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Is the market putting the brakes on distributed solar exports?

In most states, electricity retailers determine and set their own rooftop solar feed-in tariffs (FITS). A major driver is the wholesale energy prices, which continue to decline midday. For more information, please refer to our previous Chart of the Week issue 76. As the solar weighted wholesale energy prices reduce or become negative, it reduces the benefit of rooftop solar feed-in for retailers and, in turn, reduces the solar FITS offered.

For example, the Victorian Essential Services Commission (ESC) sets the minimum solar FITS in Victoria. The ESC has reduced this from 12c/kWh in 2019-20 to 10.2 c/kWh in 2020-21 then to 6.7c/kWh in 2021-22, stating, “This fluctuation is primarily due to changes in the forecast wholesale electricity price”.

This week we compared the choice between installing rooftop solar with one of the big three retailer’s standard offers or switching to a lower-cost retailer without installing solar. We have then calculated the payback period of the solar install using the retailer savings as an opportunity cost. This means the adjusted payback only reflects the additional savings from installing solar.

To do this, we have used the Energy Made Easy website for standard offers and a 4 to 5+ person home. We have assumed the home is exporting 70% of its solar and is limited to 5 kW export.

Our chart shows there are substantial savings from simply switching retailer. Taking this into account in our adjusted solar payback period, we get on average 9.3 years in SA, 6.3 years in NSW, 9.2 years in Qld and 10.5 years in Vic. We have assumed 30% self-consumption for the solar-generated. The larger the self-consumption of solar, the better the payback period will be because of the avoided higher consumption tariffs.

This shows that the big three offer higher solar FITS but offset these with higher overall electricity charges. This causes an inflated return for solar. Hence consumers need to assess and compare the real benefits of solar based on the energy costs and solar FITS across multiple retailers. Overall, the payback period for exporting rooftop solar is decreasing as lower mid-day energy prices act as a market signal to reduce solar FITS. As this trend continues, it will encourage active self-consumption of rooftop solar through energy storage. This, combined with “solar sponge” network tariffs and VPPs, could slow rooftop solar for export, reducing the urgency for solar export charges/services proposed under the AEMC draft rule change ERC0311.

With support from government schemes such as the SA Home Battery Scheme and decreasing battery prices, it might not be long before we see strong growth in distributed energy storage. If this eventuates, distributed storage could play a key role in the NEM, contributing to system security, reliability and potentially reduce the scale of future network upgrades.

If you would like to learn more, please get in touch at enquiries@cornwall-insight.com.au or +61 417 203 630.