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Utilities’ war on solar equals subsidy to wealthy energy users

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So, here’s an idea. Why  stop at hitting up solar households with extra costs to help meet their so-called “grid obligations”? Why not target other users who are not consuming their fair share of electricity from the grid? How about those installing LED light bulbs, or more efficient pool pumps? What about those swapping their plasma TVs for flat screens, or who have decided to upgrade their air-conditioning? Or even those empty nesters who have reduced their consumption because the kids have grown up and moved on?

Sounds ridiculous? Of course it is. But that is the logical extension of what Australia’s incumbent electricity operators are proposing in a desperate bid to rescue their business model.  The latest idea, canvassed by the Australian Energy Market Commission, is to penalise solar households by imposing special tariffs on those houses with PV on their rooftops. Their supposed crime? Using less electricity from the grid because they are producing some of their own from their solar panels.

Even the NSW government, which owns the state’s networks and is trying to sell some generators that are suffering from the emergence of the “pro-sumer”, and the ‘democratisation” of energy production, is wincing at the AEMC proposals.

“This is a really bad idea,” says Rob Stokes, the NSW parliamentary secretary for renewable energy, writing an excellent opinion piece for the Sydney Morning Herald on Monday. Stokes says such an idea is unfair, discriminatory, and – in a recognition of the growing numbers of solar households in middle Australia – just bad politics.

“Solar panel users are not the only electricity customers having an impact on the electricity grid,” he writes. “The installation of cheap, imported air-conditioning units in hundreds of thousands of households in recent years is a big contributor to the rise in capital spending by networks to enable them to meet peak demand.”

Not that this has discouraged “independent” regulators in the past. As RenewEconomy noted earlier this year, the Queensland Competition Authority proposed a special tariff for solar households, and even though it admitted that such an idea would be more expensive, inefficient, unfair and possibly illegal, it recommended it anyway on the basis that it could boost network revenues. The regulators seem more intent in protecting the interests of business than consumers.

And Stokes gets this right: “Solar panels have moved from being a fringe technology to a disruptive technology, challenging the way energy businesses operate. As with every revolution, the solar revolution is facing a reactionary response by the established order.”

For decades the electricity industry has profited from and encouraged greater consumption. The regulatory settings have encouraged them to invest more in poles and wires and generation, and they say it is their inalienable right to get the full return on that investment.

Air-conditioners were the perfect illustration of this. According to the Federal Government’s Energy White Paper, each $1,500 air-con installed in a house required an extra $7,000 of network infrastructure to be built. But it is not the air-con users who paid for these extra costs, it was socialised across all users, which meant that more frugal and probably less wealthy users subsidised the investment to support the consumption of more wealthy customers.

The network operators didn’t mind at all. They were allowed to spend nearly $45 billion in the latest 5 year regulatory period to meet that demand, a decision that in itself forced electricity prices up by more than half – even as generation costs fell to record lows.

But now that people are reacting to these increased costs by installing solar panels, and possibly also battery storage, the incumbent utilities are up in arms. Particularly so because solar doesn’t just reduce demand from the grid, it does it at the times when electricity prices are at their highest, and incumbent utilities once enjoyed their biggest profits.

Preliminary research released late last week by the Centre for Policy Development and the Australian Photovoltaic Association finds that if 20 per cent of households install air-conditioning (AC), it will add at least $75 to other households’ bills a year. But when PV is added to the network, that bill increase is reduced.

It uses this graph below to illustrate its point.The two sets of data reflect results published by Ausgrid (dataset 2) and from the Blacktown Solar City program (dataset 1). The first dataset suggests higher air-con costs and greater savings from solar PV, but even the more conservative Ausgrid data (which suggests PV output at just 11 per cent of rated capacity and 43 per cent at peaks – compared to 20 per cent and 54 per cent in Blacktown) delivers some savings for the consumer

Screen Shot 2013-10-27 at 5.26.15 PM

The study is based on the assumption that just 20 per cent of households install air-con, when in fact the reality is much higher – around 70 per cent across the country. Indeed, the Productivity Commission last year said households which do not have air-conditioning are paying an effective a cross subsidy of $330 a year so that other households can use those devices during those 40 hours of critical peak periods that account for one quarter of our network costs. Yet air-con is not even mentioned in the AEMC report.

The CPD/APVA study adds its voice to the growing calls for a “demand charge” component in residential tariffs that could probably reflect the costs – and benefits – of adding solar panels and air-con.  “This is a more equitable option than the PV-specific levy proposed by AEMC,” it says.

It is certainly more favourable than the response favoured by the utilities to date, whose moves for higher fixed charges would simply remove the incentive to be energy efficient, or mean that lower income households had less options to reduce their bills, and would simply encourage profligate and wealthy households to consume more.

An analysis by ClimateWorks released last week suggests that the impact of solar PV could more than offset the increased consumption from the  anticipated 15 per cent rise in the number of households in Australia by the end of the decade. It suggests a

“complete reversal” in household electricity consumption, with a possible reduction in average consumption of 2.2 per cent per year between now and 2019-20.

This could result in a

 reduction of grid demand of 9TWh, which could be amplified by a further 8TWh reduction if energy efficiency measures and solar PV is adopted by commercial operations. There is increasing anecdotal evidence that network operators are already responding to this by refusing or downsizing proposed solar arrays, or by charging huge connection fees.

All of which is ultimately self-defeating, as are discriminatory tariffs. “Rather than seeking to target and penalise households that are taking advantage of renewable energy technology to lower their bills and environmental impact, it is time for energy businesses to change their thinking to embrace innovation, rather than thinking up ways to stop it,” Stokes says.

Too right. Leading energy experts, ministers and regulators in Europe and the US are saying the same thing. The question, however, for many of them is whether it is already too late. Reform moves at a painfully slow pace in this industry, but technology innovation is moving at lightning pace. Sometime soon, the owners of networks, including the NSW government, will have no choice but to write down the value of their assets.

 

 

   

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  • David Mitchell

    Actually, why don’t the networks sue the Kuuri Kurri Aluminium Smelter for pulling up stumps!

    • Matthew Wright

      David,

      Don’t worry the aluminium smelters never paid for their network access anyway.

      So nothing lost there.

      Matt

      • Concerned

        No ,but their taxes paid for your utilities and that of others.

  • Peter Carroll

    It is not new however. Sydney Water and other water authorities responded to a drop in their demand from users of water tanks for toilet flushing, etc by increasing the “standing costs of wc’s” (read network charges) and reducing the usage costs. These behemoths metamorphose into dinosaurs very easily.

  • Mike

    Panasonic are entering the ‘solar storage cabinet’ industry.
    Capable of storing energy for up to 8 hours from your own solar panels and will soon available.
    Automated and run your house from the sun first, taking storage secondly and only then passing on excess to the grid.
    Expensive? Yes they are, but others will follow and prices will fall and the governments can keep their privatized public utilities and shareholders!

  • true true, only increase the benefits for wealthy , Rural areas are also disadvantaged for years, remain on standby

  • Warwick

    I’m curious…if energy prices are falling and demand is falling which is making people ask for network businesses to have a write down..shouldn’t those fixed generous Feed-In-Tariffs be reduced too ?

    • RobS

      Wholesale energy prices are falling increasing profit margins for the utilities, retail energy prices which are what solar consumers are paying or offsetting with solar production continues to rise. It seems nonsensical to me to set fixed prices in a dynamic market. The value of a kwh of distributed generation should be determined, whether that’s 1:1 with retail power, less like 0.75:1, or in some people’s opinions more at say 1.5:1 and then it should be indexed to the retail price so that they move together and feed in tariffs rise as retail prices rise and perhaps in the near future fall as retail prices fall, it should be the relative value that is fixed not the absolute value.

  • barrie harrop

    In 3-5 years time with solar/off-grid solutions this energy offer becoming more variable these energy utilities will be searching for a new model to stay in the game,it will then be a matter of too little too late.
    Its began on scale with their prime industrial customers .

  • Harry00

    Just a question. There will be millions of connections in the NEM that probably wont be able to rely on distributed generation for some reason. What affect will this demand reduction have on them?

  • Dissenter

    Don’t complain, be bold, produce and (yes) consume your own electricity. Go off-grid!

  • james2martin
  • Michel Rahme

    If only every Australian could/would read this straightforward informative article – the scope of understanding of what we are dealing with as a nation and global community member would be much clearer.