Solar tariff rip-offs, and why utilities may never learn | RenewEconomy

Solar tariff rip-offs, and why utilities may never learn

ARENA boss outraged when utility jacks up his electricity tariffs after he installs solar. Meanwhile, so called cost reflective tariffs proposed by utilities are anything but, and will penalise solar and encourage more households to install battery storage and even leave the grid.

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Greg Bourne, the chairman of the Australian Renewable Energy Agency, has just put solar PV on his rooftop and he is not happy. His beef is not with his solar panels, of course, but with his subsequent treatment by one of the big three energy retailers.

ARENA's Greg Bourne
ARENA’s Greg Bourne

Bourne, who had solar on his roof in Melbourne way back in 2004, had just gotten around to fixing the roof of his Sydney home for leaks, and recently installed 4kW of solar PV with micro-inverters. What happened next infuriated him.

The retailer, EnergyAustralia, will pay him just 5.1c/kWh for the electricity he exports back into the grid. Bourne knew that. But he did not expect the jacking up of other charges that followed.

For the privilege of being a solar household, Bourne’s fixed charge jumped from 85c/day to 91c/day, his peak charge from 49c/kWh to 51c/kWh, the shoulder charge from 19c/kWh to 20c/kWh, and his off-peak charge from 10c/kWh to 11c/Wh. The sum effect was to negate any benefits Bourne would receive from the meagre price offered for his solar exports.

“What they have managed to do is just rip me off completely,” Bourne told RenewEconomy on the sidelines of the Australian Energy Storage conference this week, where he forecast energy storage to be having its iPhone moment and for mass market take-up. “So I told them I’m moving.”

Bourne, a former WWF boss who also once headed BP’s oil exploration activities in Australia, shopped around and decided on another big retailer, Origin Energy. He got a discount for moving (paid for by other households under the retail “headroom” allowance that costs everyone about $140 a year) and slightly better tariffs.

In the meantime, he will use his solar output for underfloor heating in winter and cooling in summer. And then he will install battery storage. And keep a very close eye on tariff changes.

“To me, this is a stupid way of reacting,” Bourne says. “They knew I was going to draw less electricity from the grid, but they were going to continue to draw their pound of flesh, come what may. It is backwards-looking and they (the retailers) are shooting themselves in the foot over a customer who chose to embrace new technology.”

It’s actually quite a typical story, and may explain why the public has such little faith in utilities, something the utilities themselves lamented just a few weeks ago after concluding that consumers son’t like them much. But they have no-one to blame but themselves.

The way tariffs are structured in Australia is often quite scandalous, the treatment of solar households, particularly so – be they in the form of so-called “fair solar” exports, which are anything but, limitations on exports, extra fixed charges for solar households, or even fees for “safety checks”. The complexity of the electricity market means that they often go unnoticed. And for the utilities, as we’ve seen before, confusion means profit.

And there are no signs they are going to improve anytime soon.

One of the big pushes by the big retailers and network operators has been for what they call “cost-reflective tariffs,” as a means to plug the hole caused by reduced demand as people install solar and more efficient devices.

This has caused retailer revenues to fall, so they have responded with proposals for time-of-use tariffs and a new component, demand charges, that are supposedly structured to ensure that those who use the grid most at peak times pay their fair share of the costs.

But the manner in which new demand charges are being implemented are being criticised because they are not cost reflective at all. Instead of focusing on network peaks – which is critical, because it is that which governs the tens of billions of dollars spent on network upgrades – the incumbent utilities are proposing demand charges that cover times when the network is not peaking at all.

Solar households, in particular are penalised. And the upshot is that more households will install battery storage, and more people like Bourne, will be “pissed off.” The proposed charges are not so much cost reflective, as profit protective.

Rob Passey, from the Australian PV Institute and the University of NSW, on Thursday presented his own analysis of demand charges proposed in South Australia. His conclusion is that they are anything but what they claim to be, cost reflective.

To explain, it’s best to use some graphs. This graph below shows a typical network peak. Networks have to be built to accommodate that peak, to ensure their are no blackouts.

network peak

But the usage patterns and peaks of individual households hardly ever resemble the overall network. Below is an example of 20 houses out of a sample of 300 taken by Passey. They show huge variation.

The problem comes when the utilities throw a dragnet over the whole sector to try to maximise their revenue. The demand peak, the small red line, is what they should be targeting in truly cost reflective tariffs. Instead, they cast their tariffs over a broader peak, from 3pm to 9pm, representative by the bigger red line.

apvi demand peak

The result of that is revealed in the next graphs. The first is the impact of flat tariffs for network charges, as most have now.

sapn flat tariff

The second is what happens to those very same consumers with the proposed demand tariffs. Those with low energy use, in the bottom left corner, hardly get any benefit. The high energy users at the time of network peak pay hardly any more. Worse, some houses with low usage at the time of network peaks (top left) are paying higher demand charges than those with high usage at network peaks (bottom right). In effect, hardly anything changes, apart from the utilities securing their revenue.

apvi sapn demand tariff

The irony is that the broader peak will simply encourage more households to pick up battery storage. “If you have a tariff that is more cost reflective, people have less incentive to install storage, compared to a tariff with a broad demand period over every day of the year,” Passey said.

“If you want to drive the uptake of battery storage, you use cost reflective tariffs that aren’t.”

Passey’s comments come as AGL Energy this week quietly posted the first demand charges in Victoria, in the United Energy distribution area, which operates in Melbourne’s south, east and the Mornington Peninsula. And they are similar to those posted for South Australia. And it appears to suffer the same problems.

agl demand tariff

Muriel Watt, also of APVI, and a consultant at ITPower, says the very wide peak band – from 3pm to 9pm – is effectively price gouging.

She says the daily fixed charge is supposed to cover previous network investment, so the demand charge should only be to cover (or prevent) new investment. She is also troubled that all users would be charged a minimum of 1.5kW demand charge, even if they are not using that much.

“Since they have a (quite high) fixed charge, the demand charge should only be for demand above the standard 1.5kW, which has already been built. Seeking a demand charge for the first 1.5kW, as well as a fixed charge, is double counting.”

And, she notes, the energy charge is low, so the incentive for energy efficiency (and solar PV of course) is removed. “That, presumably, is the aim,” she says.

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36 Comments
  1. WR 5 years ago

    Yep. Its a rip-off. The pricing strategies of the utilities are designed to punish people who use less electricity and reward people for using more. The excuse of charging for so-called “peak demand” is a sham.

    If they were really concerned about peak demand, they should have the courage to reduce fixed daily charges and emphasise the time-of-use peak rates. Instead, all of their TOU tariffs include an increase in fixed daily charges.

    On a related note, I just performed a rough calculation of how much the rooftop PV has changed the 30-miute wholesale electricity RRP rates in Queensland for past the 11-months. It looks like the PV-generated electricity has reduced the average RRP from what would have been $65/MWh down to its actual value of $60/MWh. That’s a total saving of about $250 million over the past 11 months for Qld electricity customers. So whenever you hear read or hear someone exclaiming about the costs of the various solar schemes, keep in mind that the people who have installed solar panels have also made a large investment in reducing wholesale costs.

    • john 5 years ago

      You are totally correct this has been the finding for PV in every system.
      Even the report into the RET found that the savings were more than the costs.
      I will find a post a graph from 2009 showing the cost savings which are substantial, particularly with reference to peak price.

  2. Steve Young 5 years ago

    This article is riddled with factual errors.

    Origin discount is covered by headroom allowance. Incorrect. NSW has deregulated retail prices. As such, there are no allowances for headroom etc. There are just final prices.

    Network tariff reform is about revenue raising. Incorrect. The AER has determined that all networks will have a revenue cap for the coming regulatory period. As such, the AER sets the maximum allowed level of revenue. Network tariff reform does not affect this.

    The daily charge is designed to cover past network investment. Incorrect. Not even clear where this claim comes from. The fixed charge largely covers system costs, metering costs etc. Under the current volume-metric prices a significant proportion of the networks cost are recovered through the c/kWh charge. Part of this will now shift to a kW charge, better reflecting the underlying costs of the network.

    Now it is true from an economic perspective the purest network tariff would look something like critical peak pricing, covering a few days each year. But moving to that pricing model from the current tariff structures is a significant step. Having an interim step where demand based charging is introduced hardly seems unreasonable to acclimatise people to new pricing structures.

    The claim that the blunter demand charge will encourage greater storage uptake than a sharper signal doesn’t make sense. It would require a greater level of storage (i.e more expensive) to achieve the same level of savings with a blunter signal, as you would need to manage your demand over a longer period.

    Yes the volume charge is reduced. This is what the cost structure of supplying electricity actually looks like,. Currently energy efficiency is overcompensated by relying more heavily on volume based charging.

    • Matthew Wright 5 years ago

      The old “interim step” trick. A bit like “clean gas” as a transition fuel – the energy industry are great at making this stuff up (I’m assuming you’re one of them Steven).
      There’s nothing interim about maximum demand charging, it’s a complete and utter rort. You can’t transition from maximum demand charging to coinicident peak charging. They’re incompatible. You’ll build a hole lot of behaviours around maximum demand charging which aren’t the economic behaviours for coinicident peak charging. Let’s have half the DUoS, TUoS and all of the daily service fee standing charge allocated to a capacity charge that increments 0.1kV at a time on critical peak days which are announced and measured as they happen. Upon introduction it will be the end of building any new poles and wires.

      • frostyoz 5 years ago

        Matthew, if you can get everyone to install smart meters that provide these signals and record usage on critical peaks, I’m all with you!

        Until you convince them it’s in their interest to have them, we need some interim measures.

        • Matthew Wright 5 years ago

          In Victoria 90% of us have smart meters and everyone who doesn’t has the option of getting them (those who haven’t at this stage have refused). I’m sure NSW and QLD customers would be happy to have the option to have a smart meter and opt in. We should see the coincident peak charge become available for voluntary uptake long before we see a punitive maximum demand charge forced onto unwilling and/or unwitting customers.

          • frostyoz 5 years ago

            The number of non-PV households opting in for smart meters in NSW is just about nil. Only about 1/3 of households have any form of interval metering, mostly of the stored data kind, and most of that is due to mandatory installations on new infrastructure, or under a network-mandated program.

            The botched Victorian roll-out of smart meters has a lot to answer for.

          • Matthew Wright 5 years ago

            The Victorian rollout has produced functioning smart meters for almost all of the customers in four of the five distribution areas. And the fifth distribution area is being sorted out at the moment. There is no reason why we can’t move to coincident critical peak pricing in Victoria with the high penetration of functioning operating 30min resolution smart meters. It doesn’t matter what’s happening in NSW if it works in Victoria then we know it will work in NSW. So lets push ahead in Victoria where we have the operating smart meters.

            Botched smart meter rollout as you claim it is has nothing to do with the fact that they operate now and work fine for the purpose of reporting 30min average data back to base at a minimum of once every 24 hour period.

    • Giles 5 years ago

      Steve, that’s about as disingenuous a comment as I’ve seen on this site. The headroom is explicit in places like Qld, but built in to retail price in other jurisdictions. To say it doesn’t exist is wrong. Check out their submissions.

      • Steve Young 5 years ago

        Yes there is an allowance in the regulated price. Because like any business there are customer acquisition costs that have to be recovered.

        But there are no allowances in deregulated markets. Would you say that other customers are subsiding you when you swap milk brands because the new one is currently promoting its lower price offer?

        • Matthew Wright 5 years ago

          There are allowances, the internal business decision of the retailers is to use sticky customers by charging them higher rates to subsidise customer acquisition. Case in point, just before the end of the financial year AGL is reducing their standard rates by 35% which will make their annual reporting. The trick is that the customers revert after 1 year to much lower discount levels. However the reason this doesn’t pay off is that the same customers go on the merry go round churning again and again and the loyal customers pay – hence the headroom.

  3. Chris Fraser 5 years ago

    Solar exporters in NSW have the following legislation (Electricity Supply Act) in their favour;-
    15A Distributors to allow small renewable energy generators to feed-in to network
    (1) The objects of this section are as follows:
    (a) to encourage and support persons who want to generate renewable energy as a response to climate change, …
    Are we now meant to think that the increase in fixed charges and tariffs actually encourages solar ?We instead think that IPART and Retailers don’t know about Section 15A, or don’t care.

  4. Paul Szuster 5 years ago

    Giles, Further to your comment, “And they are similar to those posted for South Australia” – do you refer to AGL publishing a residential retail tariff covering the SAPN region which includes a peak demand component? If so, could you point me to the document/source? Or are you referring to the 2015/16 SAPN network tariff pricing proposal? Many thanks, Paul.

  5. Robert Johnston 5 years ago

    Dear Greg Bourne, please ask the NSW Govt why they repealed Section 35 of the Electricity Supply Act – this section prohibited the discrimination against electricity users on the basis they were also a generator of electricity. With that section in place (and it was for many years) this kind of behaviour was illegal, now its par for the course. The retailers will play by (ie exploit) the rules – blame the regulator.

    • frostyoz 5 years ago

      See NEM Rule 6.18.4(a)(3)

      • Robert Johnston 5 years ago

        Frostyoz, IMO its a fairly easy argument that households with generators have a different load profile to those that don’t. This rule offers little or no protection to consumers who are also generators.

        • frostyoz 5 years ago

          If there is a non-solar household whose load doesn’t start growing until they get home from school/work as the sun goes down, and a solar household whose load is the same, then the solar household is being treated less favourably, and that infringes the Rule.
          SAPN mis-states the rule in its network pricing application.

          • Robert Johnston 5 years ago

            Frostyoz, we are of the same opinion of how it should work – but don’t forget that most in the business have branded micro-generation as load reduction – hence the same family with and without a PV system have vastly different load profiles because of the generation.

  6. frostyoz 5 years ago

    The article completely fails to distinguish between retailer charges and network charges, conveniently labelling them both “utilities”.

    Origin, EnergyAustralia, and AGL are each retailers.

    The demand charges, and the structure of what is peak and what is off-peak or shoulder, are largely driven by the network tariff structures.

    The blame on the retailers perhaps ought to be directed at the networks.

    But networks can’t double charge, because their total revenue for network services is capped and regulated by the AER.

    90% of network costs are fixed, and represent assets installed up to 40 years ago, long before people decided to avoid day-time network usage charges with solar PV, leaving those who can’t, or can’t afford to, install PV, paying for the network that the solar PV users leap back onto when 5pm rolls around.

    So a higher proportion of fixed charges would be a perfectly equitable arrangement, so that solar users pay for the network they like to have there, waiting for them to leap on at 5pm.

    In the NEM, networks are prohibited from charging households more just because they have solar PV. They can charge users with a peak load profile differently than users with a flat load profile, but not solely on the grounds that they have solar PV. Take a look at NEM Rule 6.18.4(a)(3), which is the newer equivalent of the repealed NSW s35.

    • WR 5 years ago

      Are you saying I’m still being charged a dollar a day to pay off the poles and wires stuck outside my house 40 years ago. That would make it a $12,000 pole.

      • frostyoz 5 years ago

        But it has a very nice 18-carat sheen.

        • Matthew Wright 5 years ago

          And by using a maximum demand charge that is not at all going to be equitable. In NSW homes electric resistive heaters such as 2400W plug-in oil filled wall heaters are very common. Combine two of those with a 3600W baked loaf of bread or roast in the oven and bang you’re whacking a customer for an 8.4kW demand charge. Even though the network only needs to be built out to 4kW for that customer based on what happens during coincident peaks. Maximum demand charging is a scam and a rip-off to be aimed at the poor.

          • frostyoz 5 years ago

            Much less a rip-off than charging 14c/kWh to use the network at 2am, which is what they’re presently charging.

          • Miles Harding 5 years ago

            There is a point here, maximum demand is not really an issue if it occurs at a slack time in the network, so those bread makers may not really be an issue..

            Perhaps this points to a more serious flaw (in the favour of the supplier) in any peak demand model we are likely to see as consumers.

  7. Leigh Ryan 5 years ago

    We need a national blackout day, all solar users need to turn off supply to the grid at the same time, then watch the sparks fly

    • Paul Andrew 5 years ago

      to be effective at all this would need to be timed with highest demand otherwise it’s kind of pointless. it could fuel the argument that solar doesn’t help because there’s so much excess capacity in the power system that the loss of solar would be mostly easily met by other generation unless it was at a time of high demand like peak summer heatwaves. then there would be the potential for blackouts but also for mega profits for the encumbents…swings and roundabouts

    • Pedro 5 years ago

      Suggest the 1st Friday over 40 degrees in December

  8. john 5 years ago

    Graph showing RRP and Peak price of power where the Peak price paid is going down
    this of curse hurts the generators notice also the narrowing in the gap between the two.

  9. john 5 years ago

    My feelings are that if Peak Price charged to a consumer are going to be 51c KwH then storage is made very attractive indeed.

    • Jacob 5 years ago

      Surprising that Energy Australia is charging him well over 40c/kWh for peak electrons.

      No wonder people are so keen on getting batteries.

      They would store electrons for no more than 25c/kWh.

      • john 5 years ago

        Jacob you of course are correct this kind of price structure is only going to encourage the transition to back up power my feelings are that the sooner the retailers of power move to providing backup energy packs that they control the better their business plan as Victor Energy has done in NZ mind they have not exactly had many to take up the offer.
        So looking at the Australian situation if one is to get a charge of over 45Cents per KwH for power during the now peak, this seems pretty attractive for the use of back up power to mitigate that charge.
        If the ask from the retailers is this either pay the price or we will not in any way consider your provision of power towards us I can only envision people who are able to move off the grid.
        Has anyone heard of the Death Spiral ?
        I see this so clearly it is not funny what kind of CEO runs that company I ask you?

  10. Tim Forcey 5 years ago

    “…the energy charge is low…”

    So that would drive economic fuel switching – from petrol and gas – to electric cars, heat pumps, induction cook tops…

  11. Ben Ben 5 years ago

    If these charges were not levied…then non solar customers would effectively be cross subsidising your profit…through the way the tariff stucture is regulated. Not to mention the capital upgrades required to facilitate embedded generation into the grid… The retailer is simply passing on the network charges that reflect this…this is a regulatory problem…get educated

    • Catprog 5 years ago

      And who gets the profit from the reduction in wholesale costs? And also the reduction in networks upgrades?

      • Ben Ben 5 years ago

        Only a retailer can achieve a profit on the wholesale cost, however this is limited due to contestability, retailers bid on wholesale prices through a competitive spot market – so by seeking to much revenue, customers have the choice to change retailer – retrieving excessive profits would be therefore counter-intuitive to maintaining customer base. In addition to this state regulators also impose revenue capping (I work in the ACT, where this occurs)

        Network upgrades are performed by Distribution and Transmission companies – the amount of return they can retrieve from OPEX or CAPEX (through tariffs) is limited by the state and federal regulators due to the monopoly environment. Therefore if network upgrades were reduced, the potential return will also be reduced (hence why gold plating was an issue – boosting up CAPEX so as to increase potential return)

        I would argue however that network upgrades are increasing due to increased solar penetration and battery storage – which is resulting in reverse power flows and increased current levels in distribution networks which were not designed to cater for such advancements.

        Also many state run infrastructure projects rely on capital expenditure ie. light rail in Canberra and Sydney

  12. RobS 5 years ago

    Hmm, not sure I agree with the conclusion you make from your first two graphs. Yes there is a tiny additional blip of demand between 1800 and 1830 that represents the absolute peak, however really the entire top of the demand curve which lasts according to the first graph from ~1330 to 1930 is what results in the need for generation and transmission upgrades. If TOU charging is intended to shave the top off the demand curve then it needs to applied for a far longer part of the afternoon then you suggest in your second graph.

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