The “solar tax”: Who should pay to upgrade electricity networks for solar exports? – AEF | Australian Energy Foundation

The “solar tax”: Who should pay to upgrade electricity networks for solar exports?

In March 2021, the rule-maker for Australia’s main electricity market (the Australian Energy Market Commission – AEMC) said it wants to change the rules for rooftop solar.  Their proposal includes several parts, one of which has been labelled in the media as a “solar tax”. In our view, the proposed rules taken as a package are positive overall for Australian households.  Any implementation is years away and is unlikely to greatly reduce continued solar uptake. We’ll keep a close eye on the details as they develop.

Network capacity

Local electricity networks were not originally designed for reverse flows caused by solar exports. They can handle a certain level of exported solar power without any upgrades, but beyond that point additional exports do cause problems such as high voltages – this can shorten the lifespan of household appliances and cause solar inverters to shut down. Once this starts to occur, higher exports can be enabled by simple measures such as adjusting transformer voltages. However, further solar uptake will again exceed network capacity and require more expensive upgrades such as thicker overhead cables.

Inadequate rules

Today, households have no guaranteed right to export electricity. Network companies (hover here)* allow exports out of the “goodness of their hearts” – there’s no requirement on them to allow it anywhere on their network.  New solar systems are routinely limited by networks on the power level they’re allowed to export, and some new solar systems are being disallowed from exporting at all.  Access to network export capacity is being granted on a “first in best dressed” basis – early adopters are advantaged over latecomers.  Many solar panels on roofs are being under-utilised – a portion of their generation capacity is being wasted, especially on sunny days.  Networks are not measuring or estimating the amount of this waste, or its value to households or the community.  There are no standards for the level of this waste, so networks are not being held to account for it.  These are all problems that should be addressed.

Solar unlimited?

So, should all households be supported to export as much electricity as they like?  This is an attractive idea, but restrictions have precedents in other industries.  For example, not all homes have equal mobile phone reception or internet upload speeds. Some homes in difficult-to-reach areas are not supplied with mains water.  Solar exports face real physical constraints in many parts of existing electricity networks, and upgrades to remove those constraints will cost real money.  Which upgrades are “worth it”, and who should pay for them? Today there’s no clear way to decide. Network companies are already spending money to enable solar exports, with expenditure (plus a profit margin) to be recouped via everybody’s electricity bills. In at least one case, a network’s planned solar spend was refused by the Australian Energy Regulator and slashed to a fraction of the proposed amount.

Proposed changes

Things are changing: on 25th March 2021, the electricity market rule-maker (the AEMC) said it wants to change the rules so that standards will be set for “wasted solar”, and network companies will be held to account, paying penalties for breaching those standards. Every five years they’ll have to explain how they plan to minimise “wasted solar”, and how much those upgrades will cost consumers. Households won’t have an unlimited right to export, but networks will have to treat electricity exports as a regulated service, just like electricity imported by households.  The details won’t be decided for maybe a couple of years, and much will depend on the Australian Electricity Regulator to set appropriate thresholds and enforce them proactively. These are very good moves.

The “solar tax” pros and cons

The media has focused on the possibility that solar households may have to pay special fees that don’t apply to non-solar customers.  Today the rules don’t allow this, but the AEMC want to remove that restriction. For example, a network might increase your daily supply charge if you want to “unlock” your 5 kW export limit and make your exports unrestricted.  This has a precedent with broadband – if you want faster speeds then you pay for a higher plan. The advantage of such solar fees is that they’re cost-reflective. Households exporting lots of solar are the ones driving network upgrades for exports, and their solar fees would cover at least part of that cost. Non-solar households (e.g. disadvantaged people) are spared from paying for upgrades they don’t benefit from. One disadvantage is that the community misses out on the benefits of rooftop solar if solar fees discourage its uptake. For example, rooftop solar helps to close coal-fired power stations more quickly. Also, existing solar households would face an unexpected hit to their good-faith investment if solar fees are made retrospective. Finally, such fees would be complicated, making retailer billing more confusing and error-prone than it already is!

Who else might pay?

Governments could help pay for network upgrades to enable solar exports. For example, this would have been a better use of the money spent by state governments to subsidise middle-class owner-occupiers to purchase systems that were already a good deal. A century ago, governments didn’t subsidise motor vehicles, instead they invested in the road network to enable their uptake. Perhaps the most likely outcome is that solar fees will never eventuate. Networks will implement smart, dynamic export limiting that still wastes some solar generation, but minimises it by acting only in places and at times when the network is actually struggling. And hopefully governments will help cover the cost of network upgrades. Electricity supply and demand must be managed in our grid on a minute-by-minute basis. It’s great that rooftop solar is growing to become a dominant generator during sunny times, however it must operate with regard to that balance. In our view as the sector matures it’s inevitable that solar systems will be subject to some level of remote management, at least occasionally.

Some people complain about network profiteering – why can’t network company shareholders just pay for these upgrades and forgo some profit?  Yes network profits are excessive, but this is a separate issue.  For example, toll road operators might be considering implementing congestion charging. They could avoid congestion charges by reducing profits, but on the other hand if you’re reducing profits you could reduce all tolls across the board. Whatever level of profits are extracted, the question is how to allocate costs across network users.

Any questions?

Our view is that the proposed rules are overall positive for Australian households, with implementation of these proposed rules being years away. If you already have solar and wondering what the proposed rules means for you, or if you’re considering solar but not sure how these proposed rules will affect you, you are welcome to chat to our Energy Advisors for advice.

Call us on 1300 23 68 55 or send us an email via our contact form.

Read the full draft proposal from AEMC below:

https://www.aemc.gov.au/sites/default/files/2021-03/Draft%20Determination%20-%20ERC0311%20and%20RRC0039%20-%20Access%20Pricing%20and%20Incentive%20arrangements%20for%20DER.pdf

Footnotes:

*The company that owns and manages the poles and wires in an area, e.g. Jemena, Powercor, Ausnet, Ausgrid, SAPN, Energex.

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