Australia’s major energy utilities are now united in pushing for an end to rooftop solar subsidies – pitching the incumbent utilities into a major battle with the solar industry and consumer groups over the treatment of household solar.
AGL Energy became the last of the major utilities to throw its hat into the anti-solar ring, declaring on Friday in its submission to the renewable energy target review that rooftop solar subsidies were no longer needed.
AGL Energy also said the large scale renewable energy target would be impossible to meet – earning an extraordinary rebuke from PowerShop, the Australian offshoot of New Zealand energy giant Meridian Energy, its joint venture partner in Australia’s largest renewable energy project, the 420MW Macarthur wind farm – of joining other utilities on the “dark side”.
The issue around support for solar, however, is now the major flash point for the industry. Given the stoppage in large scale developments because of uncertainty around the LRET, rooftop solar is currently accounting for the bulk of renewable energy investment in the country. It supports an industry that provides more than 11,000 jobs, and nearly $3 billion in investment in 2013, as well as supporting ongoing world-leading research.
Those jobs and investment are now under threat. Origin Energy accuses rooftop solar of being a “free rider” on the grid, while most other generators have also called for solar support to be removed. Some of them have the support of the state government who own their business, and some of the state-government pricing regulators who appear to have taken ideological positions against renewable energy.
What is happening in Australia is a reflection of the battles being fought elsewhere between incumbent utilities and the promoters of new technology. Jon Wellinghof, the former head of the US Public Utilities Commission, predicted that incumbent utilities would do everything they could to “stop solar in its tracks” and protect their business models. Unlike regulators in Australia, Wellinghof said it was essential that this transition was accelerated “in the interests of consumers”.
The problem for the incumbent utilities is two-fold. Over the very short term, rooftop solar is eating away at revenues, and profits, at what used to be the most profitable time of the day for coal and gas utilities. This is causing their generators to lose money.
Over the medium to long term, however, the centralized energy system that has formed the basis of electricity grids for a century or more is being challenged by a distributed system that gives consumers a mor prominent role because they are able to generate and store their own electricity.
That is forcing utilities to rethink the way they do business, and they are trying to buy time by forcing back rooftop incentives such as the certificates in the renewable energy target, and the tariffs paid to exports from the grid. The problem is, many analysts say, that many of these measures simply provide a greater annoyance, and incentive, for consumers to look elsewhere.
And it may not be a medium to long term problem, so much as a short term crisis. UBS said in a report last week that while removing solar incentives may cause a short term fall in the take-up of rooftop solar, by 2018 the continued fall of solar costs, and the emergence of storage as a viable option, meant that average households might find it cost competitive to leave the grid entirely.
They, like other investment banks such as Citigroup, Deutsche Bank, Morgan Stanley and Goldman Sachs, say the emphasis is on the incumbent utilities to evolve.
Not many of them are keen. Even though many retailers and generators privately believe the future is in distributed generation and new technologies – the surging gas price has underlined the nature of fossil fuel price risk – the boards are very conservative, protective of current assets and as loath as Kodak to commit to a new way of doing business.
Still, some network operators have publicly recognised that distributed generation – mostly centred around solar and storage, but also involving wind and other technologies – will be a cheaper option that simply upgrading and extending Australia’s vast networks of poles and wires. Those changing economics will arrive in the major cities soon enough.
It could be that the first key test will come as early as 2016, when the generous gross feed in tariffs in NSW and Victoria expire, and several hundred thousand solar households decide what to do with their solar panels.
Solar consumer groups are also gaining traction. One of the biggest, Solar Citizens, says more than over 22,000 community submissions were made to the RET review panel, including 12,500 from renewable energy supporters, 250 from wind farmers and workers concerned about drought proofing their farms and communities, and 1,500 from people in community organisations trying to develop community owned wind and solar projects.
The solar industry says the rooftop solar support scheme has cost little – some say no net cost at all – successfully delivered some of the lowest cost residential PV systems in the world, again with high uptake in regional areas and in middle and fixed income households. Australia now has more than 3.2GW of rooftop solar spread over more than 1.3 million homes in Australia.
Now, as AGL revealed, the incumbent utilities want the rules changes to further protect their businesses. This includes not just the removal of up-front subsidies, and the suppression of export tariffs, but will likely progress to fixed charges and connection costs. And the incumbents want markets reconfigured to allow for payments to be made when coal fired generators are closed down, and for “capacity” payments to be made to coal and gas fired generators to protect against them not being used so much.
These claims are rejected by the emerging renewable industry.
“Renewables need the continued support of the RET because the incumbent fossil fuel-based electricity industry was built by governments or with significant government support and continues to receive substantial annual subsidies,” the Australian Photovoltaic Institute said in its submission to the RET Review panel.
The APVI, which advocates a 40 per cent renewable energy target by 2030, agrees that the market needs to be redesigned, but in a way that t is provides the correct signals for long term transition to more renewable energy and distributed energy, rather than protection of the incumbents.
This will facilitate the uptake of more solar PV, as well as cogeneration, electric vehicles, and fuel cells, and other technologies such as demand management systems, energy efficiency and various storage technologies, and should recognise their added services which includes reactive power and voltage support, and storage and load control.
“It is imperative that regulatory frameworks be developed as soon as possible so that new business models can emerge to cater for this new market in distributed energy services,” the APVI writes.
“This would facilitate the establishment of new energy service companies, empower customers to trade on their own energy investments and break the trend to increasing consolidation and reducing competition in the electricity gentailer sector.”