Why putting rooftop solar on low-income rooftops is an “economic no-brainer”

Rooftop solar subsidies are “no longer required” for most Australian owner-occupier households, a new study has argued, and should be redirected to electricity hardship customers, where they would deliver a better economic and environmental outcome for all.

The study, published in Energy Policy journal by the University of Adelaide’s Tracey Dodd and Tim Nelson, a senior economist currently leading the energy markets team at Iberdrola Australia, compares the net benefits of rooftop PV on low-income homes compared to those for standard customers.

Based on energy consumption data from AGL Energy – where Nelson was previously chief economist – the study compares the profiles of 1000 Victoria-based customers participating in the retailer’s hardship program to those of 1000 generic Victoria-based customers.

The results reveal that putting more solar on “hardship homes” – defined for this study as low-income rental properties – promises to slash annual grid-based electricity consumption by 40%, lower greenhouse gas emissions by 1.6 tCO2e per household annually, and cut energy bills by $2908 per low-income household over 15 years.

“We need to put solar on all low-income rental rooftops, It’s a no-brainer economically and a critical way to progress a just transition,” said Nelson on LinkedIn in a post linking to the study.

As the study explains, this is largely because hardship customers had consistently higher electricity consumption during the day – and thus a higher rate of potential solar self-consumption – for a range of reasons, including more people under the one roof.

This “materially higher” self-consumption of 36%, compared to just 26% self-consumption from the ‘standard’ customer profile, resulted in more of the output of the PV system (the study models a system sized at 3kW) displacing grid-based electricity, priced at $0.27 per kWh.

The resulting net present value for this customer cohort was thus found to amount to $2907.97, nearly $1000 higher than the ‘standard’ customer cohort, and the payback period was averaged at just 4.7 years.

“Put simply, there is a better economic return on investment for society by subsidising solar PV installations for hardship customers,” the study says.

“The returns are likely to be even greater when broader benefits are considered, such as reduced overall household hardship and lower aggregated customer debt.”

But beyond illustrating the many benefits of a more equitable approach to the roll-out of rooftop solar around Australia, the research also claims to “shed new light on the economics of PV in Australia” and, in turn, on the efficacy of current government rebate policies.

According to the authors, in every scenario modeled in the study, the simple payback period for rooftop solar comes in at less than 10 years (see Table 2), compared to existing Australian subsidies, which use an output period of 15 years.

In particular, this raises questions around the federal government’s Small-scale Renewable Energy Scheme (SRES), which the authors describe as “poorly targeted and overly generous” and in urgent need of reconsideration.

“Our results … show that government rebates are theoretically no longer required as an incentive for homeowners who intend to reside in their property for more than eight years,” the report says.

“Indeed, Australian federal and sub-national governments may yield greater economic, environmental, and social benefits if current incentives, which have benefited households who no longer appear to require them, were reorientated toward other initiatives.”

What the authors would really like to see is a revision of the current approach, which provides a standard rebate to all households, toward a structured mechanism that awards PV subsidies based on need and net reduction in energy drawn from the grid.

As things stand, low-income households spend around 8% of total disposable income on electricity each year, compared to 3.5% for average income households, and yet are the least likely of all customers to have household solar, with 7% access, compared to around 20% of other energy customers.

According to the Australian Competition and Consumer Commission, the means that hardship customers wind up faced with electricity bills that are on average 40% more expensive than standard customers.

“Solar PV is now an economically advantageous technology for the ‘standard’ household in Australia, even without subsidies due to the declining cost of solar PV technology and increasing grid-supplied tariffs,” the report concludes.

“Our findings also reveal higher electricity use among hardship households, thereby increasing the economic, environmental, and social payback from deploying solar PV.

“As such, there is a case for reorientating solar PV policy support to hardship households. Further, we show a market solution that could unlock the shared value of PV adoption by low-income households, given the superior economics for this cohort.”