Time to get facts right on solar, and reap the benefits

When the Queensland government fed news of the latest rises in electricity bills to their favourite media outlets on Wednesday, it  was quick to lay the blame for the rises on two culprits – the carbon price and solar. Even though two of the biggest single culprits were soaring gas and network costs.

It is part of a long campaign by the Campbell Newman government to demonize rooftop PV and other renewables. The irony is that at least part of the problem is Newman’s own mismanagement of the solar bonus scheme, but the anti-solar stance is also framed to protect the interests of state-based generators and network operators, both of which are having their business models challenged by the arrival of a new disruptive technology and delivery system.

The danger of this tainting of solar PV, however, is that it is spreading through policy-makers, regulators and public perception. Because of this, bad decisions could be made about the structure of future electricity tariffs – at the expense of consumers and even network operators. The solar industry is concerned that poor policy making shouldn’t stand in the way of change that is inevitable, necessary and popular.

To promote this, the Centre for Policy Development is about to release a report researched by the Australian Photovoltaic Institute (APVI) – Getting the Facts Right on Solar – which seeks to point out that solar PV is bringing a clear benefit to the network, particularly in offsetting the impact of air-conditioning, and the report is challenging the favoured solution on electricity tariffs, time of use pricing.

The first point the report makes is that solar is having an impact by reducing the level of peak demand, which has been the network’s biggest challenge. Critics like to republish this “duck chart” from Energex, which shows an October Tuesday over the last few years. It appears to suggest solar has reduced demand during the day, but not at the critical point in the evening.

Actually, in presenting this graph, Energex executives say that the evening peak would have been far greater without solar, given that so much air-conditioning has been added in the past few years. But others say that using  a single feeder for a single day is potentially misleading. It’s more constructive to look at the annual peak (which is what determines the size of the network), and this generally occurs around 5 to 5.30pm, which is well before the average (and smaller) peak, and is in summer when PV is still producing around 20% of it’s rated output. This graph below from the APVI illustrates that point.

The next question is how to structure tariffs to reflect this benefit. The favoured response in recent years has been time of use tariffs. These are already being introduced in many regions – with people paying around 50c/kWh during “on-peak” and 11c/kWh in off-peak – and the push for such tariffs to be introduced more widely is reaching a crescendo.

Much of this is coming from electricity retailers, who stand to benefit most from such a structure – but the APVI research warns that it could disadvantage electricity consumers, particularly solar households, and it could also penalise distribution networks as well.

It says this could actually result in an increase on the cost impact of air-conditioning for households that don’t own air conditioners, limit solar’s ability to reduce this impact, and accelerate the so-called ‘death spiral’ for networks worse by reducing their revenue, or increasing household bills.

The APVI research argues that for a tariff to be truly cost reflective, it should be a combination of time of use (when you use the electricity), and a capacity or demand charge (how much you can use at any particular point of time).

It is important to note that a capacity component is different to the “fixed” network charges, which governments are busily raising to recoup lost revenue (these charges were lifted by more than 60% in Queensland’s draft ruling). Higher fixed charges provide no incentive to moderate demand or change behaviour. Time of use can, but demand charges are seen as a critical component because they require heavy users to pay a higher fee, and moderate users to benefit from reduced costs.

Laura Eadie, from the Centre of Policy Development, who edited the report, says a demand charge should be a critical component within network pricing. “If you are a customer that puts a lot of demand on the network when it is congested, then you should pay a higher capacity charge.”

In effect, she argues, such consumers should pay for the size of the “electricity pipe”. It is similar to how broadband works, and it is also getting some support from distribution networks.

Among the key findings of the report:

·       Under a demand charge tariff, if 20 per cent more customers installed air-conditioning this would add around $37 per year to other households’ bills, compared to $80 per year or higher on a standard or TOU tariff.

·       A demand charge is more likely to encourage all consumers to smooth annual peak demand, make more effective use of existing infrastructure, and deferring new network capital investment. By comparison, a TOU broadly targets daily peaks in demand, rather than annual peaks. A standard tariff targets neither.

·       ·  A demand charge caters for the full range of emerging distributed energy technologies which are popular with consumers and may prove to collectively provide the most cost-efficient electricity supply and delivery options, as decisions about network capital replacement are made.

·       A demand charge can be designed to reduce the impact on low-income households and low- energy using households of recent investment in network upgrades, or falling demand, or both. They can do this by reducing their costs directly (where households make smaller contributions to peak demand), and by deriving more of the required network revenue from other households with large and peaky loads.

This graph below illustrates how the combination of demand charges and solar PV can actually reduce the impact on bills on “other consumers” – challenging the current “received wisdom” that solar is simply passing costs from one household to another that doesn’t have solar arrays.

Eadie says that the importance of solar, and ultimately battery storage, on the network is that these can help reduce the capacity required by households at critical points during the day. This benefit should be reflected in revenues for networks, and it should be reflected in reduced costs for those households.

“Because of the politics of solar, and the complexity of regulation, there is a risk that if we don’t get this right, then solar consumers could be hit with higher charges than they deserve. And this would be a backward step.

(Note: Please also read Alan Pears, who touches on the subject of capacity charges in his piece today).