The feel-good benefits of the state’s investment in rooftop solar power could give way to political pain and higher costs.
The state government has made a decision to start cutting its losses on the tariffs for feed-in electricity for residential renewable power generation.
By slicing the rate it intends to pay new generators – mainly rooftop solar system owners – it is reducing the risk of a major cost blowout in the future and the damage this policy could inflict on other forms of renewable energy production.
Unfortunately, it was clearly too generous in the first place and, in trying to deflate this rooftop bubble slowly to avoid a political drama, it has not gone far enough.
The big irony is if Western Australia had waited just another six months it might have sensibly avoided this problem completely.
I know I’ve written a bit about this subject lately but the state budget papers and recent announcement on tariffs provided some new numbers which makes it worth exploring further.
The current scheme was only introduced in August last year, offering households 40 cents for every kilowatt hour exported to the grid after household consumption was accounted for.
WA was a latecomer to this party. Thankfully, it had learned from other states and adopted a net feed-in method rather than a gross tariff. NSW’s new Liberal government is discovering the painful price of inheriting a system that makes WA’s look mean by comparison.
Nevertheless, the 45,900 existing residential renewable electricity generators (predominantly rooftop solar) and those who sign up under a half-the-tariff rate from June 30 will cost the state a budgeted $114 million over the next four years.
This is what the state’s own economic regulator, Lyndon Rowe, calls middle-class welfare.
For the average household using a typical 1.5KW photovoltaic system the estimated cost to the government at this rate was about $200 a year in direct payments for electricity production. That is more than $9 million a year, and climbing.
But the real cost to the state was closer to $650 a year per household rooftop solar (more than $30 million a year at current numbers) if the lost revenue to government was included. At the July 1 tariff of 20.83c/KWh, the Office of Energy forecast the average household would save about $450 a year from their normal electricity bill (a total of $21 million a year at current user numbers and current electricity rates).
Even with the tariff being halved, this opportunity cost in lost revenue to the state will continue to rise as household electricity costs rise as budgeted – 5 per cent this year and next, then 12 per cent for each of the next two following years.
While that might look good for the minority of householders who could afford the capital outlay of rooftop solar, the saving does not translate in full to the government because it still has to have the generating capacity available at the flick of a switch for when the sun blankets the rooftop solar plant or when night time falls, as it does, at the end of every day.
The idea was that this set of incentives was meant to make the solar rooftop cost neutral over a period of 10 years. It allocated $23 million at the start of the scheme, knowing that there were at least 30,000 rooftop units in WA, some of which it had already subsidised through the Household Renewable Energy Scheme, which will continue costing the state – next year that will be $6.8 million alone.
In reality, it is nothing but a feel-good program which wrongly creates the impression a move to renewable energy is profitable.
And, worse, someone clearly got their numbers wrong because here we are just seven months later and the scheme is already being cut back savagely.
That is because rooftop solar costs have halved from the when the numbers were calculated. It is hard to imagine that that was not obvious in August last year when the scheme was launched.
The feed-in tariff for new rooftop solar generators from July 1 will be halved to 20 cents. That will create a rush on new systems over the next six weeks, which will cause havoc.
Solar installers will have a flood of demand, followed by a drought. A poor metaphor for a photovoltaic industry but we all know it is going to happen, and what the results of that chaos will be.
And read the fine print in the policy on the Office of Energy’s website. The forms have to be filled out correctly and processed in time, plus there’s a $40 non-refundable fee.
Through this process the government is trying to manage the future cost of rooftop solar, which it still expects to grow from a current 70MW of installed capacity to 150MW.
None of the above covers off on the other issue – the cost to the network, which this dispersed and inefficient electricity generation is creating. There is a straightforward cost of adapting and there is a more insidious problem – it may actually limit the grid’s capacity to absorb other, more efficient versions of renewable power produced by large-scale plants.
For example, with today’s technology 100MW of large-scale solar thermal power plant is estimated to cost about $400 million.
With little additional ongoing costs and no fuel expenses that’s not dissimilar to the cost of the rooftop solar we have already installed. The big difference is it is easier for the network to manage, potentially scalable and does not rely on continued subsidised rates over a 10-year period.
In fact, the view is this type of solar is increasingly becoming competitive with the most expensive forms of fossil fuel production – albeit only during the day when the sun shines.
If it is true that some renewable energy forms are closing in on the cost of traditional energy, we may well rue the day that we went for the feel-good factor when it comes to rooftop solar and did not avoid this expensive foray.
Let’s hope a future WA government is not left in the position of NSW Premier Barry O’Farrell who this week had to back down from his move to cut the gross feed-in tariff from 60c/KWh to 40c/KWh, still significantly more generous than this state’s current offer.
Mr O’Farrell learned what it was like to inherit bad policy and try to suddenly wean people off middle-class welfare. Despite backing down due to the furore, he appeared unrepentant.
“The one certainty is that the government still remains committed to reining in the costs of this misdesigned scheme by the Labor Party,” Mr O’Farrell said.