Vic solar, fed interventions show failure of energy policy
By Ben Potter & Angela MacDonald-Smith / AFR / 12 October 2018
Main image: Nationally about 206,000 households will add rooftop solar this year. Luis Enrique Ascui
Few of the 40,000 Victorian households that add an average 6 kilowatts of solar panels to their house each year would fret about their cumulative impact on the security of the electricity grid or on the power bills of those without rooftop PV.
But they may soon have to because the Australian Energy Market Operator and the distribution network owners can’t avoid the issue: Record growth of rooftop solar in Australia’s eastern states, alongside a 9000-megawatt wave of utility-scale wind and solar farms, is taking its toll on the grid.
Rooftop solar is booming in all states as households and businesses decide to take some control of their energy needs and install PV panels.
Panel prices have plummeted and households still receive an upfront subsidy under the federal Small-Scale Renewable Energy Scheme or SRES which can be worth a few thousand dollars.
“I sort of characterise the general state of affairs at the moment as being one of anarchy,” says Energy Security Board chair Kerry Schott. Jessica Hromas
A plan by Victoria’s Andrews government to accelerate the uptake to about 65,000 households a year for 10 years by adding its own financial incentive for homeowners who meet income and home value tests will add to pressure on the grid and may also crowd out some large-scale solar farm projects, the Financial Review National Energy Summit heard this week.
Nationally about 206,000 households will add rooftop solar this year, consultancy Sunwiz says. The Queensland, South Australian and ACT governments also offer crowd-pleasing home solar subsidies but SA and ACT have a greater focus on batteries as well.
This is a more pressing need because it can be used to store surplus solar power during the heat of the day to play back to the grid in the evening when the sun goes down and demand from solar households surges back onto the grid.
At least two investors told AFR WeekendVictoria’s plan – which includes a small home battery component – will make them less likely to invest in large-scale solar farms in the state, which goes to the polls on November 24.
Encouragement for batteries
Catherine Tanna: Rooftop solar systems may end up never paying for themselves as households would be selling power for zero dollars during the day and buying it back at much higher rates in the evening. Peter Braig
Audrey Zibelman, chief executive of AEMO, says she would prefer to see encouragement for batteries rather than solar panels so that solar power can evolve from being part of the problem of managing a rapidly changing grid to being part of the solution.
“It actually does hurt the stability of the grid. We’ve identified already in areas that we are worried about voltage and managing the voltage of the system, particularly in the mid-afternoon where there’s very low demand,” Zibelman told ABC Radio National this week.
Zibelman is concerned that the hollowing out of daytime demand on sunny days could force coal plants out before their scheduled retirements, exacerbating the problems in managing the grid and potentially resulting in the sort of price spikes seen after the closures of the Northern generator in South Australia and Hazelwood in Victoria. It was an issue also highlighted by Origin Energy boss Frank Calabria at the Summit this week.
“Free electricity” may sound great in theory but when the sun goes down consumers will be paying far more if “dispatchable” generation has been forced from the market, says Catherine Tanna, managing director of EnergyAustralia.
The Victorian subsidies illustrate the bigger problem of Australia’s uncoordinated approach to the transition to a lower-carbon energy supply system in the absence of an overarching national policy. dsdsadas
Rooftop solar systems may end up never paying for themselves as households would be selling power for zero dollars during the day and buying it back at much higher rates in the evening.
AEMO would like state governments with subsidy programs to also look at storage and incentives and requirements for individuals to participate in the electricity market.
“What I would like to see is during the afternoons when we have all this excess solar we use it to charge batteries and then in the evening when the sun sets we use those batteries to discharge and then help manage the grid,” Zibelman says.
Meanwhile, the Victorian government has launched a $50 per household handout – or “bill-busting bonus” – when a consumer goes onto a website this December half to compare its energy offer, even if they don’t end up switching.
The Victorian subsidies illustrate the bigger problem of Australia’s uncoordinated approach to the transition to a lower-carbon energy supply system in the absence of an overarching national policy.
After the failure of years of successive attempts to put in place a regulatory framework to guide the transition, the most recent version, the National Energy Guarantee, has also ended in tatters – although the reliability arm of the policy has being reprieved.
In its place have been piecemeal measures and interventions by federal and state government addressing just individual symptoms rather than the root causes of the problem.
“I sort of characterise the general state of affairs at the moment as being one of anarchy,” Energy Security Board chair Kerry Schott told the National Energy Summit. The already difficult transformation of the supply system has turned into “disruption central” and reactive government interventions are complicating things for investors.
Federal Energy Minister Angus Taylor is waving around a “big stick” and working on Australian Competition and Consumer Commission recommendations for default retail pricing, government underwriting of firm power supply capacity and penalties for “price-gouging”.
Canberra is also pressing on with feasibility studies on Snowy 2.0 – a $4 billion, 2000MW expansion of Snowy Hydro, and encouraging Hydro Tasmania’s even larger “Battery of the nation” project.
The states are proceeding with their own renewable energy target schemes in the absence of any federal will to target carbon-dioxide emissions reductions.
Ed McManus, chief executive of Meridian Energy Australia, says the big takeaways from the National Energy Summit are the need to solve for reliability, the need to solve where possible for price, and the need to get the settings right to encourage investment in low-carbon energy.
But he says piling these measures on top of the usual investment variables “makes it extremely difficult” to make decisions.
“Whenever you get intervention on top of intervention in the market, it gets harder and harder to make the case for investment in new generation.”
Rooftop solar installations are on track to hit about 1500MW this year, promoting calls from ACCC chairman Rod Sims to call for the SRES to be terminated in 2021. Others see no need to wait even that long.
Small-scale solar “is running faster than a freight train, it doesn’t need a subsidy any more,” says EnergyAustralia’s head of energy Mark Collette. “If you take that out that’s an instant bill saving for every consumer.”
Against that background, the Andrews government’s decision to add its own $1.25 billion rooftop solar fuel to the fire looks like a political measure rather than a defensible policy.
It aims to put new solar panels on 650,000 households over 10 years, and a separate policy will subsidise batteries for 10,000 homes.
“Just yesterday we have had a bunch of respondents back on the [proposed] solar farm and we are less likely to do one in Victoria now because of the Victorian government’s initiative,” says one renewable energy investor, who asks not to be named.
But another investor, Impact Investment Group, doesn’t think the additional 25,000 solar households to be added each year under the Victorian plan will make a material difference to the 40,000 annual rooftop solar additions it already factors into its modelling for new projects.
“We have modelled significant investment in rooftop solar,” Lane Crockett, Impact’s head of renewable investment, says. “I’d say from an investor’s point of view the lack of a federal policy is more of a risk to investment than rooftop solar incentives.” Impact has just commissioned a solar farm at Swan Hill.
Victorian energy minister Lily d’Ambrosio defended the plan staunchly on the sidelines of the National Energy Summit, saying states needed to help households take power into their own hands in the absence of federal policy.
“In a climate where we have so much policy uncertainty at a federal level, it is actually more vital than ever for governments and in particular state governments to demonstrate certainty and give confidence to consumers that we have got this, that we understand what needs to happen to get us from A to B,” d’Ambrosio says.
“It is part of giving confidence to the community, put real tangible opportunities for them to get power back in their hands and we say that unashamedly”.
EnergyAustralia boss Catherine Tanna laid out the task at hand, on which – Canberra aside – there is little disagreement: Reducing the country’s 70 per cent reliance on coal-fired generation to zero; eliminating over time the 430 million tonnes of carbon dioxide that electricity generation gives off each year; coming up with the $8 billion-$27 billion expected to be needed over the next 20 years to replacing old coal plants.
And all while reducing power prices and keeping the lights on as the equivalent of 14 Hazelwood power stations exit the system.
Dropping the focus on any one of the three mainstays towards affordable, reliable and cleaner power will see the three-legged stool topple over, she says. “The energy system breaks, and it breaks badly.”
She reflects a broader industry view that while Angus Taylor puts the emphasis exclusively on reliability and price – backed up by 57 recommendations from the competition watchdog – there’s a bigger task at hand to negotiate a smooth transition.
Hence the initiative led by the Business Council of Australia, revealed this week, to begin backroom talks about a self-regulated package of measures to set a pathway for emissions reductions. And a move by Tanna to get government, industry and the ACCC together in a room to nut out a way forward.
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