Victoria regulator proposes 29c/kWh solar export tariff in peak period

12th April 2018

The Victoria energy and pricing regulator has proposed a peak period tariff of 29c/kWh for rooftop solar exports back into the grid, in a ground-breaking recommendation that could help change the way consumers think about their solar assets, and encourage battery storage.

The recommendation from Victoria’s Essential Services Commission recognises the value of encouraging rooftop solar to be fed into the grid at times of peak demand, and is part of a wholesale rethink about the structure of solar tariffs in the state.

Last year the ESC, under instructions from the Victoria Labor government, factored in a 2.5c/kWh social cost of carbon, effectively a $25/MWh carbon price, into the state’s solar feed in tariffs – the first time the “benefits” of rooftop solar had been valued in an Australian tariff.

It was also asked to value the network benefits of rooftop solar, but this work is still ongoing because of the complexity of the task, and the geographical variation, and it was asked to value the “environmental” benefits of solar, but also found that too hard to quantify.

The introduction of a peak tariff for rooftop solar is a huge development, given that all solar tariffs up till now had been structured on a flat rate.

It will come into effect for the hours of 3pm to 9pm each weak day. The “shoulder” tariff – from 7am to 3pm, and from 9pm to 10pm, – will be 10.3c/kWh, while the off-peak tariff- from 8pm to 7am – will be 7.2c/kWh.

The ESC expects that the offering of a “time-of-use” solar tariff will become compulsory over time, but there will be a transition period where retailers can offer a “single rate” FiT of 9.9c/kWh.

Both the single rate and shoulder tariffs are well below the 11.3c/kWh tariff currently in place, but the ESC says modelling provided by ACIL Allen argues that day-time wholesale electricity prices will fall in coming years, due to the increase in solar projects.

This includes the continued addition of rooftop solar at record rates, the construction of the state’s first large scale solar farms (at least 190MW in coming years), and new large scale solar projects (2,400MW) in states like Queensland, South Australia and Victoria.

This will reshape wholesale prices in the state – and this graph above shows just how dramatic it might be, with ACIL Allen saying the exit of Hazelwood, and the addition of solar, will push down prices during the day, but result in significantly higher prices in the evening.

Hence the recommendation of a time of use tariff. The ESC expects this could encourage households to shift demand, use appliances like pool pumps, earlier in the day, be more efficient in the evenings, and possibly to encourage battery storage.

James Clinch, manager of regulatory reform at the ESC, said a “critical peak” price for solar exports was also considered, but not included due to uncertainty over the impact on retailer contracting practices.

Critical peak tariffs, which would provide payments well in excess of 29c/kWh to reflect the jump in critical peak pricing, when prices can soar to $14,000MWh, of 1,400c/kWh.

Clinch noted that the growing impact of solar – both rooftop and large scale – will have an impact on wholesale markets, and for the first time the forecast weighted average wholesale price when solar is generating (6.8/kWh) is lower than the forecast average wholesale price for 2018-19 (9.1c/kWh).

“What customers do in reponse is matter for customers,” Clinch told One Step Off the Grid in an interview. “Our enquiries show that one outcome is that customers will have an incentive to export more at peak periods and that has overall efficiency benefits.

“Essentially, they are making more efficient use of their solar assets and supplying energy at time of high demand.”

He said the opportunities for the consumers were to load shift, to orientate their panels to the west, rather than the north (to produce more later in the day), to change demand patterns, or to install battery storage.

Darren Gladman, the director of energy independence for the Clean Energy Council, said the shift to time varying FiTs would improve the business case for batteries without the need for any subsidies, and said other states should follow.

“Time-varying feed-in tariffs will provide an incentive for investment in batteries, leading to a reduction in electricity costs to other consumers,” Gladden said in a statement.

“By paying the fair value of electricity fed into the grid at peak times, households and businesses will have the incentive to invest and will support the system by providing power when the system needs it most.

Gladman noted a previous Productivity Commission report that estimated peak demand in NSW lasted for just 40 hours per year (or less than 1 per cent of the time) but accounted for around 25 per cent of retail electricity bills.

“By providing an incentive to households and businesses to generate at peak demand periods, the electricity bills of all customers will be reduced. Other states should follow the Victorian Government’s lead and pay battery owners a fair value for the electricity they feed into the grid at peak periods.

“Time-varying feed-in tariffs enable households and businesses to compete to supply power at peak times. Electricity in Victoria will be cheaper and more reliable as a result of these sensible feed-in tariff reforms.”

(Source)