How to tame the solar monster

Archived News, Posted on 13 Apr 2011

• Published 9:23 AM, 15 Apr 2011
• Updated 10:47 AM, 15 Apr 2011
 
Giles Parkinson


The solar PV industry is hurtling towards grid parity. The sheer weight of demand, the benefits of scale and the rising Australia dollar suggests the “holy grail” of renewable energy sources could be reached within a few years.
But it’s not there yet. Governments have played a key role in creating this boom in demand with ham-fisted policymaking, despite much advice – even from the sector itself – to the contrary. And how they respond to the role that rooftop solar is playing in rising electricity prices will determine whether this extraordinary boom can deliver some key and unexpected benefits, or is allowed to end in another miserable bust.

If it can be managed properly, then this $2 billion industry, which employs 10,000 people, can have a permanent (and unsubsidised) place in the Australian electricity market. If it reaches grid parity, say by 2014/15, then future rooftop solar installations will be able to deliver abatement of greenhouse gases at next-to-zero extra cost to the public purse. Governments have an opportunity to transform what seems to be a policy disaster into a triumph. Hopefully this time they will listen carefully to the industry advice.

The first challenge is to deal with the headlines and the wailing and gnashing of teeth – the latest caused by Thursday’s decision by the Independent Pricing and Regulatory Tribunal to recommend electricity retailers in NSW be allowed to hit their customers with price increases of up to 18 per cent. The rise is a significant, if inevitable, blow to household and small business expenses. As one spokesman for the NSW chamber of commerce noted in a hallelujah moment, the “age of cheap energy is over”. Well, yes. And perhaps now it’s time to enter the age of smart energy and energy efficiency.
More than half of the price rises announced by IPART are due to network upgrades – either to cope with the surge in peak demand, or to make up for inadequate past investment – even if the NSW state government and some of the largest industrial consumers suspect some of this might not be necessary. IPART said renewable energy, or more particularly the cost of incentives for small-scale solar, accounted for around one third of the cost increase. Needless to say, however, they accounted for 99 per cent of the headlines.

It’s kind of ironic that those who have sought to demonise the solar industry – and large-scale renewables by association – have played a significant role in causing its extraordinary boom. The more the shock jocks and the tabloid media wail about rising electricity costs and the role played by solar PV, the more it dawns listeners and readers that installing solar PV, and hedging against soaring energy bills, might actually be a really good idea. Little wonder that solar shops find placing advertisements on these media particularly rewarding. And no, it hasn't just been the province of the wealthy, subsidised by the poor. You don’t need much money to invest in something with zero upfront cost.
Still, the acceleration in demand in solar PV has been breathtaking. Not even the abrupt halt of the ridiculously generous gross solar tariff of 60 cents per kilowatt hour in NSW has been able to slow it down. The federal government tried to manage the explosion in demand by splitting the renewable energy target into a (slightly reduced) big target and an open small target, but while this has corralled some the impact on the large-scale renewable industry – which has been stuck in the starting gate because of a flood of solar credits – the demand for rooftop solar has not been halted.
In the last three months, the Office of the Renewable Energy Regulator has lifted its predicted surplus of credits in 2011 from small-scale solar from 28 million to 35 million. The latest forecast, made at the end of March, already looks out of date. In the last three weeks, the number of credits produced has doubled to around 1.5 million a week.

So how to tame this monster? The Australian industry is aware that state-based feed-in tariffs for new installations are likely to more or less evaporate by the end of 2011; and the federal government has already accelerated the planned winding down of the multiplier for solar credits. But the industry fears that bad decisions made now still could threaten the industry’s future.

The most important of these is how the retailers will reward new rooftop installations after the cessation of FiTs. Already the likes of Origin and Energy Australia are proposing paying just 6c a kWh for new rooftop solar, arguing that it should receive no more than the wholesale rate. The Australian Photovoltaic Association describes this as perverse – it would allow large retailers to buy electricity from households and sell it back to them at more than three times the cost, possibly four or five times at peak. The APVA says households already pay a standing charge to take into account for network and distribution costs.

The APVA is preparing a paper that argues that once the FiTs run their course, they should be replaced by net metering at a one-for-one rate as the default minimum tariff. This basically means that owners of solar PV get paid the same rate for the electricity they produce as for the electricity they consume. And it cites the COAG principles formulated in 2008 that say residential and small business consumers with small renewables should have the right to export energy to the electricity grid and receive payment "which is at least equal to the value of that energy in the relevant electricity market and the relevant electricity network it feeds in to, taking into account the time of day during which energy is exported."
This will be a test to see if the energy industry and policy makers can overcome the traditional view of electricity supply based around large centralised power sources and a string of poles and wires, or if it can recognise the benefits of distributed energy in avoided generation costs, and reducing transmission and distribution costs, and line losses.

The second critical policy decision revolves around the federal government’s position on the solar credits multiplier. It has already announced it would be phased down a year early. There have been calls for it to be terminated altogether, but this would be disastrous – particularly without net metering – because it would push grid parity, and the benefits it can deliver, further into the future.

There’s a lot of confusion around green energy policies. Numerous commentators argue that support mechanisms such as the RET should be dropped once a carbon price is introduced, and suggest that Professor Ross Garnaut supports this view. He does, but only once the carbon price is at such a level that it can do the heavy lifting. With a properly designed RET, this happens as a matter of course – as the wholesale price and the carbon price near the cost of renewable energy, the price of renewable energy certificates are designed to fall. It’s the market at work, but it needs to be properly designed.
Climate Change Minister Greg Combet appears to understand this. “The renewable energy target was always intended to complement a carbon price in cutting pollution and deploying our significant renewable energy potential,” he said yesterday. “The government supports solar energy's contribution to our clean energy future but is also conscious of the costs of that support to households.” He said no decision had yet been made on the fate of the solar multiplier. Hopefully, he won’t kill the goose before it lays the golden egg.

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