The debate over NSW FIT changes

15. December 2011 | Markets & Trends, Global PV markets | By:  Jonathan Gifford

While the rain fell outside, solar industry proponents have put their case to an independent committee in Sydney this week. The committee has been established to determine tariffs photovoltaic producers receive for electricity fed back into the grid. Electricity retailers presented a vastly different case to the committee members.

The New South Wales flag.

The public debate over what tariff photovoltaic producers will receive could be repeated elsewhere. Image: Flickr/raguy.

This debate, over a new system for non-subsidized feed-in tariffs (FIT) received by residents or businesses with small to medium-sized photovoltaic systems in New South Wales (NSW), could play out similarly in other parts of the world as grid parity draws near or is reached.

The populous Australian state of New South Wales’ PV subsidy system is a good example of how governments can get support schemes for renewables wrong. The photovoltaic feed-in tariff (FIT) regime caused a pronounced boom and bust cycle for photovoltaics, when a AUD0.60 per kilowatt hour (/kWh) tariff saw 140,000 systems installed, far more than was anticipated by the government. When that scheme was abruptly halted, and retrospective cuts to the tariff were mooted, demand for PV collapsed.

Committee launched

Earlier in the year the state government asked the Independent Pricing and Regulatory Tribunal (IPART) to investigate photovoltaic feed-in tariffs and determine what rate should be paid to customers who feed photovoltaic electricity back into the grid. Decisively, the IPART committee was charged with the task of establishing a non-subsidy FIT without increasing the cost of electricity or costing the state government anything.

At present, people who install photovoltaic systems – after the initial scheme's cutoff date – receive either AUD0.06 /kWh as a FIT, or nothing at all.

In late November, IPART advised in its draft report that an AUD0.08 to 0.10 /kWh non-binding rate would be a "fair and reasonable" price for consumers to receive. At the public hearing today, the IPART committee heard from electrical retailers that that price is, "at the high end" of where they believe the tariff should be.

The proposed non-binding rate falls well short of a mandated one-to-one or net-metered tariff that the solar industry was advocating for. Explaining its decision, the IPART committee explained that grid costs and fees comprised a large part of the retail electricity tariff and furthermore photovoltaic producers would consume about 50 percent of their production.

This rate is expected to increase from 1 July, 2012, when a Federal Government Carbon Tax comes into effect.

The case for photovoltaics

The transcript of the hearing into the IPART draft report, which was published today, reveals that solar industry advocates and representatives argued strongly against such a low tariff. One of the arguments that gained traction was that positive electricity-price effects, for consumers, produced by photovoltaics, were being ignored.

The effect is known as the "merit order effect", whereby photovoltaic electricity is often produced and fed into the grid at a time when demand for electricity is high – such as during a hot afternoon, when many air-conditioners burst into life. As such, electricity retailers are able to avoid paying expensive peak charges from generators, but continue to charge consumers peak rates or a standard, regulated charge.

Electricity retailers disputed the significance of these savings and argued that it was not worth the committee attempting to calculate these savings.

Merit order effects are discussed in this recent Opinion and Analysis piece.

Tim Sonnreich, from the Clean Energy Council, and Muriel Watts, from the Australian PV Association, both spoke about the merit order effect, with Watts adding that the saving: "is not being passed on to the customer base." Watts argued that as one gigawatt of photovoltaic capacity has now been installed, merit order effects are becoming increasingly apparent.

Both Sonnreich and Watts argued that a mandated minimum FIT is required, saying that without it, retailers will charge below the range IPART advise. Watt particularly raised the situation where today some retailers do not pay anything for the photovoltaic electricity fed back into the grid.

On this point IPART CEO and full-time committee member Jim Cox entered the debate. He countered that, in a deregulated electricity market, photovoltaic producers could simply sign with another electricity retailer.

Statewide debate

Cox’s argument, that market forces will see photovoltaic producers get the right price for the electricity they produce, was countered a little later by comments made by James Giblin, from Lake Macquarie City Council. He reminded the committee that choice over retailers is not always available in regional areas, which are often ideal for larger photovoltaic installations.

Giblin continued that installed photovoltaic cost reductions, through scale and competition, were no longer occurring in Lake Macquarie as of the 47 installers formerly in business, the majority of which are no longer trading.

Photovoltaic grid savings

In what appeared to be a win for the retailers, claims that photovoltaic capacity will lead to grid savings appear not to have eventuated in the NSW market. All the grid operators present said that they believed the additional photovoltaics increased grid costs rather than decreasing them.

Stakeholders have until 23 January, 2012, to make  submissions on the IPART draft report.

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