The Empire Strikes Back ? Gross Feed In Tariffs

Giles Parkinson at ReNew Economy has an interesting article on the attempts by some utilities (or at least by the regulator in Queensland, presumably at the prompting of the new conservative government) to retain profit margins in the face of large scale consumer uptake of solar power, proposing "gross feed in tariffs", where consumers are charged retail prices for all their consumption (including the power they generate themselves) while only paying the wholesale price back to the consumer for the power they generated themselves - How solar PV is turning utilities against consumers.

It the solar industry ever harboured any illusions about the challenges it is facing in imposing itself on a sector that has been virtually unchallenged for more than half a century, then they were certainly shattered by a series of attacks on their industry from utilities and pricing regulators over the last few weeks.

It is now clear – if it wasn’t before – that Australian energy utilities are moving decisively against the proliferation of solar PV in an attempt to protect their revenues and business models, as we predicted they would back in June. This is the claim of the solar industry, and they point to numerous examples of tariff changes, network impediments and the lobbying and influence over regulators.

Last week’s revelation that the Queensland pricing regulator was contemplating a tariff that could effectively kill the attraction of solar PV to households struggling under the weight of rising prices from the grid, was proof enough. The attempt by TRUenergy to bring a halt to the deployment of both wind and solar – citing the potential of both to cripple the conventional energy industry – is a further sign of the desperation of those utilities struggling to adapt.

There is no doubt that the debate over clean energy has moved beyond day to day concerns around climate change (even if it should not), and now that technologies such as solar can deliver electricity at equal or lower prices at the socket, the issue of technology cost is also nearly redundant. The battleground has moved to regulation, and policy decisions on the framing of tariffs and how to reflect the true value of producing and consuming energy. And it’s largely played out out of the public eye.

What is required is a new way of looking at the energy system. The hub-and-spoke model, like fixed-line telephony, is creaking under the strain of the so-called “self consumption” market and the ability of customers to produce their own energy.

And the regulation has gotten off to a bad start. The premium tariffs designed to give rooftop solar a kick-start and help reduce its “soft costs” – those for installing, pricing and maintaining the systems – were so badly managed in some key states (NSW, in particular), that utilities seeking to defend their territory and business models were able to gain the moral high ground and win favourable tariff structures under the lofty goal of protecting disadvantaged consumers.

Most tariffs in the country are now structured around a net tariff, which enables a household to use the electrons they produce to offset their consumption and rising retail prices from the main utilities. But any excess production is sold back at a peppercorn rate (under the guise of network and other costs) to the retailers, who then sell it to a nearby customer for between two and four times as much.

However, the utilities have been quietly pushing for an even more draconian measure to be introduced – a gross tariff, which will require households to sell all their output to the retailer and then buy it back at an inflated price.

Giles has a follow up article noting that the gross proposal has been abandoned, for now - Utilities say no to gross tariffs, yes to battery storage.

In a nod to the emerging power of the “pro-sumer”, Australian energy network operators and retailers have rejected a suggestion to move to gross tariffs for rooftop solar, saying it risked turning customers against them. Some suggest tariffs that would encourage homeowners to invest in more battery storage.

Operators of electricity networks in Queensland and the energy retailers have overwhelmingly rejected a proposal by the state’s competition authority to introduce gross tariffs for rooftop solar, saying they would be complex, expensive and unfair to owners of rooftop panels.

The Queensland Competition Authority raised some eyebrows, and a few hackles, last month when it raised the prospect of a gross tariff in an issues paper it prepared for deliberations around a “fair and reasonable” tariff for solar.

The solar industry immediately condemned the proposal, saying the idea of forcing customers to sell all their solar power to retailers and then buy it back at a much higher price was inequitable and would effectively mean the death of the industry, as it would remove the attraction of rooftop systems as a hedge against rising electricity costs. And it seems that the utilities, who were suspected by some, of quietly advocating the move, have recognized the risk of putting consumers offside if such a tariff was introduced.

Most of the submissions put to the QCA by network operators and retailers pointed to the potential complexity and cost of a gross tariff – particularly in having to change metering arrangements.

Interestingly, it was TRUenergy, under fire over its proposal to sharply reduce the development of utility scale wind and solar developments by curtailing the ambition of the renewable energy target, which said most clearly that gross FITs were unfair because they were not equitable to consumers.

It noted that households that invested in rooftop photovoltaic systems do so in the expectation that they will be able to consume less grid energy, and thereby gain a sense of control over their costs.

“Under the proposed changes, households would be required to ‘sell’ energy to the grid at the cost of energy, and then ‘purchase’ energy for their own use, at up to three times the price,” it noted in its submission. It said it would be confusing and “may create the perception that electricity retailers are benefiting at the consumer’s expense.”