If you’ve been consuming solar news lately, you might be aware that there is a bit of a kerfuffle around solar export charges, possibly affecting what you earn for sending excess solar to the grid. Depending on what you read, you might have heard of it as a Sun Tax or a plan to make room on the grid for more home solar and batteries by fixing ‘solar traffic jams.’
Either way, the draft determination by the Australian Energy Market Commission (AEMC) on how network companies support, and charge for, export services has sparked a lot of questions.
While many of those questions invite a technical nerd-fest on the pros and cons of this reform (and we do love a good nerd-fest), at Solar Analytics, we think what is needed right now is a few answers on what this actually means for our faithful solar owners as well as for all those out there wondering if solar is the right choice for them.
So here is our take on the six ‘W’s (and one ‘H’) of the AEMC draft determination on ‘access, pricing and incentive arrangements for distributed energy resources.’
There are a few different players in the energy system, so it’s important straight off the bat to understand who does what.
Distribution Network System Providers (DNSPs, or ‘network companies’) own and operate the parts of the network that deliver energy to your home or business; the ‘poles and wires’ in the common vernacular. They include Ausgrid, Energy Queensland, South Australia Power Networks, TasNetworks, PowerCor and many others. You won’t ever see a bill from them; you probably only interact with them when they are doing maintenance in your area or fixing an outage.
Network companies charge energy retailers (like AGL, Origin, Energy Australia, etc) a tariff for energy consumed from the grid. Your energy retailer passes this cost on to you, rolling it into your overall energy charge, along with the retailers’ own costs, including the market cost of energy.
When you export excess energy (from your solar or a battery) to the grid, you are paid a feed-in tariff by your energy retailer because you are saving them the cost of buying that energy from the energy market. The network company does not currently charge you for this export, nor do they pay you. But they do provide the network infrastructure that allows you to export it.
The draft rule applies to the National Electricity Market (NEM), which includes the primary connected grid in Queensland, NSW, ACT, Victoria, South Australian and Tasmania.
Western Australia and Northern Territory have different grids and different rules There are also some microgrids in remote areas of the other states which have their own rules too.
The draft rule allows network companies to charge for energy exported to the grid. Just like for consumed energy, they will charge the energy retailer and the energy retailer will roll it into your bill.
The draft rule also officially recognises energy export as a service provided by distribution networks. This also means export services will be more regulated. That could prevent further growth in export limiting and could require network companies to better manage voltages, hence enabling the solar owner to export more electricity to the grid, but we don’t know yet how this additional regulation will look and if it will be effective.
I sneaked in a bit of the ‘how’ above, so let’s get to the cost. In short, we don’t know. The AEMC does not set prices.
In its modelling, the AEMC explored a flat export charge of 2c/kWh. If this were implemented by a network company and if an energy retailer applied it directly to your feed-in tariff, then your feed-in tariff would drop by 2c/kWh. So if you’re on 12c/kWh now, then you would drop to 10c/kWh.
The AEMC estimated the impact of this on solar customers as around 5-8% of their solar savings.
But all the draft rule actually does on pricing is allow network companies to charge for exports. The network companies will then consult with customer representatives and come up with a range of offerings. These may even include negative prices at peak times, meaning that they could pay customers for exporting when that energy is most needed, most likely in the evening and supplied by home batteries. In fact, SA Power Networks specifically requested that this be allowed in its rule change request.
The network companies can’t charge whatever they want though. It must be approved by the regulators and justified by the service. So the 2c/kWh modelled by the AEMC is a good estimate to work with. Let’s call it plus or minus 100% – so anywhere between 0-4c/kWh.
It’s important to note here that this is not just extra revenue for network companies. The regulator must approve how much revenue the network companies can take from their respective customer bases. So if they are charging solar customers more, they have to charge non-solar customers less.
Network companies have their pricing plans approved every five years, so any new charges would need to be approved through that process. According to the AEMC’s FAQ sheet, the regulator will make final decisions on NSW, ACT and Tasmanian proposals in 2024; Qld and SA in 2025; and Victoria in 2026. This all comes after the consultation process that is ongoing as this moves from a draft rule to a final rule. There may be changes during that process, but we’ll let you know if they have a significant impact. Bottom line is you won’t see any changes until 2024 at the earliest.
This is where we could easily fall into complex debate, so we won’t be offended if you scroll down to the most important question below, but there are a few important concepts here.
The main argument is that supporting solar exports adds costs to network companies. Because they currently can’t charge for solar exports, they recoup those costs by smearing them across consumption rates, which affect all customers, whether they have solar or not.
Consider the wires that transport electricity to and from your home. Their cost is not dependent on the amount of energy that flows through them over the year, but rather on the maximum flow at peak times, which determines how large the wires need to be to efficiently carry that power. If the wires are too thin, then there are bigger resistive losses. This shows up as a reduction in voltage as the electricity moves along with wires from the transformer (where voltage is somewhat fixed) to your home. If voltage gets too low, your appliances won’t work reliably.
When you and others are exporting lots of solar, then the voltage reductions go in the other direction. The voltage at your home has to push up higher so that electricity can flow back down to the transformer and on to the rest of the grid wherever it’s needed. High voltages are also a problem for your appliances. So much so, that the connection standards force your solar inverter to reduce output when voltage gets too high.
So previously, the network company could set voltages high at the transformer and let it gradually fall to the house at the end of the street, keeping everyone along the way in the right range. But now, the house at the end of the street could have the highest voltage on a mild, sunny day when lots of solar is exported and then have the lowest voltage the following afternoon when the air-con is cranking through a heat wave.
To keep these high and low extremes within the regulated voltage range, network companies either need thicker wires or more complex control systems that allow them to adjust the voltage dynamically and automatically. Both of these options add cost.
Right now, they have a few choices;
Continue to act as if solar isn’t there. Let voltages rise and have inverters naturally curtail output.
This does actually happen to a large extent but most customers don’t have the data to know about it or do anything. If a customer makes a complaint about voltage, perhaps because they have been aided by Solar Analytics and their dedicated solar retailer into seeing and diagnosing the problem, then often the network company will resolve it. So we can’t necessarily say that this is a preferred tactic, but just one that has evolved due to the fast pace of change and poor data visibility.
Set an export limit or refuse connection
Nothing in the electricity rules actually requires network companies to support solar, so they can, and often do, apply a limit on how much you can export. Some systems are given a zero export limit, meaning that any energy not used immediately on site is wasted. They are also able to refuse connection of a solar PV system altogether.
Even though large energy consuming appliances like air-conditioners can make a much larger impact on network costs, much of which is borne by other customers, the network company has an obligation to support this load and an incentive to do so through electricity consumption charges. So it’s unsurprising that the system is managed in such a way that leaves more room for load than for solar.
Upgrade infrastructure to better balance solar exports and appliance load and pass this cost on to all consumers though higher consumption charges.
Some consumer groups argue that this is unfair on those who can’t, or don’t want to, install solar. Others point to the many benefits that solar provides to all customers, such as lower wholesale energy prices for everyone and environmental benefits, including helping us meet our emissions targets.
With this draft rule, the AEMC has sided with the first argument.
The argument continues that by allowing network companies to charge for exports, they will naturally be incentivised to support it, meaning that they will actively avoid export limits and over-voltage curtailment. In fact, they will be required to report on the level of export curtailment that occurs.
For us at Solar Analytics, all the debate boils down to this: If export charges really do prevent, or at least significantly reduce, export limits in comparison to business as usual then we support their introduction.
If the final rule requires network companies to allow all customers to put solar on their roof without significantly constraining their ability to sell electricity back to the grid, then this will result in more solar being installed and lower electricity prices for everyone. In this case we wholeheartedly support the change.
If on the other hand they leave it up to the network operators to pick and choose who can get solar, and whether they are allowed to sell back to the grid, then we do not think this is a productive rule change. We will be watching this carefully, using our data to add to the evidence and working with the solar community to ensure that as much rooftop solar energy goes into the grid as possible, reducing costs for all and replacing polluting fossil fuels.
Worth getting solar is it still?
Ok, so Yoda helped us make this a ‘W’ but it’s really the most important question here.
The quick answer is yes.
Rooftop solar is the cheapest form of electricity available. In most cases, it will pay itself back within 4-6 years, although more like 8-9 in Tasmania (due to lower feed-in tariffs and less sun). In some cases, the system will have paid itself off before these changes even take effect, so get cracking!
The charges will not be massive. The 2c/kWh modelled by the AEMC is just an indication, but even if it’s double that in some places, this is still less than the difference between the highest and lowest feed-in tariffs offered in most states.
By the time these changes do take effect, we expect battery prices to have fallen sufficiently to make home storage worthwhile too. And this is what the AEMC wants. Right now, solar is almost a no-brainer in most places, but batteries don’t yet make financial sense. An additional export charge takes a little off the profit of solar but adds that right onto the economic case for batteries.
So our advice remains the same:
If you don’t already have solar, now is as good as ever to get it. Ask your solar retailer if an export limit will apply. If so, make sure they have adjusted your yield and savings estimates accordingly. If a zero-export limit applies, get your solar retailer to ask the network company how they determined this and if it could be reconsidered.
Make sure you get a consumption meter included with your solar system (or a complete performance monitoring and solar management system like Solar Analytics). This will maximise your savings by:
Checking your electricity bill and finding the best energy plan. There is a huge range in retail offers out there and this, together with the upfront cost and quality of your solar system, will make the biggest difference in your savings and earnings.
Move as much of your consumption as you can to solar hours – set the dishwasher, washing machine, pool pump and any other non-time-critical loads to run when you have sun. Consider a timer on electric hot water systems to do the same with them.
Determining when is the best time for you to get a battery, and the financial payback. Only get a battery if you’re excited by the tech and have the cash (and ideally only if you also get a decent government or aggregator subsidy too); don’t do it for the financial savings just yet.
For our Solar Analytics customers, we’ll help you see when it’s the right time to get a battery in the future, see when you’re using power, so you can match it with your solar and help track your savings and the impact of different retail plans.