Queensland inquiry’s big fail on rooftop solar and battery storage

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Imagine you are a government, or pricing regulator, or independent advisory body charged with addressing the soaring cost of electricity: Where would you focus your efforts – on the biggest source of those price surges, or a minor addition labelled green?

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See also, Queensland urged to ignore benefits of wind and solar and dump 50 per cent renewable energy target.

Here’s a quick test. Imagine you are a government, or a pricing regulator, or an independent advisory body, and you have been charged with addressing issues surrounding the soaring cost of electricity: Where would you focus your efforts – on the biggest source of those price surges, or a minor addition labelled green?

In the case of Queensland, and the Queensland Productivity Commission’s inquiry into electricity pricing, there is no prize for guessing: pretty much ignore the main contributor and hit the small guys labeled “environment”. That is exactly what is happening in the latest report, like so many others in Australia.

queensland prices

The QPC report is actually a highly readable analysis on the challenges facing the energy industry. But it also assumes a whole range of numbers that are questionable at best, and appears to use these to reach conclusions that favour the incumbent industry and the interests of “big energy”.

Almost every recommendation it makes targets the very technologies that it notes are challenging the status quo of the big incumbents – which in Queensland are as powerful and unassailable (and state-owned) as anywhere in the country.

As the QPC notes, “escalating network costs have been the primary driver of electricity price increases over the last decade, accounting for 82 per cent of the 87 per cent escalation in electricity prices.” This graph above shows the relative contributions to the average bill.

But don’t presume that the QPC is pursuing the big-ticket items.

Instead, included in its recommendation are a proposal to bring an early end to the solar bonus scheme – which gave 44c/kWh to several hundred thousand homes. It says it has been provided new data that suggests that the scheme’s cost has soared to $4.4 billion, without giving details about how.

According to Energex, the Queensland utility, these premium feed-in tariffs cost $15 million a month. The QPC wants the scheme stopped because of a “huge transfer of wealth” and its contribution to that huge red blob (I’m being ironic) marked environmental in the graph above.

But get this. The report also highlights the dubious bidding practices of the two big government-owned generators, CS Energy and Stanwell. According to the report, this practice from the two coal-generators which dominate two-thirds of the state’s generation capacity added $170 million to the cost of wholesale energy contracts in the first three months of last year alone. Those costs will be passed on to consumers in one way or another. The response? Set up a committee to monitor it.

The second major recommendation concerning rooftop solar from the QPC was for the Queensland government to abandon its commitment to having one million homes – and therefore around 3,000MW – of rooftop solar installed by 2020.

This last one has me completely bamboozled.

The QPC argues that to reach that target would require the state government to re-introduce a feed-in tariff of 45c/kWh. Yet, according to the modelling done by ACIL Allen, the state will likely get close to the 3,000MW target anyway.

If the feed-in tariff was raised to 10c/kWh, then the target would be reached in 2021, and nearly reached in 2020. Even the “base case” – unchanged tariffs – nearly reaches the target in 2020.

solar FiT

Why would it need a 45c/kWh tariff to breach that gap? Why wouldn’t it need some targeted incentives to rental homes, pensioners, or low-income housing, which in turn could offset some of the income support payments needed over the long term. The conclusion is never properly explained.

There are some other odd numbers here, which we discuss in a separate story. This includes the supposed “subsidy cost” of $10.8 billion of reaching Labor’s state target of 50 per cent renewables by 2030. Don’t do it, suggests the QPC.

Yet, in its same analysis, it notes that building extra renewable energy will lower wholesale electricity costs by more than $10/MWh, or nearly $600 million a year. Let’s assume a minimum 20-year life for those renewable energy assets, that’s a saving of more than $12 billion. Guess who would suffer most from that reduction? Those same state-owned generators who currently own 64 per cent of capacity, etc etc.

There are other funny numbers that also go unaddressed. The cross subsidy of air conditioning is six-times greater than that of solar PV – $700 per household versus $200. Any suggestion of a air-con tax? Not a chance. But higher network charges for solar households who are using less electricity? Of course.

Then there is the estimated costs of going “off grid” – the QPC quotes two reports that suggest it could be anywhere between $56,000 and $72,000. It’s true that going off grid in the suburbs may not deliver a “return on investment”, nor that it would be an “optimum economic outcome.”

But as long as the incumbents are kidding themselves about the costs of going off grid, there is little likelihood that they will address their own costs – namely those of the network. The QPC admits that some of the investment in networks has not been necessary. But should the networks write down their regulated asset base? Not a chance.

Indeed, the only salient recommendations on the network costs – remember, they have contributed 82 per cent of the 87 per cent rise in bills – is to merge the two networks into an even bigger, more powerful state-owned monopoly than it is now. Many argue the opposite, that they should be broken up into smaller networks.

And the report also  suggests that retail functions of Ergon be separated from the network assets, despite its own recognition that combining the two would provide a more effective means of extracting value from the arrival of battery storage.

Restricting access to the “behind the meter”, or the “in home” market for rooftop solar, energy storage, and home energy management systems – as the big retailers insist – leaves that market in the hands of energy groups keen to protect the interests of their generation fleet, which are the most threatened by the new technology. It is a conflict of business interest that utilities overseas have found unmanageable.

This is not the first time that proposals to change tariffs – particularly for rooftop solar – have been justified by data that is doubtful at best. We saw an example of this in South Australia just recently. The regulators presumably hope that no one notices, and they have even admitted that they never calculate the benefits of distributed energy.

Still, the QPC’s recommendations are good enough for some, and have been received enthusiastically by “big energy” and their acolytes, including Keith Orchison, the former head of various energy industry lobby groups and the only person I know who feels compelled to mention his Order of Australia in every article he writes.

He wrote in Business Spectator on Monday of his horror that Queensland Treasurer Curtis Pitt had rejected the QPC’s call for the solar bonus scheme to be terminated early.

Maybe, just maybe, Pitt actually read the report.

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  1. Beat Odermatt 4 years ago

    A very large number of elderly Australians had spent most of their savings to instal solar panels to provide some protection from rapidly rising power costs. Any State Government would trying to change the rules of the game and punish these people would be politically extremely courageous. I would call it just bloody stupid, insensitive and dishonest.

    • john 4 years ago

      Very true and those who put systems in place early on paid a high price to install.

      • Beat Odermatt 4 years ago

        Yes, prices for installations were at least 4 times higher and only people on low income could receive a subsidy.

        • john 4 years ago

          The surveys of installations do point to lower income areas as being proactive in that.

  2. john 4 years ago

    One aspect of the interim consultation paper for 16-17 mentions the 5% headroom to allow competition.

    So in order to allow competition the price is jacked up 5% so some new retailer can reduce the retail price inside this head room area?

    $450 million to give everyone in the state the same price of power.

    A not unreasonable commitment.

    This aspect of cost is helped immensely by distributed RE supply not to mention the savings in losses of some 30% a quote from interim consultation paper for 16-17

    It is noted that there is little credit given to the reduction in the afternoon peak to the evening peak which has saved costs.

    The spare capacity of the network is the real stinker aspect in the price structure.

    If networks were actually paid for utilisation and not total capital value the network costs would plummet.

    Summation distributed RE is of immediate help to all of state as it reduces the costs of support, supply and purchase forces for the whole state.

    I would be bold enough to say for every dollar spent by a customer especially if backed up with battery the return to the state has to be in the north of 20cents area when all detail is taken into consideration.

    • john 4 years ago

      How do I get that figure ?
      Expenditure of $5000 in remote area 30% loss to that area.
      Output 8000 KwH power per year over 10 years = 80000
      Savings 30 precent = 24000 KwH @ 5cents = $1200 which is north of 20c in the dollar to the state or every taxpayer.
      Actually those savings could be more if it considered that the losses can be sold at 20c to 30c a KwH.

  3. Ken Dyer 4 years ago

    If you were the Queensland Government wouldn’t you move to protect the $2.4 billion, or 13% of the State income in coal royalties. The reality is that coal is dying faster in Queensland than anywhere else in Australia, and solar PV has one of the highest takeups in Australia. It doesn’t really matter if the solar bonus scheme is terminated early, the cost of solar is dropping all the time. The reality is that coal is dead, and the workers in the industry ought to be working on their exit strategies to other industries now.

    • Reality Bites 4 years ago

      If coal is dying in Qld then why did it record a record export volume in 2015 of 220 million tonnes, up 2% on the previous record set in 2014? The industry expects to export even greater volumes in 2016. Claims of the death of the coal sector are greatly exaggerated! The QLD 44 cent solar bonus also cannot be terminated early without a breach of the terms of the contracts. Threats of doing that would be suicide for any incumbent government. Otherwise yes an interesting analysis by Giles, which clearly shows that the image of cigar chomping execs running the utilities, certainly in QLD is just fantasy. The State and Feds run the show, which is what Ergons CEO found out over the weekend.

      • Ken Dyer 4 years ago

        All Queensland (and NSW) is doing is adding to the coal glut overseas in China and India. Blind Freddy can see that most if not all coal mines in Queensland are operating at a loss, yet they are propped up by Government with taxpayer subsidies.

        • Reality Bites 4 years ago

          Somebody is buying the coal. The Feds and QLD State government make far more money than they forgo in any fossil fuel tax rebate. Fossil fuel subsidies in Australia are a mirage.

          • Ken Dyer 4 years ago

            You are seriously deluded about fossil fuel subsidies, they are the only thing keeping most of the mining companies afloat.

            The biggest subsidy in Australia is the fuel tax credit scheme, which is worth $2 billion per year to mining companies, the equivalent of each taxpayer in Australia handing over $182 to the mining companies.

            Australian taxpayers are funding cheap fuel for big airline companies like Qantas and Virgin. If these companies paid their own way it would literally save us billions, and the airlines would have more incentive to be more fuel efficient, meaning less pollution.

            The coal, oil and gas sectors get special treatment under Australia’s tax system allowing them to depreciate their assets like drilling rigs and pipelines over a much shorter period than they are actually in use.

            Under the Energy Security Fund, Australia’s dirtiest power stations have been receiving around $1 billion in assistance annually.

          • Reality Bites 4 years ago

            Ken if you bother to look up the FTC scheme you will see that nobody pays any subsidy money to the mining sector. It is not a subsidy it is a credit for the fuel tax they already paid. In other words, the miners pay the tax then get a credit against tax liabilities. Altogether the scheme has a value of over $5 billion and yes $2 billion is paid to the mining sector, but that includes all mining not just the coal sector. The coal mining sector alone generates around $40 billion in export revenues and pays over $5 billion in direct taxes and royalties. The stimulation to the Australian economy and direct and indirect benefits far exceed any tax credit. If you assert that the assets have a limited life, then should they not be depreciated at a faster rate? The Energy Security Fund was introduced by the Gillard Labor government in 2011 and was since repealed by Tony Abbott in 2014.

          • Ken Dyer 4 years ago

            RB, you ignore reality. Like EU countries, Australia will eventually join in the coal death spiral.
            That is what this article is about – Queensland is ignoring reality.
            How will it happen?
            China is impacting coal exports
            India is impacting Coal exports
            Somebody might be buying coal now, but for how long and at what price?
            When will the Queensland Government wake up that it is flogging a moribund industry?

          • Chris Fraser 4 years ago

            Yes keep believing it …

  4. neroden 4 years ago

    Outrageous. I hope there are many, many off-grid consultants ready to help individuals go off the grid pre-emptively.

    • Alastair Leith 4 years ago

      that’s a death sentence for the grid, which your local school, hospital, elderly persons, renters, shops, commercial premises with no roof-space all rely on. maybe then govt will listen, when it’s too late to avoid massive storage duplications and value write-downs

  5. energyAsFreeAsAir 4 years ago

    Disruption is within investment horizons which creates these types of knee jerk reactions by both governments, regulators and incumbents. It is clearly obvious based on the number of papers and reports the spring up daily. End Point Energy with Advanced Power Electronics and integrated local PV/CHP that include stretchable low cost super-capacitor storage and control create a long term technology risk to any central generation or network wires investment that doesn’t have less than 10 year payback. Integrated Power Electronics has only just started crawling out of labs into commercialization, once they hit scale and Moore’s Law kicks in we might just realize how simple it really is to use entropy that is in front of our noses to power our tiny bit of the universe.

  6. Alan S 4 years ago

    Perhaps the govt will give free coal to pensioners who can’t afford to heat their homes with electricity this winter.

  7. Alastair Leith 4 years ago

    #gridReformNow is what’s required in QLD and across the entire continent.

  8. Alen T 4 years ago

    Mark Bailey, the QLD state minister holding portfolio of DEWS and in charge of the ‘50% QRET’, is scheduled to speak tomorrow at the Australian Institute of Energy (Brisbane Branch) -Jacobs in South Bank. I’ll be interested to hear his take on the report, and if there will now be any sort of deviation as a result. Although, there isn’t actually anything to deviate from. Besides the announcement of the QRET and since election, nothing worthwhile is underway in the RE space.

    Giles, your article seems to suggest that Not privatising the network was a bad move -from the point of higher RE uptake. I’ve heard pros and cons on this issue, and wouldn’t mind hearing your (/or other people’s) opinion on this. Should we have privatised like NSW?

    • nakedChimp 4 years ago

      Distribution/sharing/transport infrastructure should never be privatized.. put it up for rent and monitor it if you have to, but don’t sell it.
      Germany privatized it’s train & rail company (DB) into one unit.
      This caused that nowadays going by train is more expensive than by plane.. in a small country like Germany.
      Competition on the tracks? Negligible.. the train-sets of the monopolist prefer the high profit routes and the crumbs are left for tiny companies who didn’t even get to buy the unneeded train-sets, that were scrapped by the monopolist.
      There are now buses going from town to town that beat the train by price, time and comfort. Even the monopolist is running a subsidiary bus company.. LOL.
      There were voices that this should had been handled smarter, with the network staying in government hand and allowing everyone to use it, inclusive the company who got the former government train-sets.
      That would have brought competition..

      So, for Australia/Queensland.. close/sell off the generators and keep the network.. rent it off to monitored businesses/communities and make bucks by allowing anyone to use it for transporting energy on it.
      Would cause a lot of competition and nice outcome for the consumer.. the ones cut short by this? Wanna-be monopolists and their personal rent.

  9. Ian 4 years ago

    One of the things holding the 44c’ers back from up grading their systems is the the threat of losing this tariff. This may lead to a flurry of solar panel installation, impetus for battery storage and grid ‘defection’ .

    Consider the average 44c installation is about 3kw, with the tariff this would roughly balance out their electricity bills. 15KWH would pay for roughly 25kwh total daily consumption. Take away the FiT and suddenly those people have to pay for 10kwh of consumption that translates to 2kw solar panels, the payback time for the extra panels is about 3 years.

    Others would seriously consider secondary off grid solar installations to take care of discretionary loads like air conditioning and pool heating and pumping.

    Battery storage is a bit expensive right now. The price point for mass adoption of storage is probably in the order of $400/ KWH fully installed.( 5 year payback, 20c/KWH differential between 5cFiT and standard import tariff ie 5 x 365 x .2 = $365/KWH). Current prices are around $1200/KWH. Many would feel this expense ,though not very economical, still worthwhile.

    Far from saving themselves a few bucks, the networks may accelerate the death spiral by causing the rollback of the solar bonus scheme.

    The solar bonus scheme was never intended to drive solar adoption, it was intended to score political brownie points after the Kyoto Protocol. Australia was massively expanding its coal ,oil and gas industry, government could not ask for a better way to distract their international peers or their own population than with this cynical icing of greenery on their fossil fuel cake. The networks, as Giles has pointed out, have just as cynically used this solar bonus scheme as a scapegoat or smoke screen to hide their huge tariff increases. What will happen if they scrap the 44c bonus scheme? What half truths will they cook up to justify their price gouging?

    • Alan 4 years ago

      I bet they didn’t consider what removing those 44c tariffs would do. If they wanted to scrap it, then they should ramp it down slowly else a large portion of them will immediately bolt on more solar which would be counter productive to their aims. Unless that is their secret agenda in which case just keep quiet.

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