There are moves afoot in some Australian states to introduce time-varying feed-in tariffs for solar, in arguably the most significant change to the structure of feed-in tariffs since they were introduced in 2008. Should solar households switch to a time-varying tariff if and when it becomes available? ATA energy analyst Keiran Price examines the issues.
A feed-in tariff is the money paid to a household or business for the solar electricity it generates and exports to the energy grid. Feed-in tariffs were initially designed to ensure that a household or business that installed solar achieved a competitive payback over the life of the system. Nowadays its key purpose is to ensure fair compensation for the renewable electricity provided into the grid.
In Australia, tariffs are set at the state/territory level. In Victoria, regional Queensland, Tasmania and the NT there is currently a mandated minimum feed-in tariff set by the government. In SA, NSW and the ACT there is no mandated minimum, and customers will often see big differences in the tariffs offered by different retailers. With or without a minimum tariff, a common difficulty is determining what constitutes a ‘fair’ price for rooftop solar generation.
A new way the issue of a fair price is being addressed is through a time-varying feed-in tariff. We’ve had time-varying retail tariffs for electricity usage for a while now, and these new time-varying feed-in tariffs provide a similar mechanism; they aim to reflect the differing value of electricity generation at different times of the day.
Three states have either already introduced or are planning to introduce time-varying feed-in tariffs in the coming financial year.
Victoria’s time-varying feed-in tariff will start in July 2018, but it is optional – retailers in the 2018-19 financial year will be able to choose to offer just the mandated flat-rate tariff. The Government has announced a time-varying feed-in tariff will be mandatory from 2019-20.
The minimum feed-in tariff will fall to 9.9 cents per kilowatt hour (down from 11.3c/kWh). The Victorian Essential Services Commission found that although the average wholesale price of electricity has increased, the average price during the solar generation period has dropped due to a surge in solar installations. This led the commission to reduce the minimum tariff due to the predicted low wholesale market value for electricity exported in the hours around midday.
The optional time-varying feed-in tariff will be:
- peak rate of 29c/kWh (3–9pm weekdays)
- shoulder rate of 10.3c/kWh (7am–3pm and 9pm–10pm weekdays; 7am–10pm weekends)
- off-peak rate of 7.1c/kWh (10pm–7am every day)
The Queensland Government is already offering time-varying feed-in tariffs for regional customers. They have a choice of a flat-rate tariff of 10.2c/kWh or a time-varying one of:
- peak rate of 13.6c/kWh (3-7pm)
- off-peak rate of 7.4c/kWh
On May 8, iPART, the NSW body tasked with recommending a benchmark (rather than mandatory) feed-in tariff, released a draft recommendation for a time-varying tariff with six different time periods! Similar to the Victorian model, these periods give different prices to reflect the value of the exported solar electricity to the grid. They’ve also recommended reducing the flat-rate tariff from 11.9-15c/kWh to 7.5c/kWh. The time-varying rates and periods in their recommendation also identify when solar exports occur:
- 6.9 to 7.2c/kWh, 6.30am – 3.30pm (90.8% of solar exports)
- 8.9 to 11.7c/kWh, 3.30pm – 4.30pm (5.8% of solar exports)
- 11.3 to 13.3c/kWh, 4.30pm – 5.30pm (2.6% of solar exports)
- 12.8 to 20.9c/kWh, 5.30pm – 6.30 pm (less than 1% of solar exports)
- 8.7 to 9.6c/kwh, 6.30 pm – 7.30 pm (virtually no solar exports)
- 8.4 to 8.5c/kWh, 7.30 pm – 8.30pm (virtually no solar exports).
The ATA is broadly supportive of the new approach to calculating feed-in tariffs in Victoria as it reflects the real value of distributed generation more closely than the previous feed-in tariff and probably better than any other in Australia. While it’s unfortunate for solar households when feed-in tariffs go down, setting them in line with the actual value is good policy. Solar generation depressing the wholesale price of electricity is good for everyone and an essential part of the transition to a 100 per cent renewable grid.
The ATA’s initial modelling found that the Victorian time-varying feed-in tariff would lead to payments that were between 15 per cent and 25 per cent higher than under the new 9.9 c/kWh flat tariff.
Things are different in regional Queensland. Typical solar customers are unlikely to benefit from the time-varying feed-in tariff. At least 46 per cent of a customer’s solar export would need to be between 3 to 7pm over the course of a year to make the time-varying tariff more attractive, and this is unlikely unless a household has a very specific consumption profile.
When it comes to NSW, the ATA hasn’t yet conducted detailed analysis on its proposed time-varying tariff. As soon as a retailer in NSW offers one, we’ll conduct a review and provide an update.
If you live in Victoria, regional Queensland or NSW, or wherever time-varying feed-in tariffs are next introduced, and you’d like to know what’s best for you, an ATA energy analyst can conduct a bespoke analysis as part of an ATA Energy Consultation. Click here for more detais.