A fair price for rooftop solar? Try 10-18c/kWh

by Jack Gilding 

This article was originally published in Renew Economy.

This is the first of a series of articles produced by the fair value for distributed generation project. In this article we explain the background to the project and the basis for our calculation that local rooftop solar is currently worth in the range of 10-18c/kWh when all the network, environmental and health benefits are taken into account.

Solar feed-in tariffs (FiTs) have had a controversial and complicated history in Australia. Many states started out with very high FiTs. Arguably some of the premium tariffs were allowed to continue for too long and should have been reduced gradually, but it is important to recognise that these policies did achieve significant benefits.

These schemes built a solar industry in Australia that delivers significant quantities of affordable, low-carbon energy into our grid. The renewable energy industry employs 14,000 people[1] and has led Australia to have by far the highest penetration of household rooftop solar in the world [2].

All the premium (i.e. paying more than the retail cost of electricity) schemes are now closed to new entrants, although some still have a number of years to run for existing eligible systems.

Setting of regulated minimum FiTs in Australia has always been a state responsibility. The current situation in the National Electricity Market (NEM) region is that regulated minimum tariffs are set in regional Queensland, Victoria and Tasmania.

There is no regulated FiT set in SA (as of 1 January 2017), NSW, ACT and SE Queensland, with governments and regulators arguing that in a competitive retail market, retailers will offer an attractive FiT to attract customers.

Regulatory bodies periodically review the methodology for determining FiTs and it was the combination of three forthcoming state reviews that prompted a consortium of organisations to seek and receive funding late in 2015 from Energy Consumers Australia to review and advocate on these methodology issues.

The consortium consisted of Solar Citizens, the Alternative Technology Association, the Australian Solar Council, the Total Environment Centre, the Clean Energy Council and the Tasmanian Renewable Energy Alliance.

Submissions were made to state review processes in Queensland, Victoria and Tasmania, as well as to the review that led to the abandonment of regulated FiTs in South Australia. We also produced a range of advocacy materials that are currently being used in the Solar Citizens Fair Price for Solar campaign.

One of the headline findings of our project is that local rooftop solar is currently worth in the range of 10-18c/kWh when all the network, environmental and health benefits are taken into account as summarised in the following graphic.

Our approach was to consider the various components of the electricity supply chain and estimate what contribution distributed generation could make to each. In order to do this we calculated national average costs for a typical residential electricity bill for the main components of the supply chain[3]. For more details and references see the project website.

Wholesale price of electricity

Regulators have traditionally used an average wholesale price for energy when calculating FITs. Arguably, solar exports are worth more than the average price because (except in Tasmania) they are fed in during times when wholesale energy prices are higher than average.

This is in line with the COAG agreed principle that FiTs should take into account “the time of day during which energy is exported.” In Victoria, from July 2017 the new solar FiT of 11.3c includes 8.1c for the wholesale price of electricity including a weighting to reflect the timing of solar export.

In addition to the avoided cost of purchasing wholesale electricity, solar pv can play a role in pushing down the wholesale price of electricity for all consumers through the ‘merit order effect’ which can be significant when demand and wholesale prices are high.

The range used in our estimate (5.1c-6.1c) is based on the national average price for 2014-2015 through to a 20% premium to cover time of day and merit order benefits. These figures are likely to be very conservative given recent and projected increases in wholesale electricity costs.

Avoided transmission costs

Retailers pass charges for the use of the transmission network on to consumers irrespective of whether the energy is sourced via the transmission networks or locally from solar pv. Customers pay for a service that is not provided (use of the transmission network for the proportion of their energy that comes from distributed generation).

We argue that transmission charges should only apply to the electricity actually carried on the transmission network and that these savings should be treated as a benefit of distributed generation. In the next article in this series we deal with this issue in more detail.

Reduced distribution costs

Distributed generation can place less strain on the distribution network and thereby reduce costs in at least two ways. Firstly, energy from solar pv is typically used close to the point of export and therefore makes significantly less use of the ‘poles and wires.’ Secondly, a significant proportion of the cost of the distribution network is the transformers which convert higher voltages down to 230V. Solar inverters have this capability built in and export power at 230V. The value of solar pv in reducing costs for network operators is highly dependent on time and location, as well as the capacity and asset life cycle of local distribution infrastructure. Our maximum value saving assumes local solar avoids using the high voltage and subtransmission parts of the distribution network, which account for over 50% of costs.

Reduced CO₂ emissions

Each kWh of solar pv that displaces coal-fired electricity avoids carbon pollution worth a minimum of 2.4c to 3.1c using current carbon pricing estimates. Carbon pricing consistent with the global objective of keeping global warming well below 2°C would translate to a much higher value.

Health benefits

Based on research by the Australian Academy of Technological Sciences and Engineering, each kWh of solar pv that displaces coal fired electricity contributes 1.3c in reduced health costs. This benefit is not currently reflected in any Australian FiTs but recent Victorian legislation makes provision for future FiTs to include a component based on the “avoided human health costs attributable to a reduction in air pollution”. In its determination of the 2017-2018 Victorian FiT, the Essential Services Commission concluded that “the necessary data to quantify those benefits with sufficient reliability to include them in a FiT are not available at present” so this is an important area for future research and advocacy.

Retailing costs

We did not consider retailing costs in our assessment. These make up 29% of typical residential electricity bills nationally or about 8.3c/kWh. Under current regulatory arrangements it is not possible for consumers to avoid these costs except by going off-grid. New technology such as local storage and system such as peer-to-peer trading provide the potential for new models that could avoid or substantially reduce the retailing components of the electricity prices. However this would require significant regulatory change.

Additional benefits

Distributed renewable energy generation, including solar pv, has many benefits on top of those considered in our methodology. These are real economic advantages even though they cannot be readily translated to a c/kWh value:

Direct jobs: Research by Ernst & Young for the Climate Council has shown that generating 50% of our electricity from renewables by 2030 would lead to over 28,000 new jobs and over 50% more employment than a business as usual scenario.

Industry development: Beyond the direct jobs in solar installation, building Australia’s capacity in emerging technologies such as battery storage and energy management will create the jobs of the future as the world moves to a decentralised and decarbonised energy system.

Energy security: An electricity system that is based on distributed local generation from a variety of renewable sources combined with local storage will not only reduce costs, it will make for a more robust and secure system that is less prone to failures caused by centralised infrastructure.

Price stability: Renewable energy technologies have high capital costs, but very low and predictable running costs and no fuel costs. This contributes to long term price stability compared with fossil fuel alternatives.

Energy literacy: Installation of solar pv gives homeowners a strong interest and motivation to better understand and manage their energy consumption. This will be an important driver of the uptake of new technologies such as local storage, demand management and integration of electric vehicle charging which can ultimately lead to a more flexible and economical electricity system.

In subsequent articles in this series we will look in more detail at the contribution of distributed generation in avoiding or reducing network costs, as well as discussing the difficulty in getting these benefits reflected in electricity pricing.

Read 'A Fair price for rooftop solar, Part 2: Rewarding local generation' here.

 [1]  2015 figure from https://www.cleanenergycouncil.org.au/policy-advocacy/reports/clean-energy-australia-report.html Over half of these jobs are in rooftop solar.

[2]  Preliminary Report of the Independent Review Into The Future Security Of The National Electricity Market, p.13

[3]  NEM residential supply chain cost components, http://backroad.com.au/wp-content/uploads/2016/11/NEM-residential-supply-chain-cost-components-v07p.xlsx 28 Nov 2016. Based mainly on AEMC Residential Electricity Price Trends – base figures 2014-2015.

Jack Gilding is the Executive Officer of the Tasmanian Renewable Energy Alliance and was the project manager for the project “Research review and advocacy on the fair value of distributed generation”.

The project was funded by Energy Consumers Australia as part of its grants process for consumer advocacy projects and research projects for the benefit of consumers of electricity and natural gas. The views expressed in this document do not necessarily reflect the views of Energy Consumers Australia.  

Tenacious university students at Stucco, a low-income student housing cooperative in central Sydney, are setting a precedent for solar energy across Australia and worldwide. Thanks to these driven young people, their multi-unit residence is now running almost entirely on solar power, and boasts the most Enphase storage batteries ever installed in one place.

In Australia, we have almost boundless access to a massive free energy resource: the sun. We live in the sunniest country on Earth, and 1.6 million households are already making the most of this incredible, cheap power source by using rooftop solar panels and, increasingly, battery storage systems in their homes. However, millions of Australian tenants are getting left behind in the upgrade to clean, renewable energy. Unnecessary red-tape and outdated regulations mean there are still very few systems installed on apartment buildings and residential complexes.

These students recognised that this wasn’t good enough, so they started a groundbreaking project to install a cutting-edge solar PV and battery system that would provide 80% of the power needs of their 8-unit housing complex. Solar cell technology is cost effective, efficient, and readily available, and battery storage capacity is quickly catching up. All they had to do was install it on a larger scale… or so they thought.

"Our work will benefit a thousand-odd low income students by providing them with cheaper electricity," Bjorn Sturmberg, project leader.

What seemed like a simple enough project at first became a long, arduous process of hoop jumping and negotiations. As we all know, planning permission guidelines, complaints from neighbours, and local government regulations can stand in the way of the most basic new garden fence, let alone innovative pilot projects like the installation of solar and storage at Stucco.

In this case, the students also had to combat outdated energy legislation that prevents residents from using power without purchasing it from official energy providers via the building management. However, as a housing cooperative, the students collectively manage their residence, presenting a unique opportunity in which the interests of the tenants and the owners are aligned.

Eventually, with the assistance of a grant from the City of Sydney, the project was up and running.

Prior to planning the solar panels and battery system, smart meters were installed in each unit to assess how much energy was needed to run the residence. In the end, 114 solar PV panels and 36 storage batteries were installed, which will produce 30kW of energy -- 80% of Stucco’s power needs.

The smart meters will continue to monitor each unit’s power consumption, and feed that information back to the body corporate, allowing owners to bill tenants according to their consumption. This innovative retailing solution provides cheaper, cleaner power for the tenant, and a steady stream of income to the owners to subsidise the installation and maintenance costs of the solar and storage system.

“Our work will benefit a thousand-odd low income students by providing them with cheaper electricity,” said Bjorn Sturmberg, the leader of the project, at the launch event for Stucco Solar+Storage. “And then there's the 40 odd tonnes of carbon dioxide emissions being saved annually, the additional income to the co-operative, and opened pathway for many more apartment blocks to replicate similar systems.”

This pioneering student-led sustainability project proves that it’s possible to benefit both renters and landlords while upgrading to clean, renewable energy. And the best part is, the tenants at Stucco are now enjoying solar power that costs 20% less than the cheapest energy on the market.

The revelation today that the Australian Renewable Energy Agency (ARENA) will lose $500million in funding is further evidence of the Coalition’s unrelenting ideological war on renewables.

“ARENA is a critical engine for innovation, for the transformation of our energy system and for the places across Australia that benefit from the projects they fund,” said Claire O’Rourke, National Director of Solar Citizens.

“The Coalition Government has driven this cut to innovation in Australia’s premier growth industry as part of a war on renewables that looks more like the old-hat Abbott agenda that Australians do not want.

“Solar Citizens have fought bravely in communities across Australia to protect ARENA, reflecting the strong community desire to stand up for essential grants funding that supports cutting-edge research and helps get commercial projects off the ground.

“This is critically important in the immediate years ahead.

“While we are disappointed that the ALP did not do more to stop this ideological attack by the Federal Coalition, ultimately responsibility falls squarely on the shoulders of Prime Minister Malcolm Turnbull and the Federal Government.

“These efforts by the Federal Coalition are an attack on Australia’s innovation future and we know from their previous efforts to slow, or prevent the country’s energy transition that they just won’t stop here,” she said.

“We need ever greater levels of investment in innovation and research on renewable energy in this country, not a reduction, it flies in the face of common sense to cut it.

“Australia needs a national plan to harness the multi-billion dollar renewables boom and manage the orderly transition to 100% clean renewable power but we are unlikely to see one from this Coalition who are hell bent on holding back the transition,” said O’Rourke.

Media Contact: Andrew Bradley P: 0403 777 137 E: [email protected]

The State of Solar report is the first of its kind to undertake a detailed evaluation of the benefits of Australia’s solar rooftop boom quantifying out-of-pocket investment, the jobs created, savings made on power bills and environmental benefits.

“The results are simply staggering, $8bn of out-of-pocket investment in rooftop solar pv over the last decade, $4.4bn in bill savings and in terms of environmental benefits, 6 million tonnes of CO2 expected to be averted in 2016 alone,” said Claire O’Rourke, National Director, Solar Citizens.

“With 5 million people living under a solar powered roof, Australia has the highest levels of rooftop solar in the world. This transformation has happened in just 6 years.

“The growth is astonishing and it is fascinating that we can see, for the first time, what average Australians themselves have invested to ride this boom,” she said.

From 2006 to 2010, the number of solar systems installed each year in Australia trebled year-on-year.

“Australians are leading the renewables charge and this new set of data plainly reveals that investment in solar pv has been the backbone of the renewables revolution in Australia,” she said.

“Australian political leaders need to understand just how much the average Australian themselves have committed of their own money to play a part in the transition of our power system. With 5 million Australians (or 1 in 5 voters) living under a solar roof, this is potent political constituency,” said O’Rourke.

“The global transition to renewables is already underway. Australia needs a national plan to harness the multi-billion dollar renewables boom and manage the orderly transition to 100% clean renewable power.

“Powering our lives and our homes with 100% renewable electricity by 2030 is technically possible and absolutely necessary as we outlined in our Homegrown Power Plan modelling.

Figures released by Bloomberg’s New Energy Finance last week indicate a staggering forecast of future investment in renewables globally. Through to 2040, BNEF forecast a record $7.8 trillion to be invested in renewables, including $3.4 trillion for solar, $3.1 trillion for wind, and $911 billion for hydro power.

Many of our State and Territory Governments understand this renewables revolution with four jurisdictions undertaking their own renewable energy targets (QLD, SA, VIC, ACT). But the Turnbull-Abbott Government has the regrettable track-record of cutting the national renewable energy target and still has not released a renewable energy policy.

Topline figures from report:

Out of Pocket investment in solar – The State of Solar Report is the first to quantify these figures:
Australians have invested “out-of-pocket” over $8bn in the last 10 years in rooftop solar pv.
In the 2014-15 financial year, Australians invested $1.23 billion dollars in rooftop solar from their own pocket. By comparison, investment in all large scale solar energy projects in calendar year 2014 was only around $118 million.
Every year for the last five years, Australians have spent more than $1 billion of their own money on small-scale solar PV systems (under 10kW).

Bill Savings – The State of Solar Report is the first to quantify these figures:
Solar households have saved $4.4 billion on their power bills since financial year 2007/2008 and around $1bn every year for the past three years.
Averaging this across all solar households, it can be said that in FY 2014/2015, the typical solar household saved $653 on their electricity bill.

Environmental Benefits - In 2016 alone, Australia’s rooftop solar generators will generate over 6.5 TWh, preventing around 6,301,000 tonnes of greenhouse gas from polluting our environment. That’s the equivalent of taking one-third of all trucks off Australian roads.[2]
A survey of Solar Citizens supporters undertaken in January 2016 with more than 4,300 respondents revealed that the primary driver for purchasing solar was financial reasons (60%), over environmental reasons (38%). But tellingly, there are greater satisfaction levels relating to the environmental impact of their solar arrays for these same respondents (95%) over the financial return (88%) and an overwhelming majority expected their solar investment to pay off.
The report is available here or upon request.

Media Contact: Andrew Bradley P: 0403 777 137

The full report is available here: http://www.solarcitizens.org.au/stateofsolar2016 

The pace of rooftop solar installation in Australia has been nothing short of phenomenal in recent years. Solar panels are now a regular and normalised part of Australian life. In fact, Australians spend as much on their solar as they do on tea and coffee.

But the politicisation of clean energy has had a huge negative impact and risks us losing investment, jobs and an orderly transition to 100% renewable energy.

This report is designed to remind our political leaders of just how much Australians love their solar and have invested in it. For those who would wish to represent us, it’s time they realised that the future is solar-powered.

Earlier this year we ran the 2016 Great Solar Census and the results are in! We've put together a sunny infographic with the key results to provide a snapshot of who Solar Citizens are. 

So, what did we learn? 

1. There are more than 83,300 Solar Citizens across Australia and 89% of you live under a solar rooftop. That means Solar Citizens has grown by more than ten thousand people since roughly this time last year - that's huge! And now, even more have you have solar (up from 84% in 2015). 

2. 79% of Solar Citizens are interested in battery storage. We all know batteries are the next big thing, so this isn't surprising. The market for solar and storage is only going to get bigger, especially if power companies keep trying to introduce unfair charges for solar owners.

3. You're saving money on power bills. 89% of Solar Citizens said they are satisfied that their system is saving them money on power bills, in fact, 56% of you have more than halved your annual electricity bill! 

4. Australians love their solar - and want more of it. Almost 100% of survey participants think Australia should invest in big solar projects - and 92% want Australia to transition to 100% renewable power by 2030! To read more about how that's not only possible but will save us money too, check out the Homegrown Power Plan. 

5. But lack of political will is getting in the way. Nearly all of you think lack of political will is the major barrier to Australia's renewable future. If you want to start changing that, get involved this federal election here. 

On April 14, we presented Prime Minister Malcolm Turnbull's office with the signatures of 10,824 Australians who think the government needs to be stronger on renewable energy. 

While we were there we took the opportunity to present his staff with a giant ‘Room for Improvement’ certificate. It turns out the PM’s own electorate of Wentworth is second last in the whole country when it comes to the number of solar rooftops!

We reckon he can do a lot better, both in Wentworth and Australia-wide. And his constituents agree. 63.5% of people in Wentworth would be more likely to vote for a party with a policy to gradually transition Australia away from coal-fired power to 100% renewable power by 2030.*

We made for a sunny bunch standing outside the PM's office in Wentworth, in I Heart Solar t-shirts and bright yellow umbrellas. We were also joined by the wonderful Ecopella who led us in several sun-themed songs. it was a great day and a chance for Solar Citizens from across Sydney to meet each other, have some fun and show our Prime Minister that it's time to shine on solar. 

*http://www.solarcitizens.org.au/prime_minister_turnbull_gets_a_solar_shock_in_his_own_electorate

WA Premier Colin Barnett has told State parliament today that he would rule out a tax on solar power, a win for the state’s more than 175,000 solar households, according to reports.

Solar Citizens National Director Claire O’Rourke said the Government’s backdown came after a strong community campaign against the unfair proposed charges including a Solar Citizens petition - signed by close to 7,000 supporters.

“This backdown on the proposed “solar tax” ensures a bright future for renewable energy in Western Australia,” she said.

“There are more Western Australian families every day discovering the cost savings that solar power can deliver.

“Solar is good for household budgets, drives good local jobs and can sparks economic growth, particularly vital as the state budget is hit by the end of the mining boom.

“Solar households are most common in lower income suburbs. The main reason these families go solar is to help with the rising cost of power bills.

"In the process these solar powered homes reduce the need for expensive new poles and wires, stimulate jobs in the renewable energy industry and create clean, cheap energy that helps all Australians.

“The WA Premier has taken a great step forward today, now he should lift his ambition and support a full transition to clean renewable energy in the State,” she said.

Claire O’Rourke is available for interview.

Media contact: Jane Garcia 0434 489 533

The Federal Court has today ruled in favour of South Australia’s solar households, supporting the Australian Energy Regulator’s decision to stop SA Power Networks gouging solar rooftop owners.

Justice Mansfield dismissed the appeal from SAPN against the AER’s earlier decision to disallow the introduction of a new, higher tariff on solar owners. Solar Citizens supported the Total Environment Centre’s intervention in the case.

Solar Citizens Consumer Campaigner Reece Turner said South Australians clearly love solar and expect that they won’t be subjected to unfair charges.

“This court decision today protects solar homeowners from South Australian Power Networks trying to push unfair fees onto the solar community by any means possible,” Turner said.

“It’s a sensible outcome to stop SA Power Networks from charging solar households an average of $100 per year. South Australia is home to more than 190,000 solar homes with more families going solar every day.”

“These are households who have decided to beat the rising costs of electricity by taking power generation into their own hands. Solar households are most common in lower income suburbs. The main reason these families go solar is to help with the rising cost of power bills.”

"In the process these solar powered homes reduce the need for expensive new poles and wires, stimulate jobs in the renewable energy industry and create clean, cheap energy that helps all Australians.”

Mark Byrne, energy market advocate at the Total Environment Centre, explained that “This Federal Court decision places all electricity networks across Australia on notice that they cannot unfairly charge solar households more to cover the cost of their poor planning for a changing electricity network.”

Reece Turner from Solar Citizens is available for interview on 0450 466 040
Mark Byrne from TEC is available for interview on 0403070442.

On Tuesday 29th September we held a Perth Volunteer Meeting, as a followup to the Canning by-election, to bring together any Solar Citizens in the area who were interested in starting up a Perth group. Despite some last minute apologies, the meeting went really well! Perth has made it's first steps towards getting a Solar Citizens group up and running.