Solar Tax Mythbusting

This article appeared in Renew Economy on 1 April 2021. It is the Total Environment Centre’s response to the orchestrated misinformation campaign being waged in the media against the AEMC’s draft determination on distributed energy resources (DER, not only solar) exports to the grid, which was the product of an 18 month long codesign process with the energy sector.

But first, a confession: We, too, once supported the dogma that any export price would be bad to the bone.

Two things changed our mind. One, reform was inevitable, given the pressures on the grid from the ongoing boom in rooftop solar, so we should try to get the best deal possible for solar and battery owners.

Two, more importantly, if done right these reforms would lead to more renewable energy being pumped into the grid, driving down emissions. Nothing we have seen in the past week leads us to doubt this conclusion.

That said, the AEMC has gone down a less prescriptive, more principles based approach than TEC and ACOSS would have preferred.

If the draft determination is implemented, the onus will be on organisations like ours to ensure that networks and the regulator do the right thing by all users, including solar owners.

Australians with rooftop solar panels could soon be charged for exporting power into the grid, under proposed changes”

There are no foreseeable circumstances under which solar owners would face a net cost to export to the grid.

Under very limited circumstances – where local networks are congested in the middle of the day in times of low demand (most often in spring and autumn) — there may be a small charge, probably in the order of one or two cents per kilowatt hour.

However, even during those times this will be more than offset by retailer feed-in tariffs, which are currently at least five cents per kilowatt hour. Also, any short term charge could be avoided by load shifting or installing a battery – or by opting to stick with a static export limit.

“But it’s a tax on the sun!”

This simplistic characterisation ignores the other side of the proposed reforms, which is that networks should pay solar and battery owners when they help to reduce network congestion by exporting energy into the grid.

This is most likely to be during the evening peak, and should encourage greater uptake of residential and community scale batteries. But over time it could also incentivise new solar owners to face their panels west instead of north, to capture the late afternoon sun.

It’s like going to the hardware and buying a widget, and then complaining that the money they want you to pay amounts to a tax. You buy a product or service, you pay for it.

You offer a product or service in the market, you get paid for it. Solar energy can be both, depending on when and where it is exported to the grid.

“Solar owners have made their investment in good faith in the expectation of a certain rate of return, and this will make it unaffordable or unattractive to install solar.”

These reforms should increase the amount of solar energy that will be exported to the grid.

At the moment, every network imposes export limits on residential solar — most often 5 kW or 3 kW – but thousands of customers are being prevented from exporting any energy at all, especially in rural Victoria.

With the amount of solar energy going into the grid projected to at least double over the next decade, export limits will become more and more prevalent.

The reforms are intended to remove this bottleneck, by allowing networks to reward or charge for exports according to when and where the extra energy results in a net economic benefit or cost to all users of the grid.

Also, with the end of government sponsored feed-in tariffs in most jurisdictions, the income from solar exports already fluctuates according to your retail contract and, over time, movements in the wholesale market.

Overall, because networks will find it more difficult to impose zero or low static export limits, solar owners will be able to export more most of the time without paying what amounts to a congestion charge.

It’s like the operator of a toll road saying, “We will charge you more to drive during peak hour, but will pay you to drive during off-peak periods,” instead of saying “Sorry, we are already full up, you can never drive on our road”.

“But more solar energy is always good for everyone!

Under the reforms, where solar exports benefit everyone, any costs associated with increasing solar capacity (eg, to increase low-voltage system visibility, overcome voltage problems and deal with net upstream flows) approved by the regulator can be paid for by everyone (this is the “net market benefit” test which already applies to network investment).

Where additional investment is required and it does not pass this test, the cost is more likely be recovered from those who benefit the most from it.

And the reforms place additional requirements on networks to consult with their customers and to reflect their preferences in their investment plans and their tariff structures. So if most users are fine with any additional costs being recovered from all everyone, then that’s what should happen.

“Where is the evidence that networks need to spend more to accommodate more solar energy?”

In the current five year regulatory period, after close scrutiny the regulator has approved spending averaging about $10 million per year by networks to integrate more solar and battery energy into the grid.

It might not sound like much, but that amounts to over $1 billion in the next decade across the National Electricity Market. As the amount of solar energy going into the grid increases, so this spending is also likely to increase.

Because network revenues are fixed every five years, this spending has to be recovered somehow. We think it’s fairest if it can be recovered primarily from those who benefit the most.

Why should solar owners pay to export to the grid when big coal and gas power stations don’t?

Big generators (Including wind and solar farms) pay significant up-front costs to connect, plus fees to make sure that they don’t do anything to impede the reliability and security of the system.

They can also be penalised or constrained off when there is congestion on the transmission grid. We don’t think it’s fair that mums and dads should be charged thousands of dollars extra at the time of connecting to pay for potential later network upgrades.

“This is another case of profit hungry big utilities gouging their customers because they have a monopoly.”

The AER first assesses whether proposed spending is prudent and efficient. Then it approves or reject the tariffs the networks propose in order to recover their spending.

The regulator very closely scrutinised proposed spending on DER integration for the current regulatory period. How this money is then recovered from users is like slicing a pie; it doesn’t change the size of the pie.

If networks recover some of their approved costs from solar owners, then that reduces the amount they are entitled to recover from other users. There is nothing in it financially for them at this point.

“Ive had enough. I’m going offgrid!”

Fair enough, but it will probably cost you a lot more than staying connected. And chances are, lots of your precious solar energy will be wasted unless you have a gargantuan battery – in which case much of that battery capacity will also be wasted most of the time.

Grids are a great way to efficiently and equitably balance supply and demand.

Finally, people opposing this reform in the media do their constituents and the general public a disservice by dumbing down the debate to the single issue of a sun tax. It is a package of reforms that modernises the regulatory regime by recognising two way energy flows.

And it includes ACOSS and TEC’s proposal to introduce a reliability standard for exports.

Networks will be required to guarantee a certain level of grid availability for exports, and would be penalised when the standard is not met if inverters are tripped more frequently.

We encourage everyone to look at the package in its entirety, and even if you don’t like all of it, at least acknowledge the good bits so they can be introduced without drama or delay.

Mark Byrne is TEC’s energy market advocate.

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