The benefits of solar do outweigh its costs. Some have a hard time accepting it.
Oh dear. Here we go again. The solar industry is clearly winning the battle to turn the global electricity industry upside down and inside out. The plunging cost of battery storage will accelerate that process. It’s just that some people have a hard time accepting it.
The latest big headlines are from the Grattan Institute, which wrote in a report that the economic costs of rooftop solar outweighed the benefits by $9bn. When you actually look at the numbers, they’re a witch’s brew of mistaken assumptions and omissions.
Let’s start with that $9bn figure. The Grattan argues that the cost of solar PV ($18bn) overwhelms the benefits ($9bn, mostly in avoided grid costs, and a little in avoided emissions). It further suggests that individual households are getting little bang for their buck from their individual systems.
The first thing it gets wrong is to base its numbers on the assumption that solar systems only last for 15 years. Most solar systems are likely to last 25, or even 30 years – some even more. So right at the start, the report has underestimated the benefits in avoided grid costs and abatement by at least 40%. That’s a critical number that delivers an entirely different outcome.
Then – like so many other reports – it adds up the costs but not all the benefits. In this case, to dismiss the lowering of wholesale electricity prices caused by the proliferation of solar PV, which, it argues, “does not constitute a net economic benefit to society”.
Instead, Grattan borrows terminology from the Warburton review to describe this lowering of wholesale prices as a short-term financial transfer from “existing generators to electricity retailers” who may then pass these savings onto consumers.
Well, it just happens that most of those existing generators and electricity retailers are one and the same entities hence the name “gentailers” – Origin Energy, AGL Energy, EnergyAustralia. If they are pocketing the profits, it’s the incumbents with their hand in the till, not the solar households, and a regulatory fault.
There is no doubt that wholesale prices have fallen. The Queensland government’s biggest coal generator, Stanwell Corp, blamed solar exclusively on its inability to deliver a profit result in 2013.
Green Energy Markets in late 2013 estimated the cost reduction from solar PV at $2.70/MWh. Spread over a year that amounts to $540m in savings, based on the 200TWh consumed in the National Electricity Market (NEM). Spread over the 15 years used in Grattan’s calculations, that amounts to $8bn.
But the University of Melbourne argued that the savings were even greater. It suggested that rooftop solar PV could be responsible for a reduction of $2-$4/MWh in average price per 1,000MW across the NEM. Given that there is now nearly 4,000MW of solar PV installed in the NEM (that doesn’t include Western Australia), then the savings per year could be $2bn. Over 15 years, that makes a total of $30bn.
Those falls in wholesale prices do find their ways through to the general market, It explains why some major energy users – data centres for banks for instance – pay a price of just 8c/kWh. That’s one quarter what the average household pays. The same experience can be said of Germany, which now delivers some of the lowest costs of electricity to big business, because of the fall in the wholesale price.
That cross subsidy, from homes to business, is just one of many that exist in the Australian market. Households bills are higher to offset the impact of the discounts given to business.
People in the city pay more to offset the cost of delivery to regional areas. In Queensland and Western Australia, this amounts to $600m a year in each state. Over 15 years, that’s a total of $18bn. If those subsidies were removed, there would be an incredibly powerful economic incentive to install solar, storage and micro-grids, as some networks suggest.
Then, of course, there is the cross-subsidy to those households using air-con, estimated at $330 a household, per year.
Another juicy but largely ignored subsidy is the so-called “head-room”. This is the kitty used by the retailers to offer “discounts”. In NSW, this amounts to around $140 per consumer – or a total of around $140m, just so the retailers can offer a discount to neighbours. Grattan says that the cross-subsidy in the various solar schemes amounts to $14bn.
Yes, those schemes, mostly wound back several years ago, were more expensive than they needed to be. Former Queensland premier Campbell Newman doubled the cost of the most expensive scheme, the Queensland feed in tariffs, by giving six weeks notice of its closure, inviting tens of thousands to join at the last minute.
The Australian PV Institute says the report does not take into account the fact that all distribution network operators (DNSPs), apart from in Queensland, operate under a weighted average price cap (WAPC). This means that the fall in revenue driven by reduced electricity use is actually borne by the DNSPs, not by customers as Grattan says. This applies to $3.7bn of their costs to customers.
The benefits of some of those subsidies, the small scale renewable scheme, went to the retailers, not solar consumers, because they were allowed by all pricing regulators (with the notable exception of the ACT) to charge $40 for every certificate even when the market price was little more than half.
Grattan goes on to talk of the cost of network upgrades. This again is one sided. As SA Power Networks has said, solar PV has not only shifted, narrowed and capped the peaks (the same has happened in Western Australia), it has also added stability to the grid in the summer heatwaves. EnergyAustralia says solar PV accounts for 25% of demand at peak times, which in any case variously enormously from summer to winter, north to south, and east to west.
Grattan takes a similarly narrow view in its estimate of emissions abatement costs. It puts it at $170/tonne of avoid emissions. Again, this ignores the true life of the solar systems, and the fact that three times as many systems will now be deployed in Australia, with few if any subsidies.
And that forms part of the broader benefits not included in the Grattan report. Yes, initial subsidies were more expensive than they needed to be, but Australia now has the cheapest solar PV anywhere in the world, and the reductions in the wholesale price and the emissions abatement will continue.
That benefit will be amplified when battery storage becomes available – as it will do in a matter of weeks when AGL Energy rolls out a plan to put them on customer rooftops at no upfront cost (apart from signing up for a very long power purchase agreement).
As Muriel Wait, from the APVI, told RenewEconomy:
“All the supposed negative impacts on the network, if they exist, are likely to be reversed when batteries come in, and PV households will be the first to install them, potentially making the grid much stronger, if the utilities provide the right incentives.
Why not have headlines which say the investment people have made in PV is soon to provide billions in benefits to all consumers, because adding storage provides a much more resilient power system?”
That’s the crunch. When this happens, solar PV, with battery storage, will be even more effective in reducing or even eliminating the peaks. So much so, that some analysts say that the business case for peaking gas generators – the equipment we usually use at great cost when everyone switches on their air-con at the same time – will lose their economic base.
The headline numbers in the Grattan report are little more than scare mongering. And the industry, one hopes, has moved on. The signs are already good. Network operators talk of a future dominated by solar and micro-grids. Even the retailers are getting on board.
Where once AGL energy demonised solar tariffs as a “scam”, it is now offering to buy a solar system for its customers and stick it on their roof. AGL will even buy you a battery system. Where once Origin once called solar households “free riders”, implying they were stealing from their neighbours, now they are urging customers to use their rooftops to “steal from the sun.”
Solar has won. It’s just that some people don’t know it yet.