Too much solar?
Changing solar feed in tariffs will change what happens and when it happens
The headline is a bit tongue in cheek as I think we need more and more.
I have been saying for a while now that increasing adoption of rooftop solar and large scale solar was going to re-order pricing in the market place. Now it seems to have come in rush.
Last week Victoria’s energy regulator, the Essential Services Commission announced that the minimum solar feed in tariff (FiT) was dropping by a more than a third. This moves the minimum an energy retailer can pay for solar fed into the grid by households to 6.7 cents per kWh. In June 2020 that number was 12 cents (it was dropped to 10.2 cents in July 2020). So in little over 12 months the minimum price has been dropped by 44%.
Now, wait I hear you saying, it is a free market so companies are free to pay above the minimum. Oh, you are so sweet and innocent! An assessment by Canstar Blue looking at the market in February 2021 showed that out of the 26 retailers they looked at, twenty were only paying the minimum and another two were paying above the minimum only if you bought your solar system through them. It may be that in a lower pricing regime consumer pressure may lead to more companies offering above the minimum but it seems that despite lots of people complaining about their bills not many actually change suppliers ( I did, for the fourth time in 3 years – can you tell to which one?).
The reality is that the regulator is only reflecting the market place and with more and more solar being generated there is less demand for energy in the middle of the day and more solar being fed into the grid. Less demand and more supply generally means lower prices in most markets. In December The Australian Energy Market Commission (AEMC) predicted that wholesale prices would fall by 37% over the next 3 years. This is due to a combination of factors driving supply and pricing, not just solar.
The changes to the feed in tariffs will impact in a number of ways in the next few years:
- I have written previously that the large solar system we put on our roof has returned about 14.2% return on investment over the last few years. A lower feed in tariff will reduce that return as we put over 8,000 kWh a year back into the grid. That is just tough luck for us but it also means that people may be less inclined to put larger household solar systems in place because the returns are reduced. Before you make a decisions like that you should think about the other issues below.
- Reduced feed in tariffs mean that electric vehicles are more attractive. If I am being paid 6.7 cents per kWh and that energy will power my car for 6.5 km then my fuel costs fall to just over 1 cent per kilometre. This compares to the average cost for a medium sized car in the RCAV data of 9.2 cents. So if I am driving 15,000 km a year I save $1,200 a year in fuel costs if I can charge the car on my solar system when it is feeding the energy back into the grid. If you add in lower maintenance costs then the savings are even higher. That moves the capital price parity point (where capital costs of a new EV minus the savings for an EV over a fossil fuel car = the capital cost of a fossil fuel car) closer to the present.
- Reduced feed in tariffs also increase the value of a vehicle that can feed energy back into your house when it is parked in the driveway. Now, the actual economic value is not based on the feed in tariff but on the difference between the feed in tariff and the price you pay for energy from the grid. The reality is that lower feed in tariffs will increase that differential.
- Reduced feed in tariffs during the day also increase the value of projects like this Virtual Power Plant Hot Water Pilot Project where instead of heating water at night the system heats it when solar power is available.
- Reduced feed in tariffs also mean the the point at which local battery storage is economic comes closer to the present. This is being driven by the twin forces of reduced feed in tariffs and falling battery storage prices. Again this is based on a differential between feed in tariffs and grid prices you pay for power so don’t get sucked in by charlatans saying you save all the money from your power bill. I am hopeful that we will see more micro-grid systems where a community can share ownership of a larger scale storage system because this reduced costs further.
- On a personal front I am also going to be looking to supply a car charging service from our driveway. We live near a popular walking area with limited parking at times. I am looking to offer a service where you can come to our house, park your car in our driveway and let it charge while you go for a walk and a coffee. It may not be a fast charging system but if you can add 80-100km a week to your car’s energy system while you walk three times a week then that seems like a good offer to me, especially if you do not have the option to charge at home yourself.
So if you are thinking about putting in a solar system I would think twice before making it smaller because the feed in tariff has fallen. Personally I would put in a system that looks something like this:
Enough panels for the maximum economic return for your house.
Enough panels to power your future electric vehicle needs.
Enough panels to feed energy back into your house from your future electric vehicle.
Enough panels to contribute to a local storage solution.
Of course you need to look at your onw personal situation and get professional advice before investing.
Your should also look at overclocking your solar inverter as I wrote about in 2019.
So I am very positive about the drop in the solar feed in tariff although it will probably cost me money. It adds to the energy (sic) for a new wave of business models and solutions.
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