the idea of regulated returns asap,” Watt says. “Customers have lots of choice now – much of it cheaper than the grid option, and they will take them.
“What happens then? We can’t be held to ransom by regulated monopolies trying to retain their income streams. They have built assets we may not want or need, because they refused to provide exactly these sorts of price signals from the start, which would have made people aware of peak loads.”
Watt says the networks knew about the issue with air conditioners 20 years ago, and even did trials on remote cycling controls, but they didn’t implement them because they made more money by building more network, all the time complaining about peaks!
No one wants to talk about the need to write down asset values, particularly as the state governments look to sell public assets. “Let’s hope the state governments haven’t been stupid enough to lock in minimum income streams for the new owners with their purchase/lease arrangements, or we will be paying for stuff we don’t need for the next 99 years!”
In any case, the grid – like other public infrastructure such as roads, and hospitals – is, by definition, a cross subsidy across all customers, with rural grid customers getting huge subsidies for their long lines compared with city folk, industry cross-subsidising residential and vice versa in different locations.
So focusing in on one aspect only distorts the picture. “If we really are to go to cost reflective pricing, all these would need to be transparent and costed,” she said.
“If energy supply is opened up to competition and the so-called ‘natural’ monopoly removed from the grid, we would see a range of lower cost options emerge and would get a more sensible outcome in the long term.
She says distributed energy (which includes solar PV, solar hot water, storage, demand management, and electric vehicles) will be the lowest cost for many situations and third party suppliers will offer good packages with fixed prices, just like the mobile phone sector.
“The role of the grid will change considerably over the coming decade and its real value will be discovered during this process – but not while ever we give it a regulated return!”
That, however, is the starting point of so much analysis seeking to protect the status quo.