Rooftop solar feed-in tariff cuts keep coming, despite soaring power bills

Pressure is growing on solar households to focus more on self-consumption of the power generated on their rooftops as Victoria prepares to slash the state’s flat-rate feed-in tariffs by a further 8 per cent.

In a draft decision published this week, Victoria’s Essential Services Commission is proposing to set the minimum flat feed-in tariff that retailers can offer their solar customers to 4.8c/kWh in 2023-24.

This eight per cent cut, year on year, to the state’s minimum flat-rate tariff follows the 22 per cent cut to the 2021-22 FiT, from 6.7c/kWh to 5.2c/kWh, that kicked in July of this year. The year before that, the state’s recommended floor price for the flat-rate FiT was slashed by one-third from 10.2c/kW to 6.7c/kWh.

The minimum amount retailers are recommended – or in the case of Victoria, mandated – to pay their solar customers for exports to the grid has been on a downward march across the country for the better part of the past decade, thanks to a steady decrease in wholesale electricity prices, driven down by renewables.

In its draft decision, the ESC this week acknowledges that pattern has been broken this past year, with wholesale electricity prices soaring thanks to inflated fossil fuel costs – and projected to continue to rise.

So if, as state pricing regulators regularly claim when cutting solar tariffs, settings are based on the futures market for wholesale prices, why aren’t solar FiTs going up, too?

According to the ESC, it’s because during the daytime, when most solar exports occur, prices have decreased significantly – thanks largely to the influence of rooftop solar.

“Futures prices alone are not suitable for setting the feed-in tariffs,” the ESC asserts in its draft decision.

“Our forecast of wholesale prices accounts for the relationship between solar exports and wholesale prices.”

Confused? We don’t blame you. But the key message from the ESC and many others in the solar industry is that the main benefit of installing solar no longer comes from the money earned by sending excess generation to the grid, but from the money saved by avoiding buying grid electricity.

“These savings can be increased if consumers can shift some of their demand (for example by running a clothes or dishwashing machine, hot water systems during the day) to when their solar system is operating rather than in the evening or late afternoon,” the report says.

“The feed-in tariff provides a financial benefit to solar customers when they export unused electricity, but generally solar customers will have greater savings when they use the electricity they generate themselves.”

On the upside, the ESC is at least trying to account for the difference in value of rooftop solar exports sent in the middle of the day, compared to in the afternoon and early evening, when demand for electricity starts to peak.

This means that while the ESC is proposing to cut the daytime rate for the state’s time-varying solar tariff by 14% to 4.3c/kWh, the early evening and overnight rates are 30 and 52 per cent higher, respectively, than those for 2022-23. See table below.

The most important number is the minimum proposed tariff of 9c/kWh from 3-9pm, as – in Summer, at least – it gives solar-only homes a chance to export in the final hours of daylight. Mostly, however, these tariffs will only be of use to customers with battery storage, who can export from their batteries during those times.

“The enduring value of solar is avoiding paying retail prices for your electricity,” said the ESC’s executive director of pricing, Marcus Crudden, in a statement on Tuesday.

“With Victorians now embracing the environmental and economic benefits that solar power offers, the increased supply of low-cost solar energy to the market is keeping wholesale electricity prices down during sunlight hours,” Mr Crudden said.

“That means using your solar electricity as it is generated. Run your power-hungry appliances – your dishwashers and washing machines – during the middle of the day to avoid paying higher evening peak prices charged by retailers.”

Crudden also reminds us that while the commission sets the minimum tariff to protect solar customers from being completely ripped off for their power, some retailers do offer better deals.

“Keep a lookout for offers that consider time-of-use feed-in tariffs to take advantage of higher prices in the late afternoon,” he says.

“Plan your daily energy usage to be met as much as possible during the daylight hours when your solar system is hard at work. Any leftover energy is then exported to the grid, and you get paid via the feed-in tariff.”

One Step would add that consumers should also keep an eye out for any catches in retail contracts offering high solar FiTs – there are often strict conditions attached to those high prices.

In the meantime, the ESC is inviting feedback on the draft minimum solar feed-in tariffs for Victoria in 2022-23, with submissions able to be lodged via the Engage Victoria website until close of business on January 30.

The final decision must be published by 28 February 2023, at which point the regulator concedes that rapidly changing market expectations are likely to result in a difference between the estimates in the draft decision.

For the solar industry, further cuts to the feed-in tariffs are unlikely to dampen demand for rooftop solar, which is experiencing a renewed boom in response to unpredictable energy markets and rising cost-of-living pressures.

Rather, solar FiT cuts might help give a boost to home battery uptake, to really maximise solar self consumption, and to smart energy management services, to do the same.

In an update on Victoria’s Solar Homes program on Wednesday, Solar Victoria CEO Stan Krpan says more than 210,000 households across the state have now accessed a rebate to install solar, and just under 12,000 have claimed a battery rebate.

Krpan says consumers are increasingly installing bigger systems, too, with the average installed size for rooftop PV in the Solar Homes Program hitting 7.38kW in November – a new high.

Battery rebate applications in 2021–22 were 277 per cent higher than the previous year, and that demand has continued in the first half of 2022–23, Krpan says.