Millions of Australian households may soon be charged an additional “solar tax” for exporting solar power to the grid under controversial new rules proposed by the Australian Energy Market Commission, the main rule maker for the energy market.
In a draft ruling released on Thursday, the AEMC proposes the introduction of a “two-way” pricing system that ostensibly will help reduce “traffic jams” on the grid, because it will allow networks to tailor their own pricing mechanisms to ensure investment in parts of the grid where needed.
Under the modelling produced in its voluminous 250-page document, the AEMC suggests a tariff of 2c/kWh for exports in the middle of the day. This would cost up to $100 a year, but it is not recommending a flat or compulsory tariff and wants consumers and networks to negotiate flexible outcomes.
The AEMC says this will encourage networks to send “price signals” to help reduce congestion on the grid. In sort, they want to encourage more households to install more battery storage and export less at peak times.
But the new proposals will be complex, will involved negotiations between networks and consumer groups and will then require sign off from the Australian Energy regulator. It could be years before they are first introduced, and may yet be vetoed by individual states.
“This is about creating tailored options, not blanket solutions,” AEMC chief executive Ben Barr said in a statement.
“We want to open the solar gateway so more Australians can join the 2.6 million small solar owners who have already led the way. But it’s important to do this fairly. We want to avoid a first-come, best dressed system because that limits the capacity for more solar into the grid.”
The AEMC, and the monopoly network companies, have been pushing for some form of solar tax for years, arguing that the grid was not made for two-way traffic and significant investment was needed to accommodate this.
The extent of that extra investment is heavily disputed, and the AEMC backed off from its proposals to introduce a blanket solar export tax four years ago. But last year key consumer groups – including the Total Environment Centre, the St Vincent de Paul Society Victoria and the Australian Council of Social Services, as well as the network company SA Power Networks, urged a range of different options.
Their argument was that some form of solar tax could be allowed if it ensured that the network companies invested the money required in the network to remove some of the major constraints on solar households – many of whom are limited or banned from exporting back into the grid at all due to network issues.
The TEC’s Mark Byrne wrote in RenewEconomy last year that existing rules don’t create any obligations or incentives for networks to accommodate higher solar and battery exports.
“In fact, they contain incentives not to invest to make the best use of existing hosting capacity or to expand it. As a result, the current rules are starting to act as a roadblock,” he wrote. “Not only are inverters tripping more often due to overvoltage, but export limits are becoming increasingly common, including zero exports (anecdotally, especially in Victoria).”
Byrne argued strongly, however, that the network costs should be put into context. Byrne estimated that network upgrades to sub-stations and other infrastructure will likely account for little more than one per cent of total network expenditure, and any new fees needed to be put into context.
The AEMC appears to have embraced the approach of ACOSS, TEC, and SAPN. “This gives networks a stronger reason to deliver quality export services that customers value. At the moment, there are no financial penalties for poor network export service and no rewards for good service,” it says.
Some solar advocacy groups are vehemently opposed to any export tax, arguing that the networks are amply rewarded through existing network tariffs – and the historic “gold plating” of the grid – that they should be making the investments needed to accommodate the new focus on distributed energy.
“It is like arguing that bicycles should be charged for using the roads,” says Bruce Mountain, from the Victoria Energy Policy Centre. “The uptake of solar was the one big success we have had in the energy transition.”
It comes at the same time as new protocols and inverter standards means rooftop solar systems are now “switched” off – under instruction from the Australian Energy Market Operator – at various times to keep the grid stable. The first such event occurred last week, as we reported here.
It is also seen as another tax grab on new technologies, as it also comes at the same time as moves by various state governments to implement road user taxes on electric vehicles, at a time when most of the rest of the world is offering incentives to encourage the uptake of EVs.
“We know there is a lot of interest in this issue,” Barr said in a statement. “We’ve heard and understood the concern among some solar owners about whether they will be able to realise the value of their investment if the system changes.
“We want to reassure solar customers that we’re not proposing they should all start paying export charges. We expect networks to deliver pricing proposals in close consultation with consumers, which may include options where they don’t have to pay for exports.”
The AEMC says the modelling it undertook says the introduction of export charges would result in lower bills for the 80 per cent of consumers that do not have rooftop solar “because they would no longer pay for solar export services they weren’t using.”
It said that for the 20% of customers with solar, there could be a range of export charge impacts, depending on system size. A system of four to six kilowatts would return about $900, or about $70 less than it does now. But the impact would be less if they consume more of their own power.
“Doing nothing is not an option because blocking people’s power exports will cost them now and more in future. While export charges on a 4−6kW system might lead to a marginal drop in solar earnings, owners will face that same drop if they are constrained from exporting energy just 10% of the time.
“Being constrained 50% of the time would reduce their solar earnings by more than $300 per year. We need to think differently about the power system – including its pricing structures,” Barr said. “We found that buying a battery would allow customers to benefit more and also help the system.
About 33,000 Australian households installed battery storage in 2020, according to Sunwiz, but a Tesla Powerwall 2, for instance, used by the AEMC in its modelling, can cost more than $14,000 installed, and most analysts say they do not provide a positive return on investment.
Many are installed, however, for the security of maintaining power during outages and blackouts. But the AEMC argues the returns on battery storage investment could be improved by new tariff structures that reward home owners for installing them.
The AEMC is seeking feedback on its proposals by May 13, before a final ruling in June. It then expects networks and consumer groups to then begin discussions on tailoring packages after that.