Sun tax: When it will hit, what it will cost and why solar export tariffs remain controversial

Two-way rooftop solar tariffs – not-so fondly referred to as the sun tax – have had a flurry of media attention in New South Wales this week, including from radio station 2GB which warned listeners of an imminent “solar shock.”

The “solar shock” refers to Ausgrid’s plan to charge customers 1.2c/kWh for rooftop solar exported to its network in the middle of the day – between 10am and 3pm – starting in July.

“Yeah, they’re gonna charge you!” 2GB shockjock Ben Fordham told listeners. “The new policy will punish solar panel owners who don’t own a home battery to store the energy they produce.”

2GB jumped on the story after it was splashed in Nine’s Sydney Morning Herald, but only picked up some of the facts and missed or mangled some others – including on the timing of the tariff and the cost.

So what is really going on?

While the concept of charging consumers for sending clean and free power to the grid – generated by solar panels they were incentivised to invest in, and which have helped to drive down energy costs for everyone during the day – might well be shocking, the fact it is coming to NSW is not a shock.

Market rules paving the way for two-way electricity tariffs were signed off by the Australian Energy Market Commission in 2021, and a handful of network companies – mostly in NSW – have been testing out their options since then.

By the end of 2022, four Australia electricity networks – Ausgrid, Essential Energy and Endeavour Energy in NSW, and Evoenergy in the ACT – had flagged their plans to introduce rooftop solar export tariffs from 2024.

These plans were firmed up and teased out in 2023, as detailed here.

Now 2024 has arrived, Ausgrid confirms it will introduce the 1.2c/kWh export charge in July – but only as an “opt-in” exercise – as in, customers will have to request to be involved, via their retailer. It will become mandatory a year later, in July 2025.

“In July 2024, we are introducing an opt-in two-way tariff for new and existing residential and small business customers who are export ready,” an Ausgrid fact sheet says.

“From July 2025 the tariff will apply to all of these customers. Retailers can choose how they structure this two-way tariff for customers.”

Which brings us to costs.

Fordham says that 2GB “attempted to do the numbers on this,” and somehow came to the conclusion that the average house that exports its solar would incur “between $100-$200 in extra charges” a year.

That is a shock. But it’s also inaccurate.

According to the publicly available fact sheet, and a statement issued by Ausgrid on Thursday, “under the new pricing arrangements a typical solar customer could see an increase of $6.60 per year – or 13 cents a week. Some solar customers can expect a rebate.”

Or, as the fact-sheet puts it: “If the retailer fully passed through our two-way tariff, a typical 5 kW solar customer will see an annual bill increase of $6.60 per year. This includes $13.30 a year of charges offset by $6.70 of export rebate.”

That’s because, while customers are charged 1.2 cents/kWh for the electricity they export above a free threshold during the peak export period (10am to 3pm), they are paid 2.3c/kWh 4pm to 9pm = 2.3c/kWh and any other hours are “free.”

Ausgrid has diagram illustrating how this might work in for a NSW solar home in November (when days are longer).

Of course, a household with a big system – and data from industry analysts SunWiz suggests the average system size currently sits at around 9kW – would face higher costs for exports and there would be less chance to balance out the equation by accessing the 2.3c/kWh in the winter months.

Ultimately, as Ausgrid’s fact sheet notes, the cost of the two-way tariff will be passed through to customers via their retailers as part of the overall network cost component of their energy bill.

“Small customer electricity bills don’t show our network charges separately. Our charges are bundled together with the other costs of energy supply (including generation, transmission, green schemes and retail costs).”

But is it shocking?

2GB is right to zero in on the controversial nature of the solar export tariff, even if it’s still more than a year off being mandatory. The subject has divided opinion within and without the solar industry for years and, on paper, does look a lot like a “punishment” for investing in clean energy.

Ausgrid said on Thursday its two-way pricing structure – which also pays customers a tariff of 2.3c/kWh from 4pm to 9pm – “has been designed to encourage customers to use their own solar power first and keep energy bills lower for everyone across the network in the long term.”

Ausgrid’s argument is that there is a cost to the network company of accommodating increasing amounts of rooftop solar while also keeping the grid running smoothly. Charging for exports in the middle of the day, Ausgrid says, “ensures fairness for all customers including those who can’t access rooftop solar.”

There are a number of sound counter arguments to this, including that networks have a range options at their disposal to manage increasing amounts of rooftop solar, many of them not necessarily as costly as adding more poles and wires or other expensive kit – and many of them potentially lucrative for the network.

These arguments suggest it is in bad faith for networks to take such a big stick to the solar duck, rather than using more of a carrot approach that rewards customers for their renewable energy investments and encourages them to optimise solar self-consumption.

As it stands, Ausgrid’s “reward” for exporting to the grid during peak periods is pretty unconvincing, although retailers may package it up differently and offer more of an incentive.

Consumer energy advocate Mark Byrne – who has written in great detail about the subject on One Step Off The Grid and Renew Economy – argues there should be a better way than this, which could wind up disincentivising rooftop solar at a time when policy makers are calling for more investment in PV to power the shift to electrification.

“If the main aim of export pricing is to recover the costs and benefits of solar and battery exports more fairly, then all that will have happened by 2029 is that one cross subsidy (from non-solar to solar owners) will have been replaced by another (from solar owners whose exports are not causing problems to those whose exports are causing problems for the local grid),” he writes here.

“Is this the best we can do?”

For the record, Ausgrid says it “fully supports the uptake of rooftop solar, as people play their part in the clean
energy transition.”

It also says:

“These arrangements have been approved by the independent regulator (AER) and Ausgrid continues to welcome feedback. Similar approaches are being adopted by other networks in New South Wales.

“The impact on customers will depend on how retailers pass through the charges and rewards, and how and when households use the power from their solar systems.

“To help those who can’t install their own home storage system, Ausgrid has already begun installing community batteries across its network as part of the Federal Governments’ Community Batteries for Households Program.

“These will absorb the excess solar from households and allow it to be fed back into the network at peak times, putting downward pressure on energy prices.”

As Solar Quotes points out here, in an article from early May that may have inspired the SMH’s take this week, other distribution network companies are taking a different and arguably better approach to dealing with solar congestion issues on their grids.

“For example, in South Australia SAPN is rolling out dynamic (flexible) solar exports; where inverters may be throttled remotely based on network conditions. Readying for a similar initiative across the border in Victoria, all new inverters installed must be capable of remotely and dynamically adjusting solar export limits.”

On the other hand…

Coming to the defense of solar export tariffs is the Public Interest Advocacy Centre (PIAC), which says a small charge to sell rooftop generated energy to the grid during the middle of the day is a reasonable way to balance costs.

“This doesn’t mean more money for network businesses,” PIAC’s director of energy and water, Douglas McCloskey, said in a statement on Friday.

“Instead it makes minor changes to how much different users contribute to the cost of infrastructure and reflects that people selling solar power into the grid are using poles and wires to both receive and send energy.

“This will see solar owners pay a fairer share for their use of the network,” McCloskey says, “and it will be a minor contribution.”

McCloskey also argues that the tariff doesn’t detract from the core benefits of installing rooftop solar and could even encourage changes in behaviour that unlock more savings.

“To make best use of these new arrangements solar owners could get an efficient electric or heat pump hot water system and use solar to heat water during the day or invest in efficient reverse-cycle air-conditioning to heat and cool their home during the day,” he says.

“By exporting as much as possible after 4pm when the whole energy system needs home solar the most, they can even get paid a premium.

“Of course, the best change any household with solar can make is to get rid of gas, which saves hundreds of dollars a year in unnecessary network costs,” McCloskey says.