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Victoria town’s breakthrough deal on network tariffs as it pursues 100% renewables  

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A small Victorian town that is hoping to achieve 100 per cent renewable energy as early as 2020 has achieved what appears to be a groundbreaking deal on network charges that could pave the way for similar projects around the country.

Newstead, a town of less than 1,500 people in central Victoria, has negotiated new network charges with its electricity distributor, Powercor, that will remove some of the hurdles of building a small solar farm and sharing the output with the community.

The two-year trial on new network fees will mean that the community can install solar and share the output without being hit by further network charges for each kilowatt they consume.

Equally importantly, they appear to break the nexus between lower energy use and soaring grid charges, and will help ensure that everyone benefits from a local renewable energy transition, and not just those who can afford it.

The changes in the network fees are quite technical, and just part of the huge complexity around electricity charges that has contributed to huge confusion among consumers, and great-profit making by energy utilities.

Powercor tariff structure – please click to enlarge or find the original here: https://powercor.com.au/media/3465/2018-powercor-network-tariffs.pdf

The Powercor tariffs – specially constructed for the people of Newstead, but with a broader energy market transition in mind – introduce a fixed daily network charge of $1 day, and a monthly “demand” charge of $2/kW. It completely removes fees based on kilowatt-hour consumption.

Tosh Szatow, from energy consultants Energy for the People, which has been advising the Newstead community group, Renewables Newstead, says the new tariffs will have two significant benefits.

One is the way it will make community-owned solar farms, and sharing that solar output, more attractive, because it will eliminate the perverse incentive for individuals to preference rooftop solar, over a shared solar farm, despite the latter option having a lower $/kW installed cost.

The second is that the presence of fixed charges, and the elimination of usage charges, will encourage people to “fuel switch” from bottled gas and wood to a grid which the local community hopes will be 100% renewables within a few years.

It’s a development that should not just benefit the community of Newstead, but also the dozens of other communities around the country which are looking to follow a similar path to 100 per cent renewable energy.

The new tariff means that more electricity can be consumed – from, for instance the local solar farm – without incurring further distribution network charges (which usually make up nearly half of kWh charges), thereby lowering whole of energy costs for households. The only caveat is the demand charge, which means households should avoid switching on everything at the same time.

“We think it’s a major, positive shift for decentralised solar, and if we could get some regulatory sense on customer retail contracts, we could basically lock in gradual declines in prices for loyal retail customers over next 10-15 years,” Szatow told RenewEconomy. “It’s a good policy win.”

Network charges have been a major component of consumer bills for the last five years, accounting for most of the huge bill increases and around 50 per cent of the bill in some cases.

The situation is getting worse for some consumers because as the overall usage goes down – because of energy efficiency and the uptake of rooftop solar – there is upward pressure on network fees, particularly on fixed charges. This has punished low energy users the most, particularly those without solar.

Szatow says that the community of Newstead asked itself: “How do you transition to 100 per cent renewables in a way that ensures everyone can benefit, but not lose out, while maintaining personal choice?

“For the community of Newstead, going 100 per cent renewable is a social project, not an engineering one. And the big question was, how do you pay for distribution assets as a community, equitably, in a world where rooftop solar, and soon batteries, is becoming dominant?”

The Powercor network in Newstead is unconstrained, which means Newstead consumers could use a lot more energy, with no new investment needed in the distribution network to facilitate it. That is the basis for charging zero on a kWh consumed basis. It will encourage consumers to switch fuels from gas and wood burning, to electricity, without incurring more distribution network charges.

Powercor secures its regulated return on capital through the $1/day charge per residential customer, and manages peak demand through the $2/kW per month charge for peak capacity. (In a network with big constraints, perhaps more could be charged to encourage greater uptake of solar and battery storage).

The zero charge per kWh consumed means that it no longer matters where you generate renewable energy. The energy sourced from a solar farm now no longer carries a 10-12c/kWh distribution cost for sharing it among local consumers.

That puts a local solar farm on a par with rooftop solar, and means that people who can’t put solar on the roof, or can’t or don’t want to make the upfront cost, are not penalised. A 2MW solar farm near the township can deliver their 100 per cent renewable energy needs.

Don Culver, a key member of the community group pursuing these changes, says the tariff change would not necessarily save residents money in the short-term, but would ensure that cross-subsidies were removed.

“It means, longer-term, we can make sensible investment decisions as a community as to where the (solar) panels are best put,” he told the local newspaper recently.

“Building a local solar farm is the lowest-cost way for Newstead collectively to get to 100 per cent renewable. It means the greatest benefit is shared by all,” the community group says.

Will a new tariff be enough to transition Newstead to 100 per cent renewables?

Szatow says a new network tariff alone will not be enough, but it does create a sensible economic foundation for investment in decentralised renewables, and for that we should be thankful.

There are a couple of improvements to be made.

For one, regulations currently allow retailers to “lease” rooftop solar to households with a 10 year contract, but prevents them for doing the same contract for a community-owned solar farm. It’s a perverse incentive to prioritise rooftop solar that needs to be addressed.

Secondly, the fixed tariff could be refined. Szatow says a “graded” structure, say charging a lower fixed cost for households that consume less, and a higher fixed cost for those that consume more, would be fairer. But this new trial tariff is still a major step forward.

“It’s a first step to getting a fair foundation for distributed renewables. It’s not the final solution, but it’s a great development.

Newstead is hoping to get to 100 per cent renewables by 2020. It has received funding support from the state government, and support through an MOU with Powercor through data-sharing and negotiations on pricing such as this.

The projects preferred retailer, Diamond Energy, is expected to launch new offerings based around this new network pricing deal later this year. It has asked 448 of the town’s 560 households to complete a survey on energy usage by Macrh 23, so it can look at its options.

And, all going well, a 2MW-3MW solar farm – enough to take the town towards 100 per cent renewables – could be built by the end of next year.

“Building a local solar farm is the lowest-cost way for Newstead collectively to get to 100 per cent renewable. It means the greatest benefit is shared by all,” the community group says.  

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  • Jon

    This is a major breakthrough to let community co-op solar farms become a reality.

  • Mark Byrne

    I’m all for tariff reform, so I hope it works, but let’s be clear (in spite of the unreadable tariff schedule image): this represents a TRIPLING of the current fixed daily charge. And that’s before retailers do their own markup.

    • joono

      It will be good once RE gets it together to publish images of a suitable quality

    • Tosh Szatow

      we will be working with a partner retailer to ensure the network tariff is passed through as is as part of a 100% renewable offer to locals

    • Tosh Szatow

      probably worth noting the c/kWh charge has been reduced by a factor of infinity, to compensate for the tripling of demand charge 🙂

  • Rob Passey

    Unfortunately I suspect that Powercor will be laughing all the way to the bank with this. It’s managed to achieve exactly what the networks have been wanting to do for a long time – move everyone across to a very high fixed charge and away from the per kWh charge in order to reduce their risk. This is of course completely understandable, and I see why they’re doing it. But lets call it what it is.

    A few things to note.

    1. The per kWh charge they are avoiding is only 3.7c/kWh (incl GST), and is being replaced by a $1.08/day (incl GST) unavoidable fixed charge.

    2. This is very regressive as it means that no matter how much you reduce your electricity use you will still have to pay it. Which of course means it locks in cross-subsidies from people who use less electricity to people who use more.

    3. Everyone will still have to pay the retailer’s per kWh charges (which will be much greater than the avoided 3.7c/kWh), so it’s simply not true to say that removing Powercor’s per kWh charge eliminates the incentive to invest in rooftop solar over a shared solar farm.

    4. It’s also possible that people will think they can use more electricity and so will unwittingly increase their demand peaks and get nailed with the demand charges.

    • Tosh Szatow

      Hi Rob,
      1) the kWh charge being avoided is not 3.7c/kWh. I am not sure where you get that assumption from?
      2) Yes it is regressive when looked in this way, and the article notes there is room for improvement. However the tariff does address concerns that solar, and/or solar and storage customers, are leaving others to pay for the distribution network – which becomes very problematic when trying to get to zero emissions with rooftop solar for example, while still needing the grid for backup
      3) With respect, I think you have misunderstood. The new tariff means that as a community, the incentive is to deploy renewables in the way that delivers the lowest c/kWh energy supply regardless of whether it is on a roof or not.
      4) Yes this is possible, and support will be provided to help ensure people make the most of the tariff. We also need to remember that using more energy can deliver very positive social and health outcomes. Many people under consume in winter and summer and suffer because of this.

      • Barri Mundee

        And now an initiative such as this needs to be spread as far and wide as possible. Among other issues it addresses the accusation from some solar nay-sayers that low income groups cannot access the benefits of solar.

        • Tosh Szatow

          yes, not just access for low income but also for people that don’t have the right roof, have overshadowing, won’t be around to recoup rooftop solar investment etc… I think the pros outweigh cons on this, we weighed them all carefully

      • Rob Passey

        Hi Tosh,
        1. I was comparing it to the standard residential demand charge (which seems reasonable), so to be fair I should also have pointed out that they aren’t just being lumped with a $1.08 daily charge in exchange, it is a smaller increase from the 38c day charge under that tariff. I could have compared it to the 8.77c/kWh on the standard tariff, but this doesn’t have the demand charge component.
        2. I don’t think it’s that simple. There is a lot of work showing that solar customers reduce the costs of non-solar customers by both reducing network peaks and through the merit order effect. e.g. the recent Vic solar tariff work. I think that if we want really cost-reflective tariffs we need to bite the bullet and implement some sort of coincident demand charges (see below).
        3. OK, but I think the retailer tariffs will still mean that behind the meter solar has a better rate of return.
        4. That’s a good point. I think it would be a good idea to have some sort of ‘grace’ period where people get told what their demand charges would have been and why – just to avoid any shocks.

        And of course, instead of just criticising I should put my own ideas on the line! What I’d like to see is some use of coincident demand charges and automated controls which will reduce demand peaks, which combined with increased electricity used driven by EVs, will increase utilisation of the network, which under the revenue caps will decrease tariffs for all. Am I dreaming? 🙂

        • Tosh Szatow

          1) ultimately retailers and customers will have freedom to choose whichever distribution network tariff they like. We modelled real energy loads and tariffs for about a dozen customers including low volume users and were comfortable we could save them $ on bills
          2) merit order effect is a red herring in this instance – we are purely referring to distribution costs. Newstead is an unconstrained network – solar has no real value in reducing local network costs – perhaps some system wide benefits but very hard to capture unless someone is willing to sign a contract with a DB to provide network services, and the capex gets avoided or delayed.
          3) No, behind the meter solar and front of meter solar deployed within the local network will be on an equal footing under this new tariff. Just comes down to the lowest capex/opex – we have quotes for 2MW solar farm that can’t be beaten by rooftop solar without claiming the rebates, and even then, its about the same even with rebates to rooftop solar.

          We also think coincident demand charges a good idea but challenges are defining at what scale to apply them – there is some operational complexity there but a good idea. Agree we should be increasing network utilisation where it makes sense to keep the network

          • solarguy

            Tosh, In regard to roof top and solar farm costs, what about land acquisition costs and rates, etc, is it still cheaper then?

          • Tosh Szatow

            we don’t have final land acquisition and grid connection costs, but based on some sensible estimates, it looks very comparable on a $/kW installed basis – and thats with rooftop solar getting the up front rebate

          • solarguy

            Thanks Tosh, Will you be looking at storage in the future? Have you been offered a FIT from Diamond?

          • Tosh Szatow

            yes we are exploring what value storage may have with Diamond. FiT and underlying retail tariff yet to be finalised – we will all be crunching data in the coming few weeks/months with a view to finalising offers come July when tariff goes live

    • Tosh Szatow

      probably also worth pointing out that the tariff has been modelled against the towns energy demand using the smart meter data and there is no increase in revenue being paid to powercor due to this tariff, so no, there will be no laughing to the bank for them, just a more sensible way of securing their regulated returns

      • Rob Passey

        Yep, I regretted saying that even as I sent it. I agree they won’t be laughing all the way to the bank – especially under revenue cap regulation. Still, it’ll be interesting to see some analysis of how people’s electricity bills do end up changing. I’m just concerned that it will be the lower income households who have no way of avoiding the daily charge who suffer.

        • Tosh Szatow

          i think the next evolution of this tariff should be to go to inclining block fixed charges. So say 50c/day if you are using less than 2000kWh, 75c/day if using say 2000-3000kWh… etc Would deal with this issue I believe

  • Andy Saunders

    Giles, the table is unreadable – could you possibly replace it with a higher resolution one?

  • MaxG

    They should have created a co-op, bought the grid and battery and do heir own thing.

    • Tosh Szatow

      Easier said than done Max

  • itdoesntaddup

    So in a 30 day month you could pay $30+2 for 24×30=720kWh or 4.4¢/kWh, or 30+4 for 1440kWh or 2.36¢/kWh. If your peak demand is say 15kW, which would cost $30+30, you have $28 a month towards the cost of a battery system, or $336 a year. I think I’d choose another aircon unit instead.

    • Tosh Szatow

      Most households in this area will have peaks of 3-6kw. Not entirely sure mining bitcoin is a good use of any energy, let alone clean energy, but perhaps we agree to disagree…

      • itdoesntaddup

        How will you cover when the sun isn’t shining? Or do you mean by 100% renewables that your solar farm will be exporting to the rest of the grid during the day, and the town will import from the grid at night?

        I think you may find the price incentives you create have some perverse consequences. See “cash for ash”.

        • Tosh Szatow

          yes, the model is to stay grid connected. Cash for ash scheme seems to rewarded people with 1.60 for every 1 they spend – https://www.irishtimes.com/news/environment/q-a-what-is-the-northern-ireland-cash-for-ash-scheme-1.2907866 ? The model we have created has no subsidy for renewable energy production or consumption. I don’t see the connection

          • itdoesntaddup

            You are offering energy for free. Think about my Bitcoin mining example.

          • Tosh Szatow

            No, there will still be a kwh charge for generation, transmission etc. The cheapest kwh will be local solar

          • itdoesntaddup

            So the article doesn’t reveal the whole story.

  • Jon

    This sort of network tariff innovation is only possible because of the smart meter rollout. I’m sure many more of these tariffs will evolve over time.

    • Tosh Szatow

      Agree entirely Jon, we need to start somewhere, things will improve from here

  • neroden

    This is an excellent structure for pricing the distribution network. After all, it really only has fixed maintenance costs and costs if the peaks get too high — the distribution network should never be charging per kwh delivered.

    • Tosh Szatow

      Thanks Nero, yes it made more and more sense to us the more we analysed it

  • solarguy

    It’s a good start, however 100% renewable won’t be achievable with only 3MW. That works out to be 21Kwh per household. Some will use more and some less. No mention of storage and in any case, there won’t be enough production from the solar farm to charge a battery to supply 100% RE, 24/7, 365 days.

    • Tosh Szatow

      we have the aggregated smart meter data for the town, 2MW gets to 100% renewable – not 100% of the time, that is not the goal.

      • solarguy

        Look I know what you mean Tosh, it’s just the head line and the bulk of the article states 100% renewable. Some what misleading, for instance I can confidently and proudly say that my home is 100% renewable, 100% of the time because of the size of the array and the size of the battery, even in bad weather events we wouldn’t and don’t need the grid.

        • Tosh Szatow

          is it misleading? or do we just have different interpretations of meaning?

          • solarguy

            You can call a dog a duck if you want, but it will always be a dog. That’s the reality!

            As I said I know what you mean and I know what your goal is. That is applauded, not criticised, just don’t call it 100% when it can’t be.

            So yes it’s a misleading statement.

          • Peter

            Hi Tosh, your definition is not misleading but it is economically efficient. The combination of local (distributed) and centralised sources/supply creates efficiencies across the system. Designing networks/systems for rare or very infrequent events when there are multiple diverse supplies that account for these events may not be optimum.

  • Michael

    Hi team,

    The commentary seems confused about the impact of fixed charges except for Mr Passey and Mr Itdoesntaddup. High fixed charges encourage increased demand (use as much power as you like, pay the same amount as an efficient house), are highly regressive (large consumers get a much better deal than low consumers) and eliminate the need for utility innovation (why bother? they get paid regardless of the service). I dont see where there is any incentive to introduce community solar under this system.

    • Peter

      The fixed Tariff for grid supply does not make sense – no demand incentive for consumers, no supply efficiency incentive for the energy company, no opportunity value for people with solar energy in response to deferred demand for grid energy. This is a highly economically inefficient outcome that may become a major disincentive! Our 3 kW of solar panels and 7 kW battery storage reduces our demand for grid energy by 96% at an annual saving of $2,200 that is increasing in real terms due to rising grid energy prices

      • Tosh Szatow

        Hi Peter, but you still need the grid? Networks get a guaranteed rate of return on capital, so in an unconstrained grid like newstead, you would just be shifting network costs onto others

        • Peter

          Hi Tosh, local reductions in demand, including peak demands, create benefits across the entire system by reduce need to supply energy via inefficient networks, build new infrastructure, operation and maintenance costs, and so on. The operation of local supply within the grid actually has a wide footprint of benefits. Grid electricity is a market (albeit an oligopoly – dominated by a small number of firms) and responds to supply and demand – there is unlikely to be guaranteed rate of return and such a concept is irrelevant to this project or a market that responds to supply and demand – but energy companies want guaranteed fix revenue rather than responding to increased competition – it is known as rent seeking. Our house has eliminated all peak discharges and almost all demand for grid energy – with substantial upstream benefits to the grid and to us – this is a text book case of economic efficiency, whereas fixed charges are not economically efficient to anyone.

          • Tosh Szatow

            Hi Peter, we are only talking here about benefits to the distribution network, not the entire system. In newstead, there is virtually zero value to the distribution grid in reducing peak demand, hence why peak demand charges are $2/kW/mth. Demand for energy can grow in newstead, with no need for new distribution network infrastructure – no upgrades planned for at least 10 years.

          • Peter

            Hi Tosh, in the medium run, all costs are variable and assumptions about fixed costs dependent on the perspective of the analyst and the firm – utility companies will always claim high fixed costs whilst also claiming high demand effects. For, example, arguments by energy companies to regulators for increases in tariffs for new, renewed and replacement distribution infrastructure are always based on increased loads (demands) or a combination of loads and age. These costs are simply not separate to demand or only local as claimed. However, we need both our energy companies and distributed interventions to reduce economic and climate change impacts on everyone – so well done. It would be great to see a more economically efficient pricing model and a small local battery storage – as we learned from South Australia (and most systems scientists understand) – small storages in the network produces far larger cumulative benefits that simply adding up the peak demand.

        • Peter

          Hi Tosh – final issue is that our house supplies more energy than it uses to others connected to the grid. This is highly likely to also happen for your network – your town may also provide additional energy to others connected to the grid due to mismatch in local supply and demand processes – this is a network benefit

      • solarguy

        You must have low energy needs Peter. Can you tell me what appliances you use and load demand?

        • Peter

          Not at all Solarguy – all electric with Aircon and clothes dryer – with water and energy efficient appliances, rainwater harvesting – and we have long term detailed monitoring published and peer reviewed. The key insight is that a house is a systems rather than the sum of assumed uses for each appliance and the additional of storage further enhances the systems benefits. Our house also provides more energy than it uses to others via the grid.

          • solarguy

            And so because of what you said above, with a 3kw PV array you must have low energy needs, otherwise a 3kw system wouldn’t do it for you, especially in light of the 7kwh battery.

    • Tosh Szatow

      Because the cheapest kwh will come from a local solar farm that everyone can benefit from, particularly when demand is matched to supply. Everyone can save with this tariff, even low energy users. Feel free to run scenarios and show us your calculations. Personally I do not have an ideological problem with people using more energy, particularly the elderly who so often sacrifice quality of life and health outcomes trying to save $ on energy