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Published on May 23rd, 2013 | by Giles Parkinson

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Utilities Want Higher Charges To Shade Business Model From Solar

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.



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