Utilities say no to gross tariffs, yes to battery storage

In a nod to the emerging power of the “pro-sumer”, Australian energy network operators and retailers have rejected a suggestion to move to gross tariffs for rooftop solar, saying it risked turning customers against them. Some suggest tariffs that would encourage homeowners to invest in more battery storage.

Operators of electricity networks in Queensland and the energy retailers have overwhelmingly rejected a proposal by the state’s competition authority to introduce gross tariffs for rooftop solar, saying they would be complex, expensive and unfair to owners of rooftop panels.

The Queensland Competition Authority raised some eyebrows, and a few hackles, last month when it raised the prospect of a gross tariff in an issues paper it prepared for deliberations around a “fair and reasonable” tariff for solar.

The solar industry immediately condemned the proposal, saying the idea of forcing customers to sell all their solar power to retailers and then buy it back at a much higher price was inequitable and would effectively mean the death of the industry, as it would remove the attraction of rooftop systems as a hedge against rising electricity costs. And it seems that the utilities, who were suspected by some, of quietly advocating the move, have recognized the risk of putting consumers offside if such a tariff was introduced.

Most of the submissions put to the QCA by network operators and retailers pointed to the potential complexity and cost of a gross tariff – particularly in having to change metering arrangements.

Interestingly, it was TRUenergy, under fire over its proposal to sharply reduce the development of utility scale wind and solar developments by curtailing the ambition of the renewable energy target, which said most clearly that gross FITs were unfair because they were not equitable to consumers.

It noted that households that invested in rooftop photovoltaic systems do so in the expectation that they will be able to consume less grid energy, and thereby gain a sense of control over their costs.

“Under the proposed changes, households would be required to ‘sell’ energy to the grid at the cost of energy, and then ‘purchase’ energy for their own use, at up to three times the price,” it noted in its submission. It said it would be confusing and “may create the perception that electricity retailers are benefiting at the consumer’s expense.”

TRUenergy’s position is a recognition about the power of the newly emerging “pro-sumer”, customers that have the ability to produce at least some of their own electricity needs.

The utilities are not quite sure how to deal with this, and how to manage its impacts on their business models. But there are signs that some see advantage in seeking ways to embrace the technology, and its fellow travellers such as smart technology, electric vehicles and storage options, rather than simply hoping they will go away.

In that context, it was fascinating to note that TRUenergy also suggested that new rooftop PV customers should be hit with higher charges at times of peak demand under “time of use” tariff arrangements.

It justified this by saying it would provide an incentive to the embryonic battery storage industry, and would encourage customers to store PV exports for use at peak times. “We believe that linking the installation of PV to the time-of-use tariff should provide the right price signals for the investment in PV and will support the objective of trying lower peak demand.”

It is an interesting position for a retailer to take. Last week, we wrote in our story “have we pointed 2GW of solar PV in the wrong direction, about a submission to the Senate inquiry into electricity prices from WA energy academic Adam McHugh, who said we had gotten it all wrong on tariffs, and suggested they should be designed to encourage PV owners to face their panels to the west (rather than the north), so they are better able to meet peak demand, rather than simply produce more electrons. North facing panels, TRUenergy noted, provide little energy after 4pm, and simply sharpened the peaks.

One of the country’s longest established solar installers, Solar Guys, took up this issue, but rather than suggesting, as TRUenergy did, to hit solar customers with higher costs from the grid, proposed that the grid operators should reward solar customers by paying a premium net feed-in tariff  at peak times – of say 44c/kWh between 4pm and 8pm, and the prevailing rate of around 8c/kWh at other times.

It said this will clearly help reduce peak demand and would do so at a far lower cost than upgrading infrastructure. And, it said, this could drive investment in grid-connected battery systems, which it predicted could be very affordable within a few years.

“The technology to save solar power to energy storage during the day and then release it back into the building in the evening via a net metering scheme is already available on the Australian market today,” the company wrote.

“We don’t actually need a stronger grid, we need a smarter grid and the fastest way to achieve that is to embrace solar power, not reject it. It’s time to start seeing solar power as the solution not the problem.” (We have published the Solar Guys’ submission in full. It’s not very long).

But while the utilities were prepared to concede that homeowners would be ripped off if they were force to sell their solar-powered electrons to their utility and buy it back at three times the price under gross tariffs, they were not ready to concede that homeowners could feel similarly miffed about the paltry offering made to exports to the grid under the net metering system, where those electrons could be sold to neighbours at three times the price offered to the owners of the rooftop panels.

TRUenergy admitted that retailers “receive financial benefit from electricity exported to the grid from PV customers”, but it and other utilities argued that they faced greater fixed retail costs from PV customers, because of things like extra paper work, “multiple phone calls” and other matters.

The utilities continue to argue against a mandatory net tariff – even one as low as 6c to 8c a kWh, arguing that “competitive forces” – supported by a healthy retailing margin and extra “headroom” would ensure customers get a fair deal. They did note, however, that some utilities do not offer any tariffs in Queensland and elsewhere at the moment, because they couldn’t be bothered.

The solar industry argues that net tariffs should be set at or near the retail electricity prices, perhaps allowing for some unavoidable network costs, which they say would be minor. The utilities, however, have managed to convince most state-based pricing regulators that the network costs are significant and to offer a deeply discounted tariff.

It’s a question of equity, but in the end it won’t really matter, because as TRUenergy noted, the cost of PV is coming down so quickly it will be a compelling idea for most customers. So while retailers might smugly pocket a few hundred million dollars of worth of cheap electrons over the next few years, there greatest challenge lies in coping with the fact that customers now have cheaper options than simply plugging the toaster into the grid and paying whatever bill comes down the line. That’s what makes the response to gross tariffs, and battery storage so interesting. Evolution is at hand!