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:
- By recognising ‘export’ as a service, they hope to make power networks more accountable, so they invest in better, two-way electricity flow infrastructure.
- 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.
- 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.