Everything Victorian households need to know about proposed changes to solar

Living Well | Peter Barrett | RACV | Posted on 13 July 2021

With some solar households unable to sell excess power back into the grid, further drops in feed-in tariffs from July, and even a proposed new tax on the horizon, does solar still stack up in Victoria?  

Australians love solar. We have one of the highest uptakes of rooftop solar globally, with 2.6 million homes and businesses already turning sunlight into power, a rate predicted to rise to one in two homes within a decade. In Victoria, 500,000 home systems generate almost a third of the state’s residential electricity demand. 

Generous state government subsidies and interest-free loans have encouraged uptake. Solar feed-in tariffs (money paid to solar system owners for exporting excess power back into the grid) have also provided an incentive.

But these tariffs have been steadily dropping. And because our grid was designed for consistent ‘baseload’ electricity, and variable renewable energy can impact on network stability during the day, some solar households have even been finding they can't export anything at all. Meanwhile, a new proposal to charge solar panel users for exporting their excess power has been labelled by some as a ‘sun tax’.

So how do the numbers stack up?  Is rooftop solar really still worth it?

Put on your sunglasses and let’s tackle a few of your burning solar questions.   

Rooftop solar energy

Rooftop solar energy. Is it still worth it? Image: Getty. 


What are feed-in tariffs exactly?

Feed-in tariffs are minimum payments energy retailers pay to solar system owners for the excess power they export back into the grid. Benchmark rates are set by the Essential Services Commission, began in Victoria in 2009, and were designed to encourage the uptake of solar to meet the Commonwealth Government’s Renewable Energy Target.

Tariffs started generously at 60 cents per kilowatt-hour (kWh), allowing some households to pay nothing on their electricity bills. Others even went into credit. Since then, tariffs have been steadily falling. The latest cut, which came into effect on July 1, sees minimum rates dropping from 10.2 cents per kWh to 6.7 cents. At the same time, the price of installing solar technology has also been dropping substantially.   

So why are they falling?

Each year, the Essential Services Commission calculates the minimum feed-in tariff based on forecasts for wholesale energy prices – the price that all energy producers, including large scale fossil fuel generators, sell their electricity for. But it’s a competitive national market, and the rules of supply and demand apply.  So as solar technology has improved and the installation cost reduces, it’s no surprise that the uptake of solar systems has also increased.

Put simply, more energy supply means lower wholesale prices, lower feed-in tariffs, and ultimately, lower returns on your excess solar power.        

Why can’t everyone sell power into the grid?

The Australian east coast grid – the poles and wires that connect electricity generators via high voltage lines to transformers and then to your home – stretches from Queensland to South Australia.

It was initially designed to send power in one direction: from huge coal-fired power plants, often hundreds of kilometres away, to neighbourhood streets and homes. Solar systems now make it possible to send electricity back into the grid, but sending too much can destabilise it.

To protect the grid's stability in areas where there is already high solar uptake, power companies sometimes err on the side of caution and prevent households from exporting any excess solar power at all. However, with solar technology advancing quickly, new capabilities could provide the flexibility that grid operators need to do away with these zero solar export rules.

What’s this so called ‘sun tax’? 

Set up by Australia’s state energy ministers, the Australian Energy Market Commission (AEMC) makes rules for the national electricity market. Earlier this year, AEMC chief executive Benn Barr revealed a proposal to allow electricity networks to charge solar panel owners for exporting their excess power back into the grid at certain times of the day. It was perceived by some as a simplistic slug on solar households and reported in the media as ‘sun tax’. But Barr thinks that’s unfair. He says they are proposing three things: 

  1. By recognising ‘export’ as a service, they hope to make power networks more accountable, so they invest in better, two-way electricity flow infrastructure. 
  2. By rewarding people for sending power when it is needed and charging them when it isn’t, thus encouraging consumers to use the grid efficiently and getting them to self-consume more of the solar power that their system is generating. 
  3. Put rules in place to protect consumers, options for customers and flexibility (some networks have more capacity for solar exporting than others).  

But why these changes now?

The rapid uptake of solar is transforming the power system, which is excellent for renewable energy, but it’s creating challenges to the infrastructure. “If we want more solar more often,” says Barr, “we have to spread out the supply of solar right across the day – if we can do that, more renewable energy will come into the system.” If we do nothing, he says, either the limits on people exporting their power will increase, or we could build more network infrastructure. But both options would end up costing consumers more money and wouldn’t pump more renewable power into the grid. “We think the solution is to use the poles and wires we have in a smarter way. There will still need to be investment, but it will be less costly.” The changes, he says, are at least three years away.

Rooftop solar energy

Over 20 per cent of Australians have solar. Image: Getty. 


Is rooftop solar still worth it?

Absolutely, says RACV Solar CEO Andy McCarthy, adding that the real test is to track how long it takes to recoup your investment. "Originally, it was extremely expensive to install a five-kilowatt system, maybe $18,000 or $20,000. But you were getting potentially $1000 or $1500 back in credit during summer for exporting into the grid at [a feed-in tariff rate of] 60 cents. Everyone dumped their solar into the grid during the day, and then they used their energy after the sun went down." Now, says McCarthy, solar systems are up to a quarter of the price they were 15 years ago, despite feed-in tariffs dropping towards five or six cents per kilowatt-hour. But by using more solar during daylight hours with smart technology and changing their behaviour, people are saving more money on their power bills, making the income from tariffs less important. "At the end of the day, the return on investment back in the early days of the 60-cent tariffs was around about seven to eight years. These days, it's closer to five years."

What can you do with excess power if you can’t sell into the grid?

Right now, less than 5 per cent of Australia's 2.6 million solar-powered homes have batteries, but more widespread uptake could be a gamechanger. This is because batteries can store power generated during the day for use at night, at peak times when electricity from the grid is more expensive. "The beauty of putting in a battery is feed-in tariffs become irrelevant," says McCarthy. "Because you can use your renewable energy at two o'clock in the morning if you want to."

Although battery costs haven't reduced at the same rate as solar systems, a means-tested rebate in Victoria has helped make them a more attractive prospect. McCarthy says that between one in three or four households are currently installing batteries with their solar systems. "But that's growing exponentially. There were about 31,000 batteries installed in 2020, which is about a 20 per cent jump from the year before. I would be very confident we'll see a 30 per cent increase this year from the numbers I'm seeing in the first four months." And if you have a battery, you may also be able to join a virtual power plant (VPP) and make more money.

Virtual power plant?

Virtual power plants combine networks of home batteries with software that sends power back into the grid when demand and the price of electricity is extremely high. Under the arrangement, retailers usually pay households a flat annual fee (of about $200), which comes as a credit on their power bill. McCarthy says there are only about 2000 households in VPP schemes in Victoria, but South Australia has had more success, with about 20,000 homes taking part.  

Where to from here?

RACV Solar's Andy McCarthy believes solar system and battery prices will continue to drop over the next five years, and he's excited about the prospect of other technological advances, including the rise of electric vehicles and their ability to significantly add to virtual power plant networks.

"[Don't] be distracted by reports in the media about feed-in tariff taxes or lose sight of the fact that solar as an investment, and battery storage, has never had a level of pay-back or return on investment than what it does now. We're very lucky to have generous incentives while the cost has fallen so significantly. I can't think of a situation for a home or a small to medium business where [solar] hasn't made sense in the last 12 months."