A new report from the Centre for Policy Development recommends that Australia fully embraces solar energy as a hedge against volatile gas prices, and future electricity price shocks that could be caused by drought.
The report says rooftop solar can save consumers money, gives them real choice, improve competition and help address network problems. Already, one million homes have rooftop solar PV, and at the very least a million more should follow in coming years, even without high incentives that assisted the initial take-up.
It notes rooftop solar should play a key role in the transition of Australian electricity system to a “cleaner and affordable alternative”, but it warns that the technology would likely face fierce opposition from powerful interests seeking to protect their legacy assets, who are seeking to exploit a political divide over renewables.
CPD says that current political stalemate is preventing the emergence of a long-term policy vision consistent with community desires to realise the benefits of renewable energy. It estimates that in 2012-13, effective support for existing coal-fired electricity was $3.6 billion per year, compared to $1.4 billion for renewable energy.
“Politicians need to base their decisions on where our electricity system is going. Governments which back legacy technologies, while ignoring growing community desires for renewable energy, will face political fallout.”
So far, there has been little sign that politicians understand this. Renewables, particularly solar, are usually portrayed as the villain in rising electricity costs, even though transmission and distribution costs – much of it to support ageing networks and the boom in air-conditioning, and some of it probably not needed at all – have been by far the greatest contributor. (see graph below).
The CPD report underlines that the key consideration in assessing the value of solar should not be past experience, but future trends. This was a point highlighted in the AEMO assessment of 100% renewables in Australia, released on Monday, which showed that the cost of such a move would be between $200 and $300 billion.
As it turns out, AEMO was instructed by the government not to do a cost comparison with a business-as-usual scenario, but revealed enough information, particularly on retail electricity costs, to suggest that the cost to consumers would be no more than the recent super-sizing of the eastern states grid.
Other studies tell us that renewable energy sources are (in the case of wind) or soon will be (in the case of solar) cheaper than fossil fuel alternatives – a critical point when considering that most of Australia’s generation fleet will need to be replaced in coming decades.
Overseas, the opportunities of rooftop solar for consumers and the implications for established businesses have begun to resonate with industry analysts, as we have shown with these reports from the likes of UBS, Macquarie Group and Deutsche Bank.
This, though, is the first report that looks in detail at the Australian situation. As lead author Laura Eadie told RenewEconomy: “Issues such as electricity price security risks are  just not in the public debate around renewables. We see that constantly. No one is looking at the long term, looking at the benefits, and a lot of the discourse comes  from the assumption that renewables will be more expensive. We are trying to reframe the debate a bit and dispel the well-spread myths that renewables are inherently unreliable.”
The CPD report reaches five major conclusions about the benefits of rooftop solar:
- It lowers wholesale electricity prices for all consumers –  as long as retailers pass these savings on. It estimates these savings at $300 to $670 million a year in wholesale electricity costs, based on prices in 2009 – 2010.1
- It gives consumers real choice about their electricity supply and control over their bills, noting that competition between electricity retailers is meant to lower costs, but ends up adding to bills.
- It can reduce summer peak demand, which may lead to more productive use of existing network infrastructure that consumers have already paid so much for. And in some places, it may also defer or avoid network investment.
- It creates a base of consumers actively engaged in managing their energy demand. This will be critical to avoid expensive network investment if climate change increases peak demand from air conditioning
- Â It helps insure Australia against future electricity price shocks from gas price volatility and drought. Prices for gas-fired electricity are now linked to volatile international oil prices. Drought can reduce electricity supply from water- cooled coal-fired power plants, raising wholesale electricity prices. It says prices could spike by up to A$250 per year, similar to the amount network charges have added to the average annual household bill since 2007.
“Australia has a window of opportunity over the next two decades to replace ageing fossil fuel plants with renewable generation,” it writes.
“By this time many fossil fuel generators will reach the end of their economic lives, and recent falls in demand and increased renewable electricity suggest that no new fossil fuel plants may need to be built before the end of this decade.
“Australia could spend 5% a year less on our energy by retiring around 7,000 megawatts of coal-fired power capacity and replacing it with decentralized energy, renewables and some peaking gas plants.33 Meeting growth in peak demand through to 2020 with demand management and energy efficiency rather than additional fossil-fuel power, could avoid around $2 billion a year in network costs.
“Solar consumers will play a key role in transforming electricity markets, with benefits for all. Rooftop solar can help manage peak demand, which may lead to more productive use of existing network investment. In some cases, rooftop solar can avoid or defer network upgrades.
“A smooth transition to renewable electricity is essential to avoid the risk of interrupted supply, to lower the costs of reducing carbon emissions, and reduce the impact of climate change that is already locked in. This requires predictable carbon and renewable energy policies. The Commonwealth Government should avoid further changes to the carbon price and Renewable Energy Target, or risk scaring off investors in Australia’s electricity market.”
It makes several recommendations:
- Maximise uptake of rooftop solar, to make the most of its benefits. This includes maintaining the renewable energy target and small scale scheme, and ensuring that the Australian Energy Regulator require network operators to conduct cost-benefit analyses on integrating high levels of rooftop solar
- Â State governments should ensure that solar consumers are not levied higher network charges than other consumers, unless there is clear evidence they contribute to significantly higher costs.
- Ensure that financial incentives send a clear signal to rooftop solar consumers to manage peak demand and network costs and ensure consumer advocacy bodies explicitly consider the interests of solar consumers
- Invest in innovation to ensure that our electricity grids are flexible enough to support higher levels of rooftop solar.
- Develop policy measures to support renters, apartment dwellers and low income households to access the benefits of rooftop solar. And reduce red tape for innovative financing and ownership options, and offer low or zero-interest loans to households who can’t access innovative financing.
