Victoria slashes rooftop solar feed-in tariff by another 22 per cent

Victoria’s energy regulator has made another cut to the state’s solar feed-in tariff, confirming this week that the minimum rate retailers would be directed to pay households for their excess rooftop PV would fall from its current level of 6.7c/kWh to 5.2c/kWh, starting in July.

The 22 per cent cut to the FiT, which was flagged by the Essential Services Commission in a draft determination in December, continues the downward march in the value being placed on daytime rooftop solar exports in all states on the National Electricity Market.

In fact, according to this ESC chart, Victoria currently offers the highest minimum FiT of any of the NEM states (i.e. not including WA and the NT).

That said, Victoria is catching up to its NEM counterparts. Last year, the state’s recommended floor price was slashed by one-third from 10.2c/kW to 6.7c/kWh.

The latest cut continues a downward trend that the ESC says is being led by wholesale electricity prices, which are being driven down by the flood of cheap renewables onto the grid, and particularly rooftop solar.

“The final minimum flat feed-in tariff of 5.2 cents per kilowatt hour is 22 per cent lower than the current tariff of 6.7 cents per kilowatt hour,” the ESC said in its final decision announcement.

“The drop in minimum feed-in tariffs is mainly due to lower wholesale electricity prices. Wholesale prices have gone down by the most during the middle of the day when most solar is exported,” it adds in the accompanying 72-page report.

This somewhat paradoxical outcome – where solar households that have been instrumental in reducing wholesale prices are seemingly penalised for this by being paid less for the solar they produce – has been a bone of contention among solar owners for years.

And according to the ESC report, it still is:

“The solar customers who made submissions disagreed with the minimum feed-in tariffs in our draft decision. In general, they felt that the proposed rates were too low and unfair. They also expressed concern that installing solar panels would no longer be of financial benefit. They said this would make it less attractive to install solar panels.”

But the reality is that as more and more people install solar panels on their rooftops, the role of distributed PV on the grid is irreversibly changing, as it morphs into a major contributor to supply that – like other big generators – needs to be managed and optimised.

There are a number of ways that this can be done, including – at the more extreme end of the spectrum – the solar switch-off mechanism that has been introduced in South Australia and Western Australia. Another controversial measure that was recently approved by the market rule maker, the AEMC, paves the way for networks to charge a fee for solar exports at certain times and under certain conditions. You can read more about that here.

But the need for the market operator AEMO to intervene and remotely turn off large swathes of rooftop solar systems, or for households to pay to export, should be minimised by the introduction other less dramatic and more progressive measures, including demand response mechanisms like virtual power plants and smart solar management software. Batteries, too, will eventually get cheaper and become part and parcel of the majority of new home solar systems.

In the meantime, the market will do what it can to discourage solar exports during the day, including through the reduction of solar feed-in tariffs, forcing solar home owners – and eventually the market – to get more creative about maximising the value of their solar panels (or to fork out for a battery).

In Victoria, retailers are encouraged to offer customers a time-varying solar feed-in tariff – another mechanism meant to encourage greater solar self consumption by households during the daytime, and more exports (from batteries) after the sun goes down.

However, the minimum rates for flexible FiTs were also reduced by the regulator in its final decision this week, and will change on July 01 to 5c/kWh during the daytime demand lows, 6.9c/kWh during weekday evening peaks, and 7.1c/kWh overnight. (See table below.)

It should also be noted that in Victoria, retailers who choose to offer a flat solar feed-in tariff must offer customers at least the minimum rate that the regulator sets in its final decision. (In other states, like NSW, it is entirely voluntary to meet the minimum rates recommended by regulators.)

This means retailers can, of course, offer rates above this – and according to the ESC, at least half a dozen Victorian retailers currently do offer a very small premium on the current recommended minimum rate (around 7c/kWh, compared to 6.7c/kWh).

But, as has become customary in the ESC’s final decision report, the regulator also reminds consumers that while certain retailers offer considerably higher FiTs under special plans or terms and conditions, these should be carefully examined for the fine-print.

In 2020, for example, Pacific Hydro-owned retailer Tango Energy offered rooftop solar customers in Victoria a 20c/kWh feed-in tariff – the equal-highest in the state and almost twice the (then)10.2c/kWh minimum mandated rate. But as One Step explained here, the offer came with a couple of key catches.