It’s not a tax
Shout it from the rooftops! Renew’s Dean Lombard looks beyond the headlines and the hysteria at the details of the proposed new solar rules.
There was a fair bit of consternation recently when media reports of a forthcoming “solar tax” hit the airwaves. Those reports resulted from the Australian Energy Market Commission (AEMC)—the rule-maker for the National Energy Market—releasing a “draft determination” on an “integration of distributed energy resources” rule-change proposal. This proposal consolidates three similar rule-change requests from four different organisations. The headline item was the news that electricity networks would be able to charge customers with solar panels to export their surplus energy to the grid.
This certainly sounds like an alarming prospect for people who have invested in rooftop solar, and also for everyone concerned about carbon emissions from fossil fuels and passionate about growing the renewable-energy sector. But, as is often the case, there’s a bigger story behind the clickbait headlines. Renew has been on the journey of this rule-change proposal since the very beginning, so here’s the lowdown: what you need to know, and what lies ahead for solar households, as well as for regular people who want to do their bit to live sustainably and reduce emissions.
What’s it all about, in a nutshell?
The electricity system is changing. We used to have a small number of big coal* power stations running constantly—often referred to as “baseload”, although that term really refers to the underlying “always-on” electricity demand (the “load”) that needs to be met. These coal stations were augmented by a bunch of other gas power stations called “peakers”, which would switch on and off when needed.
In the future, we will have no coal, fewer gas peakers, and a whole lot of wind and solar generators. Wind and solar behave more like peakers in that they don’t generate energy all the time. Significantly, despite the big solar farms that are currently popping up everywhere, a lot of the solar generation will be not originate with grid-connected commercial plants—instead, it’ll come from regular people’s rooftop solar panels, pumping energy into the grid when the house to which they are connected isn’t using it.
Gas peakers, solar/wind farms and rooftop solar panels are also similar in another respect: they’re not always needed. There will be times when they could generate, but if they did, the energy they produced would be superfluous and could not be used. The future energy market will need to be able to deal with these scenarios by using this power when it is needed, and either shutting it off or diverting it to storage when it’s not.
Additionally, electricity distribution networks—the poles and wires in our streets that connect our houses to the state and national electricity grids—were designed to fulfil a single objective: to bring electricity from power stations to end users via the transmission network. In other words, they were designed to handle a one-way flow, not two-way flows.
While our power lines can handle some two-way flow, much of our network infrastructure simply can’t handle too much solar export. There are two reasons for this: firstly, the volume of solar exports is often much larger than the amount of electricity needed to meet demand (the amount that the networks were designed to handle); and secondly, solar exports can cause technical problems in the network (such as voltage rise and preventing the correct operation of safety equipment).
Similarly, the rules and regulations that govern the infrastructure’s operation are designed to incentivise private network operators to invest in order to meet demand for energy consumption, rather than funding infrastructure to build capacity to take energy back from end-users. As a result, network owners can have trouble getting approval from the Australian Energy Regulator (AER) to spend money adding that capacity—the rules won’t allow it.
So the question over the last few years has been how to go about changing those rules—and what new rules should look like. The basic structure of Australia’s regulatory regime is that the AEMC makes the rules for the National Energy Market, which are then enforced by the AER. If anybody thinks a rule needs to be changed, or a new rule added, they make a proposal to the AEMC. That proposal then goes through a public consultation process, which informs the AEMC’s decision about whether the rule change is needed, and if so, how it should be implemented.
For the last few years, a bunch of energy businesses, energy market bodies (including the AEMC and the AER), and consumer advocates have been meeting regularly to talk about the need to reform the energy market to better accommodate “distributed energy resources”. This term refers to energy generation and storage equipment (as well as some high-energy-demand appliances) connected to the distribution network; at the moment, that equipment largely comprises households’ and businesses’ solar panels, but will also increasingly include batteries and electric vehicles.
A number of issues have been discussed in these talks, including how to deal with the technical problems associated with distributed energy resources, how to ensure that costs of integrating them are shared fairly, and how to change the regulatory system to properly incentivise networks to support growth in the equipment’s use. In the end, three rule-change proposals were submitted to the AEMC by some of the organisations involved in these discussion: from the St Vincent de Paul Society, from SA Power Networks, and from the Total Environment Centre (TEC) and the Australian Council of Social Service (ACOSS) working together.
Renew was involved in these discussions and worked closely with ACOSS and the TEC as they developed their proposal. While the three proposals differed in emphasis and detail, they were complementary in that they shared a focus on changing electricity rules to make distribution networks responsible and accountable for providing a two-way, rather than one-way, electricity distribution service.
The “draft determination” published in March was the AEMC’s first response to these proposals. It’s basically the AEMC saying, “OK, here’s what we think we should do,” and putting their ideas out to the public for feedback.
Most media articles focused on one aspect of the AEMC’s plan: the part that would remove the current prohibition on charging customers for exporting energy to the grid. However, there’s a whole lot more to the plan, most of which has been ignored in the hand-wringing about a “solar tax”. Specifically, the draft determination also proposes:
- Updating the regulatory framework to specify that “distribution services” (i.e. the services that networks are required to provide) are two-way, and therefore include export (i.e. grid feed-in) services. This will involve ensuring that all the current rules relating to distribution services apply to export services as well as meeting demand;
- Introducing incentives for networks to efficiently invest in, operate and use export services—basically, this means service standards for accepting grid feed-in similar to the service standards that already exist for supplying demand; and
- Enabling distribution networks to offer two-way pricing for export services. This allows them to pay owners of distributed energy resources for sending power to the grid when it is needed—and charge them for sending power when it is not needed.
The last bullet point is the bit that got all the attention, but as you can see it also enables solar owners to be paid extra (in addition to the feed-in tariff) for their surplus energy when the circumstances are right. It’s also important to note that any tariffs set for solar exports will have to be proposed by the networks during the regulatory process, justified as accurately reflecting costs, subject to public consultation, and approved by the regulator before they can be implemented—just like regular tariffs.
The intent is that more distributed energy resources will be able to be integrated into the grid, and that the costs involved in this integration will be shared proportionately by all network customers, because accommodating more distributed energy benefits all customers in a number of ways. It’s important to note that as part of the regulatory process, networks will have to show how an export tariff reflects network costs that the export causes. This means that charging customers for export will likely only happen some of the time and in certain situations, such as when exporting an amount of electricity that is not needed and will cause network problems.
In such cases, the charge will either discourage customers from exporting that additional amount (incentivising them to use or store it themselves) or contribute to funding additional works needed to prevent further issues. (This is not a direct contribution: as part of the network price determination, networks must show what additional works are needed and why, and how they will raise the revenue to do that work in a cost-reflective way. Once the AER approves the revenue requirement, the tariffs and the work program, it’s simply up to the network to meet their performance targets for operating the network.)
Modelling done independently for the AEMC suggests that even in a worst-case scenario, at today’s prices the expected export charges will have a very minor impact on the payments that solar households receive from grid feed-in. It also shows that in many cases there will be a net gain, because customers who agree to export charges will ultimately be able to export more power than they can now. In any case, if export tariffs are introduced at all it will be several years down the track, and a lot will change by then: feed-in tariffs will continue to drop as growing rooftop solar installations reduce the value of daytime energy to almost zero, and cheaper batteries and electric vehicles will give solar households plenty else to put their unused generation into than the grid.
Overall, Renew supports the current process, and is comfortable with most of the draft decision. The decision is focused on increasing the ability of networks to accommodate customer-owned renewable-energy resources—a good thing!—and is helping us move into the necessary future where all these distributed energy resources are managed collaboratively to meet individual as well as collective needs. The energy grid, after all, is a shared resource and using it is a joint activity. But it’s quite a big change, and change is hard.
AEMC draft determination: bit.ly/35GIAkq