Rooftop solar. Photo: Giles Parkinson.
I reject the fundamental logic of the present method of calculation of the solar PV feed-in price.
I can understand how the feed-in price is calculated, but the methodology is fundamentally wrong and does not acknowledge the realities of local generation. The regulatory treatment of local network-based ‘community’ batteries faces similar distortions.
At the same time, I recognise that the Essential Services Commission – the regulator in the state of Victoria – must follow specified methodologies – but these are wrong. Government and energy market policy makers must act to fix this.
Most of the time, rooftop solar is fed into the local electricity network, and is consumed locally. As the ESC notes, a PV owner pays full retail prices for electricity it imports and will be paid the (near zero) feed-in price for exports from July.
However, a kilowatt-hour of electricity exported, for much of the time, is sold to a nearby neighbour for the full retail price, and the network operator is paid a ‘postage stamp’ price for use of the network averaged over the whole system, not the actual marginal cost of providing the local network.
How much profit do the network operator and retailer make from this kilowatt-hour of electricity? Should it be treated as a windfall profit? Should the PV owner be entitled to a share of this profit to offset the periods of time when PV output is ‘excess’?
‘Excess’ PV output is relative. PV generation pushes wholesale prices down because large coal-fired generators ‘must run’, and have priority.
Should PV generators be punished because coal generators are not very flexible? Maybe ESC modelling should be based on maximum operation of ‘least cost’ generation, not propping up of fossil fuel generation?
As the ESC states, it considers only wholesale electricity prices (at times when PV exports occur), avoided transmission and distribution losses (which are small), and an (outdated) avoided social cost of carbon. It does not seem to consider the profits made by network operators and retailers and how they should be allocated.
ESC considers the costs retailers avoid when buying PV exports. But they do not seem to consider the profits retailers (and network operators) make when selling that electricity to a customer at 26 to 35 cents or more per kWh. Shouldn’t PV generators get a share?
Local networks are often significantly oversized, to cope with expected peak demand. What is the marginal cost to the network of sending PV output to nearby neighbours relative to occasionally sending it further across the network? A network operator could choose to install profitable neighbourhood batteries instead of investing in network upgrades to cope with negative flows of electricity.
Under the recent change in the National Energy Objective, policy makers must factor in a carbon price, at present around $70/tonne of emissions. If a kWh of PV export avoids the need for a kWh of gas generation, should it get credit for avoiding the social cost of about 4 cents/kWh? The ESC does incorporate a carbon price in its calculation. ESC says it allows 2.49 cents/kWh according to a 2017 ruling. It is now 2025.
The ESC’s suggestion that PV owning households can save more by using more PV output within their properties is not a rationale for near zero export pricing.
As Energy Consumers Australia has found, many people can’t or won’t change their energy consumption patterns. This just seems to be an attempt to shift responsibility onto PV owners.
Is the ESC suggesting that PV owners should be expected to buy expensive batteries with long payback periods to further subsidise the electricity supply industry’s profits? Or to make changes in their behaviour that most other households can’t or won’t make?
The ESC uses St Vincent de Paul analysis to point out that PV owners will have annual bills $655 to $895 less than non-PV households. But the PV owner has paid thousands of dollars for the PV system with a payback period that often is 5-10 years, even after subsidies.
What is a ‘fair’ rate of return for a PV owner? Based on my extensive experience, most businesses will reject investment in energy efficiency measures with more than a 2-3 year payback period. So investors in PV are acting beyond the typical investment criteria applied widely across the energy market. Shouldn’t they get credit for this?
Governments proudly say PV reduces overall retail electricity prices for all retail consumers. Shouldn’t that be recognised? Yet that’s not what is happening.
The low wholesale prices for electricity at times of high solar generation are an outcome of our electricity market and existing generation technologies, and have ‘swings and roundabouts’.
For example, Tas Hydro imports lots of ‘excess’ renewable electricity from the mainland via the Basslink cable at low and even negative prices in sunny weather. This allows them to hoard stored water in dams to generate electricity they can sell to the mainland in winter for much higher prices. That’s how markets work.
But allowing energy retailers to sell PV output for 26 to 35 cents/kWh to a buyer a few streets away from a generator that has been paid virtually nothing, driven by distorted market rules, not real markets, is yet another serious energy market design failure.
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