Solar Tariff Tiff

There's a lot of noise being made at the moment about "feed-in tariffs", or bonus money paid to folks like me for energy that my new solar panels will feed in to the electricity grid. The debate centres around how to measure and price that energy. Here's my take.

There are two main kinds of benefit that large-scale distributed PV electric generation can potentially deliver to the community as a whole: environmental and financial.

The long-term environmental vision, which I'm sure most people would agree is the right idea, is for future society to be powered with cheap, clean, renewable energy instead of being dependent on the burning of coal or the fission of uranium which - even if the technology can be made "clean" - will both eventually run out. An essential feature of this vision is that we must become far more efficient in our use of the energy that is available.

And while it's obvious to most people that harvesting sunlight is sustainable and much cleaner than digging up and burning coal, not everybody is aware that having solar energy generation located nice and close to all our air conditioners is a great way to minimise infrastructure costs associated with peak demand and long-distance power transmission on hot afternoons.

A good feed-in tariff scheme for solar electricity would help to realise both kinds of benefit.

The Queensland Government appears to be following the South Australian lead in proposing a model under which I would only be paid a bonus for producing energy that was not simultaneously consumed within my own home. Just to be clear, that's excess energy which I produce but somebody else gets to use. This is broadly referred to as a "net tariff" scheme.

A number of groups, including the Local Power group through which I've ordered my panels, the Alternative Technology Association, Queensland Conservation, the Queensland Consumers Association and reportedly even BP (who make panels) are expressing disappointment in this and arguing instead for a "gross tariff" scheme whereby I would be paid a premium rate for all the energy produced by my panels regardless of how much energy I consume within my own home, or when. This is reportedly the model implemented in Germany, a world leader in terms of solar electricity generation capacity.

The motivation of the "gross tariff" advocates is fairly simple to understand.

Firstly, most of them genuinely want to see our society move as quickly as possible from fossil-fuel dependency to clean, renewable energy sources - which of course I agree with. Secondly, there's the financial self-interest: panel buyers want faster payback on their "investment" and higher long-term profitability while manufacturers like BP want to sell more panels. And thirdly we have an environmental loopback effect where making panels more financially attractive encourages greater adoption which takes us one step closer to having a clean, renewable energy infrastructure.

However, despite being both an "environmentalist" and a purchaser of solar panels, I don't agree that a gross tariff scheme is an obviously right choice for Queensland as a whole community.

In order to deliver on the environmental potential, the installation of solar panels must succeed in reducing the overall demand for energy from non-renewable sources. And in order to reduce costs associated with the grid infrastructure itelf, that energy must be delivered at times of peak demand. As I see it, the gross tariff schemes being proposed would actually erode both of those benefits from the inside, because it reduces the incentive for the owners of the panels to minimise their own energy consumption. Taken to the extreme, it provides an avenue for wealthy high energy users (and especially those addicted to their air conditioning) to cheaply maintain or even increase their energy consumption. I have actually had conversations with somebody who sees that kind of thing as an opportunity.

(Related post: Does energy efficiency encourage greater consumption?)

In contrast, the net tariff scheme put forward by the state is designed to reward those who find ways to minimise their consumption (delivering the environmental benefit), especially during those hot, sunny times when their panels are producing the most power (delivering the peak load infrastructure cost benefit).

Australian taxpayers are already contributing $8,000 towards my panels through a federal scheme to stimulate growth in the PV industry. Why should my fellow Queenslanders pay me even more in a subsidy which I could squander by simply using more energy and defeating the purpose of all that investment in the first place?

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Speaking of the bigger picture, I believe that the actual core problem here is that current retail energy prices are much, much lower than the true cost of the energy. Government subsidies to the coal industry, myopic belief in unlimited growth and a very bad habit of completely ignoring "externalities" have made it so. Gross tariff proposals make a certain amount of sense in that they come closer to recognising the complete value of the energy, but the proper objectives of such a scheme would be continually undermined by the disincentive to reduce consumption.

Maybe as a kind of middle-ground policy it would make sense for panel owners to be paid a modest flat rate for their gross production on the proviso that they sourced at least the same quantity of energy (or 100% of their consumption, whichever is lower) from GreenPower-accredited providers. That would help to direct funding into renewable energy projects. Mind you, panel owners could achieve almost exactly the same thing by simply not selling their RECs at the time of installation. (See my earlier post on that topic.)

Perhaps surprisingly, I'm leaning towards opposing "time-of-day" metering for retail electricity consumption at this point. The idea behind it is to charge consumers more for energy consumed during peak periods. Sounds sensible enough, but apart from smoothing the load on the distribution grid it actually favours the coal generators and erodes the benefit of having a substantial PV capacity. However if it could be shown that time-of-day metering reduced overall energy consumption and especially consumption of fossil fuels then it might be worth doing.

But the "elephant in the room" (to borrow a phrase I once heard used by Andrew McNamara) which apparently nobody is talking about is that over the lifetime of any new solar panel installation the retail price of energy is likely to go up dramatically. You can thank climate change, carbon trading, peak oil and population growth for that. Even without any kind of tariffs, that rise should significantly shorten the effective payback time for a PV installation through avoided energy costs in the future.