Varying solar payments by time of day

Solar panels

The ATA’s Keiran Price explains how minimum solar feed-in tariffs are set and helps demystify an intriguing new time-of-day feed-in tariff proposed for Victoria from July.

A FEED-IN tariff is a fairly straightforward concept—it’s the money paid to a household or business for solar electricity which they generate and export to the energy grid.

Feed-in tariffs were initially designed to ensure that a home or business that installed solar (or other renewable energy generation) achieved a competitive payback over the life of the system. Nowadays, the key purpose of the feed-in tariff is to ensure that homes and businesses are fairly compensated for the renewable electricity that they provide into the grid. But that competitive payback is still there!

Germany led the way

It can be argued that Germany is the home of the feed-in tariff. They introduced the world’s first feed-in tariff specifically targeted to subsidise renewables in 2000. Since then, feed-in tariffs for renewable energy generation have been introduced in over 40 countries, including Australia in 2008 (in South Australia and Queensland).

Early feed-in tariffs were designed to give certainty to renewable energy generators on the level of return that they would see on their investments. By having a fixed payment per kilowatt-hour, for a fixed period, it was easy to determine the payback time—how long it would take to earn enough money to pay for the initial investment and then start profiting—which made financing easier. The aim was to increase uptake and installation of renewable energy generation, with the multiple benefits that flow from that.

One such benefit is the reduction in greenhouse gas emissions that flows from increased renewable energy generation. This makes it easier for governments to meet targets for renewable energy. Another benefit comes from the increased demand for renewable energy technologies; this increases research and innovation in the industry, and leads to increased levels of production and cheaper products for consumers—as we’ve seen with the incredible price drops of solar technology.

As the cost of installing renewable energy generation like solar has decreased, the level of support from feed-in tariff schemes has also decreased. In Germany, Australia and other countries, the feed-in tariffs provided have decreased to the point that the initial tariffs look unbelievably generous!

In Germany in 2004, the feed-in tariffs guaranteed to new solar PV for a period of 20 years ranged from 45.7 to 57.4 c/kWh. By 2014 the rates had fallen to 8.9 to 12.9 c/kWh (still guaranteed for 20 years). However, at the same time the cost of installing solar PV has been decreasing by around 14% per year. Installing rooftop solar PV is now more than 75% cheaper in Germany than it was in 2006, with the cost of the solar panels themselves reducing even more.

The net effect is that the ‘levelised cost of power’ for solar PV has stayed roughly the same in Germany from 2000 to now. With low solar PV prices, new purchasers of solar are getting a similar payback time and percentage return on investment, even though the feed-in paid per kWh has dropped significantly.

Read the full article in ReNew 143.