15/07/2019 - 12:58

Twisted outcomes on the grid

15/07/2019 - 12:58

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Uptake of rooftop solar is being severely distorted by a flawed pricing structure for electricity, forcing higher costs across the grid, according to one of Australia’s leading authorities on energy markets.

Twisted outcomes on the grid
There are about 280,000 rooftop solar systems in WA. Photo: Attila Csaszar

Uptake of rooftop solar is being severely distorted by a flawed pricing structure for electricity, forcing higher costs across the grid, according to one of Australia’s leading authorities on energy markets.

Speaking at the launch of a new energy market discussion paper authored by the Mannkal Economic Education Foundation last week, University of Western Australia academic Peter Hartley said prices paid by consumers did not properly reflect the fixed cost of operating the network.

Synergy’s basic home plan, the A1 tariff, charges about $1.03 per day as a connection fee, with an additional 28.8 cents for every kilowatt hour of power used.

The average household power bill in Western Australia is $340, according to Synergy, with the fixed cost component worth about $64.

That means less than 20 per cent of an average power bill is fixed.

But in reality, about 45 per cent of the cost of delivering power is operating the distribution network, while there are further fixed costs for building generators to underpin the system.

Professor Hartley, who was heavily involved in the commercialisation of the Victorian energy sector, said this pricing structure meant households installing solar panels would partly reduce their bills by saving on fixed costs.

The additional costs were then passed on to the rest of the network.

“When people do the calculation they compare the cost of the panel with the saving of the electricity they don’t have to buy,” he said.

“They look at the retail price.

“(That) includes not just the saving in (fuel) costs, it includes a bunch of capital costs.

“Because of the way we price electricity now, we take the fixed costs and we charge it as per unit of electricity taken.

“(Households installing solar) are not actually saving fixed costs.”

The impact of this is more significant than subsidies for solar installation, Professor Hartley said.

The Mannkal report additionally highlights the Tariff Equalisation Contribution, where metropolitan consumers subsidise users in regional areas.

That charge also encourages rooftop installations in the city by driving up retail costs for consumers.

Perversely, it discourages rooftop solar and battery installations in regions, where it would otherwise be more cost effective.

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