Good news for NSW solar customers?

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Regulator announces good news for NSW solar customers. It is good news, right?

Today, 1 May 2017, IPART - the Independent Pricing and Regulatory Tribunal in NSW - announced its proposed feed in tariffs for solar customers. And they’re going up!

Average solar feed in tariffs across retailers are in the range 6 to 12 c/kWh. IPART’s proposing a jump to a recommended range of 11.6 to 14.6 c/Wh.

Why? They’re stating three main reasons: increase in wholesale electricity prices, avoided losses and avoided market fees and ancillary charges.

A $29 million recommendation

There are 350,000 solar customers in NSW. For an average customer with a 3.5KW system and solar exports of 1,700 kWh per year, they’d earn an extra $85 per year if their retailer offered a 12 cents FiT instead of 7. That’s $29 million more in the pockets of NSW solar customers.

Of IPART’s three stated reasons for the increase, the rise in the cost of wholesale power accounts for 96% of it. That, therefore, is the start of the grey lining to this cloud, as retailers are likely to reflect these much higher wholesale energy costs when they update their prices on 1 July (well, all retailers bar one). Exports will create more value for solar customers, but imports from the grid will be more expensive. 

What did you just say?

Yes, higher feed in tariffs are mainly coming from higher grid costs. If a solar customer using 3,000 kWh from the grid saw their prices increase by 12% - let’s say from 23 cents/kWh to 25.76 cents - it would cost them an extra $83 per year, leaving them with a net benefit of just $2 (that’s the equivalent of about 7 minutes worth of coffee in the Energy Locals office).

This, of course, will rile solar customers and give them an even greater incentive to reduce their reliance on the grid. This is how death spirals work.

We 100% support IPART’s proposed increase in the FiT rate in NSW because it helps solar customers get a faster payback on their investment and will encourage more customers to install solar and reduce their reliance on the grid - something that’s completely aligned with our values.

Whether a solar customer truly achieves a net saving will depend on their circumstances.

Ways retailers will carry on as if nothing happened

There’s another thing to consider here: many retailers may be forced to adopt the new IPART FiT range, if only as a result of the negative public perception of not following a regulator’s recommendations. And we believe that for some of the larger retailers, the proposed IPART rates will be higher than the cost saving to the retailer of getting a ‘spare’ unit of energy from one of their solar customers.

What choices do those retailers have to maintain their current level of margin? Well believe they have three main options: take the hit on their margins (we rule this out as being highly unlikely - charitable thinking being rare amongst energy companies); add the lost margin to the other components of their solar customers’ tariffs (we believe this is also unlikely - in our experience, solar customers are really on top of their energy spend); or add the foregone margin to the tariffs of non-solar customers.

The power of little decimal points

The latter is the easiest option. Imagine a retailer in NSW with 100,000 solar customers and 600,000 non-solar customers, and they’re increasing their solar feed in tariff from 6 cents to 12 cents. That reduces their solar customer margin by $10.2 million. Spreading that across their non-solar customers means increasing their bills by another $17 per year. Assuming those customers use 5,500 kWh/year, that’s an extra 0.3 cents per unit that would need to be added to the rate. Decimal points soon add up.

Energy Locals doesn’t need to wrestle with these dilemmas. As our only income is from a fixed monthly per customer fee that’s included in our rates, we’ll always have rates that reflect our true cost base.

While we applaud a directive to offer solar customers a fairer deal and make it easier for new solar customers to get a short payback on their investment. But without introducing oversight to ensure that this doesn’t become a further tax on people who don’t have or can’t have solar, we fear that not everyone will do the right thing.