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Clean Power Credit: SolarWorld Americas

Published on May 23rd, 2013 | by Giles Parkinson

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Utilities Want Higher Charges To Shade Business Model From Solar

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May 23rd, 2013 by
 

This article first appeared on RenewEconomy.

The electricity supply industry has resumed and intensified its efforts to change the tariff system for rooftop solar households, in a bid to protect revenues that are falling and their business models that are eroding because more customers are producing their own electricity.

A new discussion paper was released this weekend, “exclusively” to News Ltd newspapers which enthusiastically took up the chance to demonise the cost of renewables once again.

The upshot of the paper is that households with rooftop solar are “avoiding” network costs, and these in turn are being passed on to other users, which the electricity supply industry says are mostly less wealthy households.

Credit: SolarWorld Americas

Credit: SolarWorld Americas

The ESAA estimated the current total of “avoided” costs at $340 million, or around $30 per household.

To put this into context, this sum is – according to the ESAA’s own data – just one eleventh of the cross-subsidy paid by households with no air conditioning.

The ESAA estimates these air con network costs at $330 per household, and it is certainly not “hidden”, because it has been one of the key reasons why networks have been “supersizing” their grids over the last few years, at an aggregate cost of nearly$40 billion.

And herein lies the contraction in the ESAA position. Does the ESAA suggest that air conditioning households should be hit with higher fixed tariffs to pay for network extensions? No, of course not, because the increased use of air conditioners adds to the revenue pool of the electricity industry, and they want to get a return on their grid investment.

The use of solar, however, detracts from the incumbents because rooftop solar households draw less electricity from the grid – leading to the now well documented “death spiral.”

The ESAA wants to arrest this spiral by lifting fixed charges or introducing tariffs for solar households to maintain the revenue pool and protect its business model. This has already begun in several states, and to make itself look like an innocent bystander, the industry has brought the violins to play a song of woe on behalf of the least well off.  But this is not about protecting less wealthy households, it is about protecting the business model of the utilities.

What seems inevitable however is that the industry will one day soon need to change its business model of face the same decline as fixed priced telephony or printed photos. They are fast approaching their Kodak moment.

The ESAA complains that rooftop solar households can cut their network charges by 62 per cent (not to mention their overall energy costs), and says the costs of providing the network are “mostly the same or even more expensive as a result of rooftop solar energy”.

But they need not be. It could, for instance, be more effective to encourage the use of battery technology that would smooth out the output of solar panels, and extend that output into and across the early evening peak. Germany recently introduced a feed in tariff to encourage battery storage. It is the first country to do so.

Solar is causing problems for traditional utilities because it is taking revenue away from the day-time peaks. Extending rooftop solar’s reach into the early evening, and combining it with smart technology, would remove the evening peak as well – and with even more revenue from the incumbent generators, network providers and retailers. But it would certainly reduce costs for customers.

And this is the problem facing the incumbent utilities, as we point out in the article today from SunPower’s analyst briefing last week. Basically, SunPower is saying that the solar industry has barely scratched the surface of the $2 trillion global electricity industry, but intends to “change the game” by introducing battery storage and energy management systems. SunPower, incidentally, owns a share in a small Australian renewables-focused electricity retailer, Diamond Energy.

The Edison Electric Institute, the US equivalent of the ESAA, said in a recent report that solar is changing turning the incumbent electricity industry on its head. It noted that the ability of rooftop solar, battery storage and energy efficiency programs to reduce demand from the grid would likely translate into lower prices for wholesale power and reduced profits. Worse still, customers were just as likely to “leave the system entirely” if a more cost-competitive alternative is available.

The ESAA, on the other hand, seems to ignore this, and simply rails against what it sees as added costs, while refusing to acknowledge the benefits of rooftop solar and distributed generation – both real, as the Melbourne Energy Institute’s Mike Sandiford has pointed out, or potential, such as the $15 billion of savings outlined by the likes of the Institute of Sustainable Futures.

ESAA’s paper, for instance, also reported that the cost of feed-in tariffs is costing around $680 million, which when added to the “avoided” network costs, adds up to a nice round evil number of $1 billion.

The reality is that the retailers have actually done quite well out of the feed-in tariffs, as even the pricing regulators have noted, and they have accelerated this “death spiral” by profiting from a 25 per cent mark-up on the cost of renewable energy certificates, and from being able to sell electrons bought from one households for 6c/kWh to the neighbouring household for four or five times the price.

The retailers, as RenewEconomy noted last month, are also profiting handsomely for mark-ups to electricity bills that allow them “headroom” – or more revenue – so they can offer discounts elsewhere. Even IPART concluded that this meant that households were paying $138 a year more than they needed to. As Kodak and so many other industries can tell us, short term greed is not helpful to long-term business models.

The Clean Energy Council, which is partly funded by some ESAA members, noted on Sunday that the ESAA proposal is like suggesting 20 years ago that people using email should chip in for stamps, the solar industry said today.

“It is no surprise that some of the big players in the traditional power industry are clutching at straws …  to try and discourage the competition they are facing from the emerging solar industry,” said CEC deputy chief executive Kane Thornton.

“It is ridiculous to single out solar power users, who are only one part of a nationwide movement by consumers to take control of their power use and save on the cost of living.

“Suggesting that people who have responded to government incentives to install more efficient appliances or  generate their own clean energy are somehow cheating the system is a self-interested grab from old energy businesses looking to turn back the clock to preserve their out-dated business models.”

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • Mark W

    We need carbon loading for grid connected solar powered homes.

    What was reported in a newspaper today and what I discussed before was on the same principle the inadequacy and equilibrium charges is not within the system when applied to grid connected solar powered homes. The governments now are underlying to address this immediately.

    Australian news paper, National affair has reported titled “solar price rise to end power divide”.

  • Mark W

    The argument is well and good, but the distribution network is facing a financial crisis.

    I don’t see a problem with grid solar power users paying their fair share, they have no basis for exemption, grid solar power is not an excuse to not pay a contribution to the network.

    I don’t like to see companies and manufacturing in this country go to the wall, power prices force big banana to close its ice rink with a $15,000 per month electricity bill because of high cost of electricity passed on like grid solar Power.

    Households without solar power are in financial crisis 23,000 households in NSW had their electricity cut off up 25 percent from last year, this is also confirmed through the Salvation Army’s reports yesterday that working class families are dependent upon charity handouts in order to pay their utility bill. I’ve never seen such an electricity crisis unfolding before this country.

    As I say again my argument is solar powered users of the network need to contribute the amount by way of carbon loading to equalise the inequality of the power distribution network is only fair.

    • Bob_Wallace

      I looked through the recent comments, Mark, and I don’t find where you have so far stated what you think is the cost to Australian homeowners caused by solar on the grid.

      Giles says it’s $2.50/month. Less than ten cents a day.

      And, clearly, having that clean solar power on the grid has saved rate payers money. It means that less very expensive fossil fuel peaking power has been purchased. Savings to all rate payers. Less carbon burned. Full accounting would likely show that more solar on the grid has been a negative cost.

      Rising electricity costs in Australia are due to more people adding air conditioning. $27.50 per month per household. Those new air conditioners are increasing the amount of electricity needed. The amount not covered by other people installing solar is going to be supplied by burning more fossil fuels and putting more carbon into the atmosphere.

      IMO, you’re trying to blame the people who are doing something good for the problems created by others.

      Encourage solar. Even if it might cost people a few pennies per day.

      As the climate continues to warm AU is going to install more and more air conditioning. Make sure solar and other renewables come on line faster than new AC. Sticking with fossil fuels is going to cost you many dollars per day.

      • Mark W

        No, solar energy has not reduced ratepayers costing, but only for those with solar power.

        Clearly, not the situation, what you got to under stand is the network distributions cannot run for free and grid users need to pay there way fair and equal amount which is currently not.

        You are failing to acknowledge its solar power is prone to drop out time, solar powered dropout period have a high tendency to draw energy from the main grid carbon loading. Acknowledge the situation solar powered homes are not independent, and until such time expect them to paying their fair share of network charges. Some reason you believe exported energy should be exempt from any carbon loading even though the home reliance on fossil fuel at all time needed to sustain its functioning operation.

        Put this to you, and I said this before, prior to the installation of rooftop solar power, solar powered homes had no problems paying the equilibrium charges that everyone else paid.

        Quite clear Bob what they need to pay its economics of the infrastructure. Infrastructure needs to be maintained, cannot be propped up by other users on the network, it doesn’t work that way.

        You’re talking about economical chaos theory, which everyone can be on the network without paying, free from charges; the network would be self-sustaining under your chaos theory.

        And as pointed out before previously, Australian workers are getting disconnected up by 23,000 in one state alone of New South Wales for electricity. It’s well documented that non-solar power households like single elderly persons are paying in excess of $1500 a quarter, it’s quite clear that these people are subsidising underwriting the financial situation of solar power homes.

        • Bob_Wallace

          Do you understand that less of an increase is a savings?

          Do you understand that when solar is providing electricity less carbon is being burned? If no one had installed solar even more carbon would be burned than is now burned.

          If Australia is like the rest of the world it costs more to supply peak power, the extra generation that gets used only when demand reaches maximum. By some putting power on the grid from their solar panels they lower the amount of peaking power needed. That cuts the overall cost of electricity.

          Here, let Zack show you how even a modest amount of solar can drop the wholesale price of electricity.

          http://cleantechnica.com/2012/03/23/german-solar-bringing-down-price-of-afternoon-electricity-big-time-more-charts-facts/

    • Ross

      What is a fair contribution needs to be independently determined. It should be less than what the grid monopoly is looking for and should in no way thwart the deployment of solar and other renewable power sources.

    • Ronald Brak

      Just one point for now: About 14% of Australian households are low-income. If you are interested in helping them, why not just give them a few kilowatt-hours of electricity for free each day? This can be paid for by an increase of less than 1% in the cost per kilowatt-hour of electricity for everyone. Or if you don’t want to raise the cost of electricity at all, we could pay for it with an increased tax on pokie machines and low-income households could get back some of the money that’s fooled out of them.

      • Mark W

        But that would exempt solar power users from paying, ESAA is saying not paying there fair share.

        But look what you said, but the 1% tax would be avoided by solar power users, that not the solution to be applied. It’s more than 14% of low income households in Australia.

        Few free kilowatts would not meet their energy needs, nor make any difference to their energy bill. Best solution, is someone has to now subsidise free solar panels to low income households, by issuing more renewable energy certificates, so other houses will have to pay a bigger proportion of the network charges. Those non-solar power users and businesses will have to pick up majority of the renewable energy certificates on their accounts with higher surcharges on electricity.

        The good news the poor people will be joining the solar club and not paying any further network charges or electricity bills.

        However,

        This is wear we are encountering problems, there will be a loss of revenue, and further mass layoffs at businesses and factories, then the government will have to step in, and put further higher electricity charges, then that could backlash upon grid solar powered homes users. “That would lead to grid solar power solidarity tax”, “would to lead carbon loading tax”, or “would lead to surcharged just on solar power alone” or “even network charges for exporting solar energy”.

        Example, a 1500 Watt system will have to pay $1800 a year, & 5kw solar system will have to pay $5200 a year to be connected to distribution network, just like car registration goes on the vehicle mass weight or Council rates which based a figure on the value of the land, the same taxes would apply with grid connected solar systems on the network.

        • Bob_Wallace

          Why do want solar panel owners to pay more when what they are doing is improving things?

          If some people weren’t putting panels on their roof then even more expensive generation would have to be brought on line, more grid improvements would be needed, and even more carbon would be pumped into the atmosphere.

          It’s the people who are adding AC and not installing solar that are costing the others money.

          • Mark. W

            Bob see reply top screen

            Australian news paper, National affair has reported titled “solar price rise to end power divide”.

        • Ronald Brak

          You believe that giving free electricity to low income households will not make any difference to their energy bill? Is that really what you believe? You might want to check your maths on that.

          • Mark W

            Ronald you did actually asked the question you stated a few kilowatt-hours of electricity for free each day. “few kilowatts”.

            According to the Collins dictionary the definition of few is, “hardly anything”. I didn’t need to do the maths on that. And I couldn’t see giving 2 free kilowatts a day would help their situation. Your talking about the energy required to toast the bread or a cup of coffee it doesn’t cut the mustard. But we are talking about an individual person not the whole of Australia gets to few kilowatts only. You know what the media would make of this discussion.

            I think we need to be more compassionate about their financial position therein, through mismanagement of the infrastructure. Maybe we have to exempt them from renewable energy charges.

            The problem we face right now is that we going to an election basically based upon electricity cost as media claims. We’ll have to wait and see what happens then, whether the opposition’s claims they can reduce electricity cost or massively increase electricity costing, we have to wait and see, no guarantee from new governments will have sympathy for poor people. We are still left with those 23,000 people which been cut off in New South Wales alone at the door of Salvos under New South Wales government policy.

          • Ronald Brak

            Wow. You don’t know much about electricity consumption in Australia, do you? The average Australian household size is 2.4 and in my area uses about 14.8 kilowatt-hours per day. If a low income family used this much electricity and was given 3 kilowatt-hours for nothing a day it would cut their electricity bill by 20%. Your suggestion of exempting them from renewable energy charges would reduce the average Australian household electricity bill by only about 1.5%. Do the sums or look it up if you don’t believe me. You say you don’t need to do the maths on that but it’s exceedingly obvious that you do. Some people can’t do primary school maths and that’s no sin. The real is is being able to add, subtract, multiply, and divide but refusing to do so because one believes one’s opinion trumps reality. If you want to be taken seriously, do some maths, check my result that three kilowatt-hours of free electricity a day will reduce an averaged sized Australian household’s bill by about 20%, and admit you were wrong. If you can’t do that then it’s clear that you’re just here to whinge.

          • Ronald Brak

            I think it’s possible for me to add an image. If I just squeeze this nodule here, sprinkle a little fairy dust there… Got it!

          • Ronald Brak

            (Now, let’s see if a certain someone is capable of doing some primary school maths and spotting the mistake I made.)

          • Mark. W

            Ronald, see my reply above top screen

            Australian news paper, National affair has reported titled “solar price rise to end power divide”.

          • Ronald Brak

            So you’re not going to do some primary school maths and you are going to stand by your statement that giving low-income households a few kilowatt-hours of free electricty a day isn’t going to lower their electricity bills? Do you enjoy being laughed at, or are you just adverse to gaining credibility? If you are instead simply embarrassed because you have dyscalculia, I can give you some tips on how to work through the math.

          • Mark W

            I was held back at a meeting today, wasn’t able to address you as I was dealing with two new publications in the news and I was underlining the problem with grid solar power.

            It’s too late Ronald, Gonski education reform doesn’t have the answer in this technical area of grid solar power, and it’s too late for Gonski to help you.

            In the absence Gonski educations reform, I will have to endeavour to fill you in. Before you start criticising people on mathematics, I’ve noticed a fundamental flaw in your graphical error on your behalf, of your chart applied, and you didn’t pick it up and rectify that situation before applying that chart.

            The calculations could not proceed until such figures are applied to it, therefore misleading.

            Melbourne & Sydney had the largest increases in retail electricity Melbourne 84% and Sydney 85% up to 2012. Now the new price rise coming in on 1 July 2013 will have to be adjusted for this year.

            Ronald you are very generous you up your figure by 1 kW bring it now to 3kw a day, which a small amount of energy, remember what I said to you before, just imagine what the media’s thinking about this conversation. Any how you are suggesting poor people of Australia only use 3kw a day for there daily activities. It’s barely enough energy to roast a chicken or cook anything, 1 cooked meal.

            That leaves them now without hot water, given the average hot water system takes around 15-20kw a day kW based upon temperature individual climate, would be a lot more in Tasmania .

            What are we doing for the poor old elderly low income households winter heating situation in there homes, given the 3 kW was used up cooking up the chicken half cooked. Let’s hope in the other half of uncooked chicken there are no bacteria within it.

            However, mathematically your calculation doesn’t work, your 3kW a day cannot run the household heating application. Your 125watts over the 24hour cycle doesn’t mathematically add up to the loading of the house.

            Your program of 125 watts rollout would have the media lighting up every switch board in the country and would be over loaded.

          • Ronald Brak

            Still not doing the maths, Mark? Looking up the daily electricity bill of the average low income household and seeing if three kilowatt-hours of free electricity would cut it by about 20% has got to be easier than writing hundreds of words. If you have trouble with the math you can show your working and I’ll check it for you.

          • Jim

            Do you math on this, Qld government said, commonwealth grid solar power green scheme add 18.9% to power bills, your figures are wrong, solar power is driving the cost up.

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